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Discover how to claim refunds for excess credit balance in the electronic credit ledger under GST. Explore situations and due dates for refund applications.

Situations under which the refund of excess credit balance available in the electronic credit ledger can be claimed.

Even after 5 years of implementation of the GST. The claiming of ITC accumulated under the Electronic Credit Ledger is still a mystery for many. The majority of the registered persons have got substantial balance lying in the Electronic Credit Ledger and are not even aware of the situation under which the refund application can be filed. In this article, a small attempt is made to understand under which all circumstances the refund of the electronic credit ledger can be claimed by the registered person. Before going into the details let’s understand why the excess ITC accumulates in the electronic credit ledger.

The accumulation of the excess ITC in ECL (Electronic Credit ledger) may be on account of timing difference and permanent difference.

Reasons for timing difference:

1. Huge capital expenditure leading to huge amount of accumulation of Input tax Credit (ITC). (No refund allowed)

2. The purchase of inputs (raw material etc) is very high in comparison to sales. (No refund allowed)

Reasons for permanent difference:

1. Inverted duty structure (i.e rate of GST on Inputs are higher than that on output) [Refund allowed u/s 54(3), Rule 89(5)]. :- This type of situation arises mainly in the following cases

i. manufacturers (registered persons whose final product is different from that of inputs) whose inputs are taxed at multiple rates and output is taxed at a single rate.

ii.  Deemed owners

(Provided that the goods do not fall with the ambit of the Notification No. 05/2017 – CTR)

2. Export of goods and services under bond or Letter of undertaking (LUT), without payment of IGST [Refund allowed u/s 54(3), Rule 89(4)]

3. Supply of goods or services or both to SEZ developer or a SEZ unit. [Refund allowed u/s 54(3), Rule 89(4)]

4. Sale price is lower than the purchase price (e.g Kerosene Oil for PDS, LPG for domestic use etc). (No refund allowed, however ITC need not be surrendered).

As now we have understood to reasons why the balance in the electronic credit ledger accumulates, we shall now deal with the due dates of filing refund applications in the following cases.

i. With respect to the refund arising due to situation “1”, for export of goods &”3” – The due date of the refund application shall be two years from the due date of filing GSTR-3B.

ii. With respect to the refund arising due to situation “2” (for export of services) – The due date of the refund application shall be 2 years from the date of receipt of payment or raising of invoice.

It is always advisable for the registered persons (other than traders who are not supplying the goods to SEZ or in the process of exporting the goods) to verify from a professional whether he is eligible to claim the refund or not. Further, it is very important to note that the refund has to be applied as per Rule 89 & Circular No. 125, if the said refund is not applied as per the said rule and the circular and within the due date then the said refund application would be rejected thereby resulting in unnecessary blockage of funds.


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June 2024