Introduction
Timely refund
mechanism is essential in tax administration, as it facilitates trade through
the release of blocked funds for working capital, expansion and modernisation
of existing business.
The provisions
pertaining to refund contained in the GST law aim to streamline and standardise
the refund procedures under GST regime. Thus, under the GST regime, there will
be a standardised form for making any claim for refunds. The claim and
sanctioning procedure will be completely online and time bound, which is a
marked departure from the existing time consuming and cumbersome procedure.
Situations Leading to Refund Claims
The relevant date
provision embodied in Section 54 of the CGST Act, 2017, provision contained in
Section 77 of the CGST Act, 2017 and the requirement of submission of relevant
documents as listed in Rule 1(2) of Refund Rules is an indicator of the various
situations that may necessitate a refund claim. A claim for refund may arise on
account of:
Export of goods or
services
Supplies to SEZs
units and developers
Deemed exports
Refund of taxes on
purchase made by UN or embassies etc.
Refund arising on
account of judgment, decree, order or direction of the Appellate Authority,
Appellate Tribunal or any court
Refund of
accumulated Input Tax Credit on account of inverted duty structure
Finalisation of
provisional assessment
Refund of
pre-deposit
Excess payment due
to mistake
Refunds to
International tourists of GST paid on goods in India and carried abroad at the
time of their departure from India
Refund on account of
issuance of refund vouchers for taxes paid on advances against which, goods or
services have not been supplied
Refund of CGST &
SGST paid by treating the supply as intra-
State supply which
is subsequently held as inter-State supply and vice versa
Thus, practically
every situation is covered. The GST law requires that every claim for refund is
to be filed within 2 years from the relevant date.
Credit Notes
Further, Section 34 of the CGST Act, 2017 provides for issuance
of credit notes for post supply discounts or if goods are returned back within
a stipulated time. When such credit notes are issued, obviously it would call
for reduction in output liability of the supplier. Hence, the taxes paid
initially on the supply would be higher than what is actually payable. In such
a scenario, the excess tax paid by the supplier needs to be refunded. However,
instead of refunding it outright, it is sought to be adjusted after verifying
the corresponding reduction in the input tax credit availed by the recipient.
Section 43 of the CGST Act, 2017 provides for procedure for reduction in output
liability on account of issuance of such credit notes. This is another form of
refund by adjustments in the output tax liability. Such refund is not governed
under the general refund provisions contained in Section 54 of the CGST Act,
2017.
One of the major categories under which, claim for refund may
arise would be, on account of exports. All exports (whether of goods or
services) as well as supplies to SEZs have been categorised as Zero Rated
Supplies in the IGST Act. “Zero rated supply” under Section 16 of the IGST Act,
2017 means any of the following supplies of goods or services or both, namely:
export of goods or services or both; or
supply of goods or services or both to a Special Economic Zone
developer or a Special Economic Zone unit.
On account of zero rating of supplies, the supplier will be
entitled to claim input tax credit in respect of goods or services or both used
for such supplies even though they might be non-taxable or even exempt
supplies. Every person making claim of refund on account of zero rated supplies
has two options. Either he can export under Bond/LUT and claim refund of
accumulated Input Tax Credit or he may export on payment of integrated tax and
claim refund of thereof as per the provisions of Section 54 of CGST Act, 2017.
Thus, the GST law allows the flexibility to the exporter (which, will include
the supplier making supplies to SEZ) to claim refund upfront as integrated tax
(by making supplies on payment of tax using ITC) or export without payment of
tax by executing a Bond/LUT and claim refund of related ITC of taxes paid on
inputs and input services used in making zero rated supplies.
Grant of Provisional Refund in Case of Zero Rated Supplies
GST law also provides for grant of provisional refund of 90% of
the total refund claim, in case the claim relates for refund arising on account
of zero rated supplies. The provisional refund would be paid within 7 days
after giving the acknowledgement. The acknowledgement of refund application is
normally issued within a period of 14 days but in case of refund of integrated
tax paid on zero rated supplies, the acknowledgement would be issued within a
period of three days. The provisional refund would not be granted to such
supplier who was, during any period of five years immediately preceding the
refund period, was prosecuted.
Payment of Wrong Tax
Under GST it might happen that the taxable person may pay
integrated tax instead of central tax plus state tax and vice versa because of
incorrect application of the place of supply provisions. In such cases, while
making the appropriate payment of tax, interest will not be charged and the
refund claim of the wrong tax paid earlier will be entertained without
subjecting it to the provision of unjust enrichment.
Claim by a Person who has Borne the Incidence of Tax
Any tax collected by the taxable person more than the tax due on
such supplies must be credited to the Government account. The law makes
explicit provision for the person who has borne the incidence of tax to file
refund claim in accordance with the provisions of Section 54 of the CGST Act,
2017.
Refunds to Casual/Non-Resident Taxable Persons
Casual/Non-resident taxable person has to pay tax in advance at
the time of registration. Refund may become due to such persons at the end of
the registration period because the tax paid in advance may be more than the
actual tax liability on the supplies made by them during the period of validity
of registration period. The law envisages refund to such categories of taxable
persons also. But the amount of excess advance tax shall not be refunded unless
such person has filed all the returns due during the time their registration
was effective. It is only after such compliance that refund will be granted.
