Simplified GST Series- Refunds- Section 54/CGST ACT 2017

Refund under GST in simplified manner –Part -1

Section 54 – Refund of tax

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.

Analysis- Who can apply for claim??

Section 54(1) states that –

-any person

who has paid any tax and interest, if any, paid on such tax or any other amount

– can apply for the claim of such tax, interest (if any) or other amount so paid.

– Application for refund shall be made before the expiry of two years from the relevant date .The definition of relevant date will be discussed later in my article. The time limit of TWO YEARS does not apply to the claim application filed for the reason of excess balance in the electronic cash ledger.

 -In case of taxable person claiming refund of any balance in the electronic cash ledger, it can be claimed in the return furnished under section 39.

(2) A specialized agency of United Nations Organization or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries or any other person or class of persons, as notified under section 55, entitled to a refund of tax paid by it on inward supplies of goods or services or both, may make an application for such refund, in such form and manner as may be prescribed, before the expiry of six months from the last day of the quarter in which such supply was received . 

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period:

Provided that no refund of unutilized input tax credit shall be allowed in cases other than-

(i) Zero rated supplies made without payment of tax

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies(other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

Analysis- Following persons are entitled to a refund of tax paid by it on inward supplies of goods or services or both –

(a) A specialized agency of the United Nations Organization or

(b) Any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947,

(c) Consulate or Embassy of foreign countries or

(d) Any other person or class of persons as notified under section 55.

Such agencies may make an application for refund, in such specified form and manner as may be prescribed within six months from the end of the quarter in which such supply was received. (Vide Notification No. 20/2018 – Central Tax dated 28thMarch, 2018, the Government has extended the time limit from six months from the end of the quarter to eighteen months from the last date of the quarter in which such supply was received)

  • Refund of the unutilized input tax credit can be claimed at the end of any tax period in the following cases:

a. Zero rated supplies (without payment of IGST)against LUT/Bond u/r. 96A read with S. 16(3)(a) of IGST

b. If rate of tax on inputs is higher than the rate of tax on outputs not being nil rated or fully exempt supplies

  • Refund on zero rated supplies is also not eligible in the following cases:

(a) If the goods exported out of India are subject to export duty;

(b) If supplier claims refund of output tax paid under IGST Act.

(c) If the supplier avails duty drawback of IGST/CGST on such supplies.

(4) The application shall be accompanied by—

(a) such documentary evidence as may be prescribed to establish that a refund is due to the applicant; and

(b) such documentary or other evidence (including the documents referred to in section 33) as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person:

Provided that where the amount claimed as refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a declaration, based on the documentary or other evidences available with him, certifying that the incidence of such tax and interest had not been passed on to any other person.

Analysis- The application for refund should be accompanied by the documents which clearly establish that refund is due to applicant. These documents are prescribed by Rule 89(2).

  • The applicant is required to furnish documents and other evidences to establish that

(a) Amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from him or (e.g. Purchase Invoices, Electronic Credit ledger, Returns )OR

(b) Amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was paid by him or (e.g. Sale Invoices, Electronic Cash Ledger, Challans for payment of tax, returns offsetting liability etc.)

  • The applicant is also required to establish with the help of documentary and other evidence that the incidence of such tax and interest had not been passed on to any other person.
  • If the amount of refund claim is less than rupees 2 lakh, it shall not be necessary for the applicant to furnish any documentary and other evidences bust self-declaration based on documentary and other evidences available with the claimant, certifying that he has not passed on the incidence of such tax and interest would suffice to claim refund.

(5) If, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund referred to in section 57. 

(6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety percent of the total amount so claimed, excluding the amount of input tax credit provisionally accepted, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant. 

(7) The proper officer shall issue the order under sub-section (5) within sixty days from the date of receipt of application complete in all respects. 

(8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to–

(a) refund of tax paid on zero rated supplies for export  of goods or services or both or on inputs or input services used in making such zero rated supplies for exports;

(b) refund of unutilized input tax credit under sub-section (3);

(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(d) refund of tax in pursuance of section 77;

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or

(f) the tax or interest borne by such other class of applicants as the Government may, on the recommendation of the Council, by notification, specify.

Analysis-  The refund relating to an application if found complete in all respects, will be sanctioned within sixty days from the date of receipt of application.

> The refund will be sanctioned to the claimant, in the following cases –

  • Refund of tax paid on export of goods or services or both.
  • Refund of tax on inputs or input services used in making exports.
  • Refund of unutilized input tax credit accumulated on account of inverted duty structure;
  • the tax / interest / other amounts paid by the applicant, if he had not passed on the incidence of tax to any other person; or
  • Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued or where a refund voucher has been issued.
  • Refund of tax in pursuance of section 77 which means a registered person who has paid CGST and SGST/UTGST on a transaction considered by him as INTRA-STATE supply but held to be INTER-STATE supply;
  • the tax or interest borne by notified class of applicants (done by Central/State Government on the recommendation of the council);

> In case of refund claimed is on account of zero rated supply of goods and/or services, the proper officer may refund, on provisional basis, ninety percent of the total amount claimed (excluding input tax credit not yet finalized). This refund of 90% will be on a provisional basis, and will be subject to conditions, limitations and safeguards. Remaining 10% may be refunded after due verification of documents furnished by the applicant.

Note: As per Rule 91, provisional refund shall be granted subject to the condition that the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an erstwhile law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.

(8A) The Government may disburse the refund of the State tax in such manner as may be prescribed. 

