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

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: –

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: –

(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.