Types Of Refunds & Processes For Claiming Refunds Under GST (Part 2)

Claiming Refunds Under GST 2

Inverted Duty Structure

Rule 89(5) of the CGST Rules, 2017 stipulates that in case of refund on account of Inverted Duty Structure, a refund of ITC shall be granted as per the following formula:

Refund Amount(same as in Zero Rated Supply)
Net ITCMeans ITC availed on 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]
Adjusted Total Turnover(same as in Zero Rated Supply)
Relevant Period(same as in Zero Rated Supply)
  • Where the application relates to refund of ITC, the electronic credit ledger shall be debited by the applicant by an amount equal to the refund so claimed [Rule 89(3)].
  • As per N/N 5/2017-CT (Rate), no refund would be allowed for an inverted rate for the following goods:

→ Woven fabrics
→ Knitted or crocheted fabrics
→ Rail locomotives and railway coaches or vehicles etc.

Deemed Export

As per provisions of Rule 89(4A) of CGST Rules, 2017 and Notification No. 48/2017, following supply are notified as a deemed export:
  • Supply of goods by a registered person against Advance Authorization
→ Provided that goods so supplied, when exports have already been made after availing input tax credit on inputs used in the manufacture of such exports → Shall be used in manufacture and supply of taxable goods (other than nil rated or fully exempted goods) and a certificate to this effect from a Chartered Accountant is submitted to the jurisdictional Commissioner of GST or any other officer authorized by him within 6 months of such supply → Provided further that no such certificate shall be required if input tax credit has not been availed on inputs used in the manufacture of export goods.
  • Supply of Capital goods by a registered person against Export Promotion Capital Goods Authorization.
  • Supply of goods by a registered person to Export Oriented Unit
  • Supply of gold by a Bank or Public Sector Undertaking specified in the notification no. 50/2017- Customs, dated the 30th June 2017 (as amended) against Advance Authorization.
Process for claiming the refund, time period, documents are the same as provided in point 8 above

Penultimate Supply

Where the person claiming refund of unutilized ITC on account of zero-rated supplies without payment of tax has:
  • Receipt supplies on which the supplier has availed the benefit of N/N 40/2017 – CT(R) dt 23/10/2017 or N/N 41/2017 – IT(R) dt 23/10/2017
  • Availed benefit of N/N 78/2017 – Customs dt 13/10/2017 or N/N 79/2017 – Customs dt 13/10/2017.
The refund of ITC availed in respect of inputs received under the said notifications for export of goods & ITC availed in respect of other inputs or input services to the extent used in making such export of goods shall be granted.

Provisional Refund

The proper officer may, in case of any claim for refund on account of zero-rated supply of goods or services or both made by a registered person (other than notified):
→ Provisionally accept refund on a provisional basis, 90% of the total amount so claimed excluding the amount of ITC
→ Where the amount of tax evaded exceeds Rs. 2.5 crores, the provisional refund shall be granted subject to the condition that the person claiming refund has, during any period of 5 years immediately preceding the tax period for which the claim for refund relates, not been prosecuted for any offense under the Act or under existing law.

Provided that:
→ The order issued in Form GST RFD-04 shall not be required to be revalidated by the proper officer [N/N 3/2019-CT dated 29.01.2019]
→ The payment advice in Form GST RFD-05 shall be required to be revalidated where the refund has not been disbursed within the same financial year in which the said payment advice was issued [N/N 3/2019-CT dated 29.01.2019]

Cases In Which Refund Claim Can Be Withheld

Where any refund is due in case of zero-rated supplies or accumulated ITC on account of inverted duty structure to a registered person

→ Who has defaulted in furnishing any return or

→ Who is required to pay any tax, interest or penalty which has not been stayed by any court, tribunal or appellate authority by the last date of filing appeal

The proper officer may:

→ Withhold payment of refund due until the said person has furnished the return or paid the tax, interest, or penalty.

→ Deduct from the refund due, any tax, interest, penalty, fee, or any order amount which the taxable person is liable to pay but which remains unpaid under this Act or any existing law.