(9) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provisions of this Act or the rules made there under or in any other law for the time being in force, no refund shall be made except in accordance with the provisions of sub-section (8). 

(10) Where any refund is due under sub-section (3) to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may-

(a) Withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be;

(b) Deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law. 

(11)Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is l   likely to adversely affect the revenue in the said appeal or other proceeding on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine. 

Analysis- The refunds mentioned in subsection (8) shall be paid to the applicant and shall not go to consumer welfare fund irrespective of the fact there is contrary

(a) Judgment, Decree, Order or direction of appellate Tribunal or any court

(b) Provision in the CGST Act

(c) Rule made under CGST Act

(d) Law for the time being in force

It is important for applicant to establish that his refund application falls under any of above categories.

√ Drawback allowed for certain duties/taxes

A supplier availing of drawback only with respect to basic customs duty shall be eligible for refund of unutilized input tax credit of central tax/State tax/Union territory tax/integrated tax/compensation cess under the said provision. It is further clarified that refund of eligible credit on account of State tax shall be available even if the supplier of goods or services or both has availed of drawback in respect of central tax. [Circular 37/11/2018 dated 15-03-2018) 

  • In case of claim of refund of accumulated unutilized input tax credit for zero rated supply or inverted duty rate, the refund due will be either withheld or deducted in cases where –
  • A person defaults in furnishing any return;
  • A person is required to pay any tax, interest or penalty ordered, which is not stayed by Court or Appellate Authority within the last date for filing an appeal under this act.

The deduction from refund due may be tax, interest, penalty, fee or any other amount which remains unpaid under

(a) GST Act or

(b) Erstwhile law.

In cases where the refund is a consequence of an order and such order is in –

  • appeal; or
  • further proceeding; or
  • Where any other proceeding under this Act is pending

And the Commissioner is of the opinion that grant of refund would affect the revenue adversely in the appeal or proceeding on account of malfeasance or fraud committed, the Commissioner may withhold the refund till such time as it may be determined. This can be done only after affording the taxable person an opportunity of being heard.

(12) Where a refund is withheld under sub-section (11), the taxable person shall, notwithstanding anything contained in section 56, be entitled to interest at such rate not exceeding six per cent as may be notified on the recommendations of the Council, if as a result of the appeal or further proceedings he becomes entitled to refund.

(13) Notwithstanding anything to the contrary contained in this section, the amount of advance tax deposited by a casual taxable person or a non-resident taxable person under sub-section (2) of section 27, shall not be refunded unless such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39. 

(14) Notwithstanding anything contained in this section, no refund under sub-section (5) or sub-section (6) shall be paid to an applicant, if the amount is less than one thousand rupees 

Analysis-

  • The Government vide Notification No. 13/2017- Central Tax dated 28-06-2017 has prescribed, on the recommendation of the Council, 6% as the rate of interest for a refund withheld under sub-section (11) of section 54.
  • The amount of advance tax deposited by a casual taxable person or a non-resident taxable person at the time of taking registration would be refunded only after furnishing all the returns required under section 39, of the entire period for which the certificate of registration granted to him had remained in force.
  • No refund shall be granted or paid to an applicant or consumer welfare fund, whether it is final refund or provisional refund (provisional refund is granted in case of refund of unutilized ITC against zero rated supplies) if the amount is less than rupees one thousand. As per Para 8.2 of Circular 59/2018 dated 4-9-18, limit of rupees one thousand shall be applied for each tax head separately and not cumulatively. The limit would not apply in cases of refund of excess balance in the electronic cash ledger. Officers have been directed to reject claims of refund from the electronic credit ledger for less than one thousand rupees and re credit such amount by issuing an order in FORM GST RFD-01B.
  • Relevant date- The relevant date is crucial to determine the time within which the refund claim has to be filed. If the refund claim is made after the relevant date, the refund claim would be rejected and there is no provision in the Act to condone the delay in filing refund claim and accept delayed refund claims.
Situation of refund 2 years from the Relevant Date as under
On account of excess payment Date of payment of tax
On account of Export of Goods by Sea or Air Date on which Ship or Air craft in which goods are loaded, leaves India
On account of Export of Goods by Land Date on which goods pass the customs frontiers of India
On account of Export of Goods by post Date of despatch of goods by post office concerned to a place outside India.
On account of Export of Services before payment Date of receipt of convertible foreign exchange or India rupees, where permitted by RBI
Export of service against advance payment Date of issue of invoice
On account of deemed exports Date of filing return
On account of finalization of provisional assessment Date of the adjustment of the tax after the final assessment.
In pursuance of an order in favour of the taxpayer by the Appellate Authority/ Appellate Tribunal / Court Date of communication of the judgement/order/direction
On account of accumulated unutilised input tax credit of GST under inverted duty Due date of furnishing of return for the period in which claim for refund arises
Claim of refund by a person not being a supplier, [e.g. UIN Holder or recipient claiming refund for deemed exports u/R 89(1) clause(a) to 3rd Proviso] Date of receipt of goods or services by such person or UIN holder
Claim of refund by a Casual/Non-resident taxable person Relevant date is Date of payment of tax. But refund to be claimed in last return to be furnished by casual/ non-resident taxable person

I have discussed today only basic provisions but other important points related to refund like manner of filling refund , rules relating to refund etc in my next article-Part -2 –Refund of Tax –‘’As small chunks of knowledge every day easy to digest’’ 

The author can be reached at mamta0581@gmail.com.

Also Read- Refund of tax (GST) | Section 54 | CGST Act 2017 | Part -2

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