Refund to UN Bodies and Other Notified Agencies
Supplies made to UN bodies and embassies may be exempted from
payment of GST as per international obligations. However, this exemption is
being operationalized by way of a refund mechanism. So, a taxable person making
supplies to such bodies would charge the tax due and remit the same to
government account. However, the UN bodies and other entities notified under
Section 55 of the CGST Act, 2017 can claim refund of the taxes paid by them on
their purchases. The claim has to be made before the expiry of six months from
the last day of the quarter in which such supply was received.
Refund to International Tourist
An enabling mechanism has been introduced in Section 15 of the IGST
Act, 2017 whereby an international tourist procuring goods in India, may while
leaving the country seek refund of integrated tax paid by them. The term,
“tourist” has been defined and refers to any person who is not normally a
resident of India and who enters India for a stay of not more than 6 months for
legitimate non-immigrant purposes.
Unjust Enrichment
Talking about unjust
enrichment, a presumption is always drawn that the businessman will shift the
incidence of tax to the final consumer. This is because GST is an indirect tax
whose incidence is to be borne by the consumer. It is for this reason that
every claim of refund (barring specified exceptions) needs to pass the test of
unjust enrichment. And every such claim if sanctioned is first transferred to
the Consumer Welfare Fund. The GST law makes this test inapplicable in case of
refund of accumulated ITC, refund on account of exports, refund of payment of
wrong tax integrated tax instead of central tax plus state tax
and vice versa), refund of tax paid on a supply,
which is not provided or when refund
voucher is issued or if the applicant shows that he has not passed on the incidence of tax
to any other person. In all other cases, the test of unjust enrichment needs to be
satisfied for the claim to be paid to the applicant. For crossing the bar of unjust
enrichment, if the refund claim is less than Rs.2 Lakhs, then a self-declaration of the applicant to
the effect that the incidence of tax has not been passed to any other person will
suffice to process the refund claim. For refund claims exceeding Rs. 2 Lakhs, a
certificate from a Chartered Accountant/Cost Accountant will have to be given.
Standardisation of
Procedure
The GST laws makes standardised provisions
for making a refund claim. Every claim has to be filed online in a standardised form which
will be acknowledged (if complete in all aspects) in 14 days. The claim for
refund of amount lying in the credit balance of the cash ledger can be made in
the monthly returns also. The Proper Officer has to convey deficiencies if any
in the refund claim within 14 days and in such cases the claim will be sent
back to the applicant along with the notified deficiencies, and the applicant
can file the refund claim again after making goods the deficiencies. No
deficiency memos can be raised after the mandatory 14 day period. The claim, if
in order, has to be sanctioned within a period of 60 days from the date of
receipt of the claim. If this mandatory period is exceeded, interest will
become payable along with refund from the expiry of 60 days till the date of
payment of refund (rate of interest has been recommended as 6% and 9% under the
provisions of Section 56 of the CGST Act, 2017 by the GST Council in its
meeting held on 18th and 19th May, 2017). However, if the refund claim is on
account of pre-deposit made before any appellate authority, the interest
becomes payable from the date of making such payment.
Documentation
The applicant needs to file elaborate documents along with the
refund claim. Standardised and easy to understand documents have been prescribed.
Thus, for every claim, the main document prescribed is a statement of relevant
invoices (NOT THE INVOICES ITSELF) pertaining to the claim. In case refund is
on account of export of services, apart from the statement of invoices, the
relevant bank realisation certificates evidencing receipt of payment in foreign
currency is also required to be submitted. If it is a claim made by the
supplier to the SEZ unit, an endorsement from the Proper Officer evidencing
receipt of such goods/services in the SEZ also needs to be submitted. Further,
a declaration is also required from the SEZ unit to the effect that they have
not availed ITC of the taxpaid by the supplier. If the claim is for refund of
accumulated ITC, only a statement containing invoice details as prescribed in
the Refund rules need to be given. In case of claim of refund on account of any
order or judgment of appellate authority or court, the reference number of the
order giving rise to refund should also be given. For crossing the bar of
unjust enrichment, if the refund claim is less than Rs.2 Lakhs, then a
self-declaration by the applicant to the effect that the incidence of tax has
not been passed to any other person will suffice to process the refund claim.
For refund claims exceeding Rs. 2 Lakhs, a certificate from a Chartered
Accountant/Cost Accountant will have to be given. It is to be noted that such
document need not be given if it is a claim arising on account of zero rated
supplies or claim of accumulated ITC or payment of wrong tax integrated tax
instead of central tax and state tax and vice versa) or a claim where supply is
not done or a refund voucher has been issued.
Compliance with Natural Justice
In case the claim is
sought to be rejected by the Proper Officer, a notice has to be given online to
the applicant stating the ground on which the refund is sought to be rejected.
The applicant needs to respond online within 15 days from the receipt of such
notice. Thus no claim can be rejected without putting the applicant to notice.
Payment to be Credited Online
The refund claim, wherever due, will be
directly credited to the bank account of the applicant. The applicant need not
come to the authorities to collect the cheques or for any other issues relating
to the refund claim.
Power with the Commissioner to Withhold Refund in Certain Cases
GST law provides that 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 likely to adversely
affect the revenue in the said appeal or other proceedings 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. But it has been adequately safeguarded by provision for payment of
interest @ 9% if, as a result of appeal, or further proceedings, the applicant
becomes eligible for refund.
