Types Of Refunds & Processes For Claiming Refunds Under GST (Part 1)

Claiming Refunds Under GST 1

Usually when the GST paid is more than the GST liability, a situation of claiming GST refund arises. Under GST, the process of claiming a refund is standardized to avoid confusion. The process is online and time limits have also been set for the same. 

List Of Topics Covered:

Export Of Goods & Export Of Services

Export of Goods [Section 2(5)] means taking goods out of India to a place outside India.
Export of Services [Section 2(6)] means the supply of any service when –

  • The supplier of service is located in India
  • The recipient of service is located outside India
  • The place of supply of service is outside India
  • The payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian Rupees wherever permitted by RBI.
  • The supplier of service and recipient are not merely establishments of a distinct person.

Refund

Refund includes a refund of tax paid on:

  • Zero-rated supplies of goods or services or both
  • On inputs or input services used in making such zero-rated supplies
  • Refund of tax on the supply of goods regarded as deemed exports
  • Refund of the unutilized input tax credit as provided under section 54(3)

Thus all kinds of refunds will be dealt with as per this section (including export incentives granted by way of refund).

Presumption Of Transfer Of Burden Of Tax

Section 49(9) provides that every person who has paid the tax on goods or services or both under this Act shall unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both.

Principle Of Unjust Enrichment

  • As per the doctrine of unjust enrichment no person shall be allowed to enrich himself at the cost of another.
  • Only the person who has not passed the incidence of tax will be eligible to claim a refund.
  • Under Unjust enrichment, a presumption is always drawn that the businessman will shift the incidence of tax to the final consumer as in Indirect tax incidence of tax is transferable and it is borne by the consumer.
  • Where the refund arises and it is paid to the supplier, If it will be undeserved benefit from the customer & from the government, resulting in unjust enrichment.
  • Therefore refund should be paid to the consumer who has actually borne the burden of duty. However is not practically possible to identify such person then refund due should be transferred to the consumer welfare fund. It is for the reason that every refund claim if sanctioned is first transferred to the consumer welfare fund.

(The same is further discussed in Point 8)

Consumer Welfare Fund

Contribution to the Fund

The fund shall be credited with:

→ Amount of GST refund u/s 54(5)

→ Any income from Investment made and other money received

Utilization

Shall be utilized for the welfare of the consumers

Maintenance of Records

The Central Government shall constitute a standing Committee to maintain a proper and separate account in the form prescribed in consultation with C & AG of India.

Situations Leading To Refund Claim

A claim for refund may arise in the following situations:

  • Export of Goods or Services or supplied to an SEZ developer/unit, on payment of IGST
  • Refund for ITC in case of

→ Zero-rated supplies: Supply of goods/services/both to an SEZ developer/unit or export of goods or services or both
→ Accumulated ITC on account of inverted duty structure: Rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies)

  • Deemed Export
  • Refund of Balance of E-Cash Ledger
  • Refund on account of issuance of refund vouchers
  • Refund of tax wrongly collected and paid to the Government [i.e. CGST & SGST paid by treating the supply as intra-State supply which is subsequently held as inter-State supply and vice versa)
  • Refund to Tourist under Section 15 of IGST Act, 2017
  • Refund on account of Court Order
  • Refund on account of finalization of provisional assessment
  • Excess payment due to mistake
  • Refund to UN bodies etc.
  • Refund of Pre-deposit
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Minimum Amount Of Refund Claim

As per Section 54(14), no refund shall be paid to an applicant if the amount is less than Rs. 1,000.
The limit of Rs. 1,000 shall apply for each tax head separately and not cumulatively. Further, the limit would not apply in cases of refund of excess balance in the electronic cash ledger.
[Circular No. 59/ 33/ 2018 GST dated 04/09/2018]

Cases Of Refund, Time Limit, Forms, Documents & Other Details

A Guide On Annual Returns & GST Audit- Requirements, Audit Process, Audit Tool

Zero Rated Supply

• SUPPLY OF SERVICES IN RELATION TO TRANSPORTATION OF GOODS BY ROAD

A. Refund Amount

Means the maximum refund that is admissible

B. Net ITC

Means ITC availed on inputs and input services during the relevant period other than the ITC availed for which refund is claimed under sub-rules 89(4A) or 89(4B) or both [i.e. Deemed Export or Penultimate Supply]