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 are 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 committedThe proper officer may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine as per Section 54(11).
However, where a refund is withheld under Section 54(11), the taxable person shall, notwithstanding anything contained in Section 56, be entitled to interest @9% p.a. if the result of the appeal or further proceedings entitles him to refund [Section 54(12)].

Claim For Unutilized Input Tax Credit

As per provisions of Section 54(3)

  • A refund claim for unutilized ITC shall be made by a registered person claim refund of any unutilized ITC at the end of any tax period. Electronic Credit Ledger shall be debited by the applicant in an amount equal to the refund so claimed.
  • Supplies Eligible for refund: Refund of unutilized ITC credit shall be allowed only in the following cases :

→ Accumulation of ITC due to zero-rated supplies made without payment of tax
→ Accumulation of ITC due to the rate of tax on inputs being higher than the rate of tax on output supplies

  • No refund of ITC in the following cases:

→ If the goods exported are subjected to export duty
→ If the supplier of goods or services avails of drawback or claims refund of the IGST
→ In case of the supply of construction of a complex, building civil structure or a part thereof except where the entire consideration has been received after issuance of completion certificate or before its first occupation, whichever is earlier

  • Withholding of taxes [Sec. 54(10)]: If a refund is due on utilized ITC to a defaulted registered person, the proper officer may:

→ Withhold payment of refund due till furnishing of return or payment of taxes
→ Deduct from the refund due, any tax dues which remain unpaid.

Refund In Certain Special Cases

As per provisions of Section 55
  • Applicability:
→ Specialized Agency of the United Nations Organisation → Consulate or Embassy of foreign Countries → Any multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities ) Act, 1947 → Any other notified person
  • Application for refund shall be made in Form GST RFD -10 once in every quarter. Also to file a statement of inward supplies of goods or services.
  • Acknowledgment for Application or refund shall be given in FORM GST RFD-02.
  • Condition for a refund:
→ The inward supplies of goods or services are received from a registered person against a tax invoice and the price covered under a single tax invoice exceeds Rs. 5000, excluding tax paid → Name and GSTIN or UIN of the applicant is mentioned on the tax invoice and → Other prescribed conditions specified in the notification are satisfied
  • In case of inconsistent provision, International Treaty will prevail over Rules.

As per Section 54(4) application shall be accompanied by:
→ Such documentary evidence as may be prescribed to establish that a refund is due to the applicant and
→ Such documentary or other evidence (including the documents under Section 33) as the applicant may furnish to establish that there is no unjust enrichment.
→ If the refund claim is less than 2 lakhs, a declaration by the applicant certifying that there is no unjust enrichment. If the claim of refund is 2 lakhs or more, a certificate from CA/ CMA will have to be given.
→ Other documents required as per Rule 89(2) will have to be given based on case of refund [covered in Point 8]

  • The proper officer shall make an order for direct Refund to the applicant in FORM GST RFD – 06 if the refund is payable as per sec. 54(8). Provided that the order issued in FORM GST RFD-06 shall not be required to be revalidated by the proper officer (N/N 3/2019-CT dt 29/01/2019)
  • Direct Credit to Applicant [Sec. 54(8)] in the following cases:

→ Refund of tax paid on Exports or on Input services used in making such supplies
→ Refund or unutilized ITC
→ Refund of tax paid on a supply not provided, either wholly or partially
→ refund of tax which is wrongly collected and paid to Central and State Government u/s 77
→ Tax and interest, or any other amount paid by the applicant as notified by the Government, the incidence of such tax and interest to any other person, f) Tax or interest is borne by such other class of applicants as notified by the Government.

