RFD-03 Deficiency Memo – A way to Hold GST Refund Claim?

Here in this article, we will talk about issuance of Deficiency memo issued by the department after preliminary verification of the refund claim filed ; remedy available with the applicant after the issuance of memo etc.

Relevant Legal Provision:

“Rule 90(3)-Where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03 through the common portal electronically, requiring him to file a fresh refund application after rectification of such deficiencies”

“Rule 92(3)-Where the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a notice in FORM GST RFD-08 to the applicant, requiring him to furnish a reply in FORM GST RFD-09 within a period of fifteen days of the receipt of such notice and after considering the reply, make an order in FORM GST RFD-06 sanctioning the amount of refund in whole or part, or rejecting the said refund claim and the said order shall be made available to the applicant electronically and the provisions of sub-rule (1) shall, mutatis mutandis, apply to the extent refund is allowed”

A registered person claiming a refund claim needs to file refund application within two years from relevant date in accordance with the provision of section 54 read with Rule 89 of the CGST Rules 2017. After filing the refund claim other than refund claim of electronic cash ledger, refund authority has 15 days’ time to scrutinize its completeness. If the said application is found to be complete in terms of Rule 89(2), (3), (4) of the CGST Rules 2017, acknowledgment needs to be given in FORM RFD-02 indicating the date of filing the application. However, if any deficiencies are noted by the proper officer he has two option:

1. Issuance of Deficiency memo RFD-03: In this case, applicant has to file fresh application after rectification of deficiencies. After issuance of RFD-03, the applicant can rectify the deficiencies only by way of filing the fresh application; there is no other way out.
2. Issuance of Notice for rejection of Refund claim RFD-08: After appropriate processing, if a part or whole of the refund is inadmissible the GST Officer will issue RFD-08. It is basically issued on the rejection of the application of refund. It is basically a Show cause Notice to show cause why the refund claim to the extent of inadmissible should not be rejected within 15 days from the service of Notice. A taxpayer who receives the notice in RFD-08 has to reply to it in RFD-09 along with the documents as requested in the notice. In this case, taxpayers does not need to file fresh application for rectify the deficiencies.

Analysis:

In view of the above provision, if the refund application is not as per the satisfaction of the proper officer and certain discrepancies are found due to procedural lapse, the proper can shall issue deficiency memo in RFD-03 within 15 days and request to file fresh application.

It is pertinent to analyze the relevant extract of the Circular No 125/44/2019-GST dated 18th November 2019 issued by CBIC in this connection, which is stated contrary to above rule, which states as follows;

“deficiency memo gets issued in respect of any refund application, then the resubmitted refund application, after correction of deficiencies, shall be treated as fresh refund application and it is also clarified that since a refund application filed after correction of deficiency is treated as a fresh refund application, such a rectified refund application, submitted after correction of deficiencies, shall also have to be submitted within 2 years of the relevant date, as defined in the explanation after sub-section (14) of section 54 of the CGST Act.”

There might be a situation where applicant file refund claim in the last week or day of the due date. In that scenario, rectification of deficiency memo would result in filing the fresh application after the due date. If such a scenario takes place, filing the fresh application after rectifying the deficiencies makes the application time-barred and provides opportunity to the refund authority to hold the refund claim until get settled in the higher forum as this is procedural lapse. It is settled position in law that procedural lapse cannot take away the substantive benefit.

It is important to note that, though the Rule 90(3) of the CGST Rules 2017 request for filing of fresh application in case of deficiency memo, but nowhere mention either old application is invalid/rejected, or calculation of the relevant date shall be made from the resubmission of the fresh application. Further, rejection of refund claim by deficiency memo makes the rule 92(3) unwarranted which says rejection of refund claim shall be made through FORM RFD-08.

Further, By conjoint reading of the provisions of Rule 92(3) and relevant extract of the circular, it is pertinent to mention that rejection of refund claim by deficiency memo as stated in the Circular No 125/44/2019-GST dated 18th November 2019, makes the Rule 92(3) unwarranted or redundant which says contradictory to aforesaid circular that any rejection of claims shall be made through an order in Form RFD-06 as filing the fresh application tantamount to rejection of previous application filed. Moreover,  it is settled principle that if circular is contrary to the statutory/legal  provisions has really no existence in law as held by Hon’ble Supreme Court in case of Commissioner vs Ratan Melting & Wire Industries -2008 (10) TMI 5 – Supreme Court.

Furthermore, even for the sake of argument but not admitting at all that the fresh refund claim application shall also have to be submitted within 2 years from the relevant date. Then what about the applications that was filed in the last week of due date and deficiency memo in respect of same has been issued after the due date. Such a scenario left the appellant with no choice and in any way the application become time barred which is not at all sustainable as per GST Law. It tantamount to rejecting the application for refund without giving an opportunity of being heard which again makes Rule 92(3) unwarranted. Moreover, submission of refund application as prescribed in the Circular application is procedural and directory and same cannot affect the substantive right of the registered taxpayer to get refund.

In the pre-GST Era, there is plethora of judgements where it was decided by Hon’ble High Court and Hon’ble Tribunal that the time limit of due date shall be calculated from the initial date of application filled and not after filed rectifying the errors mentioned in the deficiency memo.

In this connection, reliance is placed in the case of A.P.Pager Mills Ltd 1991 (54) E.L.T 293, while passing an order Tribunal has taken a view that if the refund claim has not been filed on proper form or without necessary documents the Department can direct the appellants to file the same in proper prescribed from along with supporting documents but as far as the time for filing the refund claim is concerned, it has to be considered from the date the refund claim was filed initially in the form not prescribed or without documents. Relying on the above decision, Hon’ble High Court of Delhi in case of COMMISSIONER OF C. EX., DELHI Versus ARYA EXPORTS AND INDUSTRIES 2005 (192) E.L.T. 89 (Del.) held that Refund claim not to be denied merely on ground that same was not filed in prescribed form, if refund claim not filed in proper form or without necessary documents, department can direct appellant to file the same in proper form along with supporting documents, but date of filing claim is the date on which claim was filed initially in form not prescribed or without documents.

Department must have to issue necessary clarification in respect of the above.

However, in terms of Notification No. 15/2021- Central Tax dated 18-05-2021, CBIC has inserted a proviso under Rule 90(3) of the CGST Rules, 2017 as-

“(ii) in rule 90, –

(a) in sub-rule (3),

the following proviso shall be inserted, –

“Provided that the time period, from the date of filing of the refund claim in FORM GST RFD-01 till the date of communication of the deficiencies in FORM GST RFD-03 by the proper officer, shall be excluded from the period of two years as specified under sub-section (1) of Section 54, in respect of any such fresh refund claim filed by the applicant after rectification of the deficiencies.”;

It means if a fresh application is filed after the rejection of the old application, the time period from the date of filing of original application to the date of issuance of deficiency memo shall be excluded while computing the time period of 2 years from the relevant date. The fresh application shall be deemed to have been filed on the same date on which the first application was filed.

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(Republished with Amendments)