C. Turnover of Zero-Rated Supply of Goods

Means the value of zero-rated supply of goods made during the relevant period without payment of tax under Bond / LUT or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, (introduced by amendment in Rule 89(4)(c) vide Notification No. 16/2020 dated 23 March 2020) other than the turnover of supplies in respect of which refund is claimed under sub-rules 89(4A) or 89(4B) or both [i.e. Deemed Export or Penultimate Supply]

D. Turnover of Zero-Rated Supply of Services (ZRSS)

= Payments received during the relevant period for ZRSS (+) ZRSS, where supply has been completed for which payment had been received in advance in any period prior to the relevant period (-), advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period

E. Adjusted Total Turnover

Means the turnover in a State or Union territory excluding

–  Value of exempt supplies other than zero-rated supplies and

–  The turnover of supplies in respect of which refund is claimed under sub-rules 89(4A) or 89(4B) or both [i.e. Deemed Export or Penultimate Supply], if any, during the relevant period

F. Relevant Period

This means the period for which the claim has been filed.

DIRECT EXPORT OF GOODS & SERVICES

  • In case of direct export of goods & services, for outward supply under Section 16 of IGST Act, without bond/ LUT the procedure to claim a refund is given in Point 8 (Sr. No 1)
  • In case of direct export of goods & services, for outward supply under Section 16 of IGST Act, with bond/ LUT supply is allowed without payment of tax. But if goods or services are not exported within the prescribed time, the registered person is liable to pay tax along with interest if:

→ Goods are not exported outside India within 15 days after expiry of 3 months from date of export invoice
→ If payment for service not received in convertible foreign exchange (or Indian Rupees wherever permitted by RBI) within 15 days after
expiry of 1 year from the date of the invoice of export.

  • ITC Refund will not be available in the following cases:

→ Goods are exported out of India, which are subjected to Export Duty
→ Supplier of goods/ services has claimed drawback of CGST/ SGST or refund of IGST

SUPPLY TO SEZ

  • In case of supply to SEZ, all of the above will apply along with additional condition as follows:
    → Supplier of goods should endorse from an officer of SEZ that it is used for authorized operations.

Amendment In Rule 89(4)(c) of CGST Rules, 2017

The Central Board of Indirect Taxes and Customs (CBIC) has issued Notification No. 16/2020 dated 23 March 2020 to make certain amendments to the Central Goods and Services Tax (CGST) Rules, 2017 with respect to the refund mechanism under GST for the zero-rated supply of goods and/or services with or without payment of IGST. This amendment restricted the turnover of zero-rated supply to be considered for the above computation of refund to 1.5 times the value of goods in the domestic market.

However, the amendment is yet to be tested on the floor as it is wrapped with following ambiguous questions for the taxpayers: –

  • If there are no domestic supplies and value of export per unit is more than the price of similar goods in the domestic market, then will the restriction still be applied or there can be a waiver to such export units?
  • If there are no goods supplied in the domestic market and the value of similar goods provided by other suppliers is not available, then how will the value be ascertained?
  • If the value of goods in the domestic market is fluctuating or there is a wide range of prices per unit, then which value to be considered?
  • If there are additional features provided in the goods as compared to domestic supplies, then can adjustments be made to ensure apple to apple comparison?
  • Where the value is impacted because of the quantity involved, will there be an adjustment allowed?
  • Will there be a valuation mechanism introduced for this provision?
  • The value at the time of export will be considered or the value at the time of assessing the claim will be considered?
  • Will it is applicable to all the goods or there will be a selected list of goods for which the amended provisions will apply?
  • The amendment will be applied to claims filed after the effective date of amendment or goods removed after such an effective date?

Can such an amendment vide rules tenable in law without amendment in the valuation mechanism as per the CGST Act?

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