Section 77 of CGST Act, 2017 and Section 19 of IGST Act, 2017 replayed and redefined

There are doubts circulating whether or not time limit of two years under Sec 54 of the Act will apply to refunds claimed under Sec 77/19 of CG/IGSTA.

Let’s replay below the sections concerned for ease of ready reference:

Tax wrongfully collected and paid to Central Government or State Government.

77. (1) A registered person who has paid the Central tax and State tax or, as the case may be, the central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the central tax and the Union territory tax payable.

Similarly, Section 19 of the IGST Act is also reproduced below –

Tax wrongfully collected and paid to Central Government or State Government.

19. (1) A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.

Sections 77/19 of CG/IG STA if you read them closely, are both titled the same way as ‘Tax wrongfully collected and paid to the Central Government or State Government’.

 They are therefore, all about a tax payer due to his misconception of the nature of tax to be paid on a taxable supply, namely inter-state tax ends up paying intra-state tax and vice versa.

The above misconceptions consist of the tax payer’s mistake of paying the wrong type of tax and consequently collecting the wrong type of tax from the recipient of supply as well.

Sections 77/19 both seek to remedy the above described mistake committed by the tax payer due to his inadvertence, by giving him a chance to revisit the transaction all over again and pay afresh the right type of tax due on the original supply made by him and claim the wrongfully paid tax back as refund.

The wording used in the Sections as the tax paid when held to be wrong, is more in the nature of self-ascertainment or self-compliance on being pointed out by the department, rather than by a formal process of demand and recovery.

It would thus appear to be precisely the reason for not bringing in the demand/interest/recovery provisions into play as the entire transaction is considered one of a procedural error and voluntary compliance rather than an offence attracting any action under the Acts.

On a careful reading of Sec 77/19 one finds that the said mistake does not attract any interest and that is good enough reason to conclude that no demand or any penal action seem to flow from the Act for the said technical aberration.

We are only now fetched up with the main point of our discussion itself  i.e whether refund of the tax paid under the wrong tax head by the supplier would attract any

a) Time limit under Sec 54 of the Act read with rule 89 of the rules

b) Other regulations under Sec 54 read with rule 89ibid.

Section 54(8) (d) covers refund of tax in pursuance of section 77. Sec 20 of the IGST, Act by virtue of borrowing provisions of refund under the CGST Act, refund of tax in pursuance of Sec 19 of the IGST Act, 2017 would also get covered therein.

Interestingly, rule 89(2) of the CGST Rules begins as below:

 The application under sub-rule (1) shall be accompanied by any of the following evidences in Annexure 1 in Form GST RFD-01, as applicable, to establish that a refund is due to the applicant, namely…”

Clause (j) to rule 89(2) reads – ‘a statement showing the details of transactions considered as intra-State supply but which is subsequently held to be inter-State supply’.

Application in Form GST RFD-01, vide Sr.no. 7(j) too makes a mention of the same.

The important point that comes up here is that Sec 54, the governing provision of all refunds under the Act except Sec 55 refunds, bears a reference to Sec 77 under Sub-section (8)(d) as refund of tax in pursuance of Sec 77.

The very mention of Sec 77 refunds under Sec 54(8)(d) can mean no more than the dispensing of the proof of unjust enrichment is one view while the other view is that it does not automatically imply the application of all other provisions of Sec 54 and rule 89 lock stock and barrel to Sec 77 refunds, unless specifically spelt out.

Sec 54 and rule 89 has different sub-provisions to deal with an array of cases expecting each case to meet with different requirements and hence it can’t be said to apply mutatis mutandis to all cases if unspecified.

To substantiate the above stand, reliance may be made on Sections 10(5), 21, 35(6) & 129(2) of the CGST, where provisions of certain other sections have been made applicable to them mutatis mutandis. Therefore, the provisions which are not there cannot be called to one’s rescue as such interpretation may lead to unnecessary litigation.

It is equally imperative to clearly rule out here any argument that the said wrongfully collected and paid tax, even by the remotest chance can be described as taxes collected without the authority of Law as laid down under Article 265 of the Constitution, as some experts may be tempted to think to overcome the limitation aspect of the refund.

To secure a rightful claim of a refund, one need not think up a wrong route is the humble view of the author, in this matter.

The mention of Sec 77 under Sec 54(8) (d) of the Act is to principally skip the unjust enrichment test, as a deposit of the same to the Fund account is excluded and a cash refund is provided in its place, instead.

The next point that could possibly come up in favor of the other conditions of Sec 54 read with rule 89 required to be imposed on a Sec 77/19 refund, is that all refunds except Sec 55 refunds are in their entirety covered by all the conditions of the above provisions, in all cases.

The answer to the above point by the author, is that except for routing of the refund claim under Sec 54 and the exception of the unjust enrichment test and the production of a statement showing the details of transactions considered as intra-State supply but which is subsequently held to be inter-State supply as per clause (j) of rule 89(2), no other conditions of either the said Section or rule will apply.

The purposive silence of the enactments of time with reference to Sec 77/19 refunds can’t be taken undue advantage and any other view contrary to the above being forcibly read into the provisions does not go down well with the underlying circumstances of the claim discussed Supra.

Further, the extenuating condition of a fresh deposit of the right type of tax  for the original supply allowed to be made without attraction of any interest as per Sub-section(2) of Section 77/19, holds the key to the entire issue of the time aspect in the subject refund matter, as per the author.

If one calls to the rescue Sec 73 of the Act to hold such collection and payment of tax as wrongful by raising a demand under it, then one will be inviting the danger of time bar of 3 years as well.

It is therefore devised in such a manner that all time for ascertainment and collection of such wrongful collection and deposit of tax with the governments and as also refunds against fresh deposit of tax, are all prospective to keep it a win-win proposition for both the Government and the tax payer alike.

Even as a fresh deposit of tax is allowed to be made against the original supply by equating it to a fresh supply, the refund must also be granted in the same way without any time limit is the humble view of the author.

The tax paid on the original supply to be held coterminous with the date of preferring of the refund claim under Sec 77/19 which then allows the sanctioning authority to overlook the relevant date as per the residual clause (h) of Explanation 2 to Sec 54 of the Act.

Wishing the New Year 2021 to bear good tidings for all the readers and Businesses please!

Author Bio

Qualification: LL.B / Advocate
Company: RANK Associates,Chennai
Location: CHENNAI, Tamil Nadu, IN
Member Since: 15 Dec 2020 | Total Posts: 4
Author was formerly with the IRS. He writes regularly on Indirect Tax Laws, Macro Economics and General Laws. He is a senior Guest Faculty at NACEN, Chennai and a CBIC Master Trainer of GST. He has trained a large number officers of the Center and State Tax Departments.He has a long association with View Full Profile

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