Treatment of GST already paid on Advance amount which is refunded subsequently

Recently the government has issued a circular no. 137/07/2020-GST dated 13 April 2020 vide which government has clarified various issues. One of issue clarified by the circular is reproduced below: –

Sr. No. Issue Clarification
2 An advance is received by a supplier for a Service contract which got cancelled subsequently. The supplier has issued receipt voucher and paid the GST on such advance received. Whether he can claim refund of tax paid on advance or he is required to adjust his tax liability in his returns? In case GST is paid by the supplier on advances received for an event which got cancelled subsequently and for which no invoice has been issued in terms of section 31 (2) of the CGST Act, he is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules.

The taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”.

It is evident from the above that circular is silent about the procedure for adjusting the tax liability (in respect of tax attributable to advance amount refunded) through regular GST returns i.e. GSTR-3B. Now the following question arise for consideration: –

Whether registered person, who has paid GST on receipt of advance amount, cannot adjust the same against his tax liability in his return when whole of the advance amount is refunded?

In this regard, our analysis is as follows: –

(i) A registered person is required to pay GST on receipt of advance amount towards supply of services and required to issue receipt voucher. There is no requirement to pay GST on receipt of advance amount towards supply of goods since the same is exempted vide CGST (Non- Rate) notification no. 66/2017 dated 15 November 2017.

(ii) As per section 31(3)(e) of CGST Act 2017 when such advance amount is refunded since no supply is made and no tax invoice is issued in pursuance thereof then registered person is required to issue refund voucher to the person who has made advance payment.

It is pertinent to note here that there is no provision in GST law which debar a registered person from adjusting GST liability in respect of advance amount refunded through regular GST returns. In fact the statue indicates that GST amount paid on advance amount, which is refunded subsequently, can be adjusted through regular GST returns. In this regard reliance is placed upon the table number 9 of GSTR-1 form notified vide CGST Rules 2017. Table 9 of GSTR-1 is reproduced below: –

Details of original document
Revised details of document or details of original Debit/Credit Notes or refund vouchers
Rate
Taxable Value
Amount
Place of supply
GSTIN
Inv. No.
Inv. Date
GSTIN
Invoice
Shipping bill
Value
IGST
CGST
State/ UT Tax
Cess
No.
Date
No.
Date
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
9A. If the invoice/Shipping bill details furnished earlier were incorrect
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9B. Debit Notes/Credit Notes/Refund voucher [original]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9C. Debit Notes/Credit Notes/Refund voucher [amendments thereof]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(emphasis supplied)

It is evident from above (table 9B) that similar to tax adjustment in respect of ‘Debit Notes’ and/or ‘Credit Notes’ through regular GST returns, the same is also allowed in respect of ‘Refund Voucher’. Hence, there is no bar in GST law which allows only filing of refund claim in respect of GST paid on advance amount which is subsequently refunded. Refund can be filed by the registered person if registered person is unable to adjust the same against his output liability. Thus, following conclusions can be made: –

(i) Registered person, who has paid GST on receipt of advance amount, can adjust the said GST amount against his tax liability through his regular GST return i.e. GSTR-3B when whole of the advance amount is refunded.

(ii) Circular explaining only one way of tax adjustment in respect of refund voucher is not consistent with the provisions of the law. Hence the same is ultra virusthe GST law to that extent.

Conclusion

It is appreciated that CBIC issues circular frequently to clarify the various issues pertaining to GST. The said clarifications bring consistency in application of law and certainty to stakeholders. However, clarification in circular should be consistent with the provision of law. Clarification in circular which is against the spirit of law unnecessary troubles the stakeholders and increase the litigation. In absence of any further clarifications, field formations will interpret the circular literally and will dispute the adjustment of GST paid on advance amount through GSTR-3B. Thus it is requested from CBIC that suitable modification should be made in above circular to avoid unnecessary litigation.

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