  • A refund other than the above cases shall be credited to the Consumer Welfare Fund.
  • The proper officer shall issue the order u/s 54(5) within 60 days from the date of receipt of the application.
  • Refund shall be made after adjusting outstanding dues: Details of the adjustment shall be issued in Part A of FORM GST RFD – 07
  • Rejection of a Refund can be made by a proper officer after giving a reasonable opportunity to the applicant.
As per provisions of Section 56
  • If the Refund of Tax is not made within 60 days from the date of receipt of Application. Interest shall be paid even where a refund is granted by an Appellate Authority.
  • Rate of Interest: Interest is payable at the rate of 6% p.a. by the Central Government. In case of Refund is on account of the order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court, the Interest rate shall be 9% (instead of 6%)
  • Period: Interest is payable from the date of expiry of 60 days from the date of receipt of application till the date of refund of tax.
  • For the purpose of this section 15 of IGST Act, the term “tourist” means a person not normally resident in India, who enters India for a stay of not more than 6 months for legitimate non-immigrant purposes.
  • Refund of Tax shall be made in the prescribed manner.

Issue 1: Goods sent/ taken out of India for exhibition or on a consignment basis for export promotion

[Circular No. 108/27/2019-GST dated 18.07.2019]

Clarification: Activity of sending/taking goods out of India for exhibition or on a consignment basis for export promotion would not be considered as supply since there is no consideration at that point of time (unless the same is covered under schedule I of CGST Act).

Such activity which is not a supply could not be regarded as ‘zero-rated supply’.

Issue 2: Refund of taxes paid on inward supply of indigenous goods by retail outlets established at the departure area of the international airport beyond immigration counters when supplied to outgoing international tourists against foreign exchange.

[Circular No. 106/25/2019 GST dated 29.06.2019]

Clarification: Supply of goods by a retail outlet established in the departure area of an international airport, beyond the immigration counters, to an outgoing international tourist is exempted from IGST. These retail outlets making tax free supply of indigenous goods to an outgoing international tourist [also referred as an eligible passenger] are entitled to claim a refund of applicable CGST+SGST/UTGST or IGST paid on inward supply of such goods. Therefore, retail outlets will supply such indigenous goods without collecting any taxes from the eligible passenger and may apply for a refund. The refund shall be subject to the conditions, as specified in rule 95A of the CGST Rules.

It is clarified that the refund to be granted to retail outlets is not on account of the accumulated input tax credit, but refund is based on the invoices of the inward supplies of indigenous goods received by them. Since the supply made by such retail outlets is exempt, they will not be eligible for ITC of taxes paid on such inward supplies and the same will have to be reversed in accordance the relevant provisions. Further, no refund of tax paid on input service if any, will be granted to the retail outlets.

Some advance rulings in relation to Refund have been summarised below:

Sr. No.

Advance Ruling Order No. Brief facts & ruling

1

Ruling No. 02/2019-20 in Application No. 20 dated 12/06/2019 Uttarakhand Authority for Advance Ruling Facts: Doubt regarding the interpretation of the meaning of word ‘lapse’ in Notification No. 20/2018-Central Tax (Rate). Whether the meaning of the word ‘lapse’ in Notification No. 20/2018-Central Tax (Rate) would mean lapse for refund or lapse for utilization of input tax credit for payment of output tax liability? Ruling: Notification No. 20/2018-Central Tax (Rate) dated 26-7-2018 deals with a refund of inverted duty structure only.

2

GST-ARA-136/2018-19/B-71 dated 15/06/2019 Maharashtra Authority of Advance Ruling Facts: Delivery of goods to the owner of the ship proceeding to foreign port at the Indian port can be treated as export of goods or not. Ruling: “We find that their main question is whether the transaction effected in the present case can be considered as exports – this question is not covered under the purview of Section 97 of the CGST Act, 2017. Hence we hold the subject application is not maintainable in this respect and cannot be entertained and therefore no opinion is given by us since the matter is beyond the purview of this Authority.”

3

AAR 02/AP/GST/2019 dated  30/01/2019 Andhra Pradesh Authority of Advance Ruling Facts: ITC on inward supplies of material and services for use in the execution of works to APSPDCL. Exemption both for the supply of material as well as service or limited only to service? With respect to the same, process to get a refund of ITC. Ruling: Since the works were undertaken are classifiable under works contract service, segregation or vivisection will not arise. However, as the said exemption is not applicable to the said works contract, this query and also the queries on the entitlement of ITC on the inward supplies, and refund of ITC in the event of the applicant is entitled to exemption from payment of GST, have lost their relevance.

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