The concept of refund under GST relates to any amount returned by the government that was:
- paid by the registered taxpayer either in excess or
- was not liable to be taxed.
GST was introduced not only to get rid of blocks like double taxation and no input tax credit, but also bring about transparency and easy tax compliance.
To make easy tax compliance a reality, government of India took the GST process online. Right from GST registration, return filing to claiming ITC and GST refund, almost everything takes place on the GST online portal.
Talking about refund under GST, a time specific GST refund process was extremely necessary. This is because it would help businesses manage taxes. Such a process would unblock funds for working capital.
Thus, it would provide necessary pool of money for growth, modernization and expansion of businesses.
Hence, government came with a standardized process for GST refund. There are various cases resulting in accumulation of credit or payment of taxes in excess of what is due.
Such cases can occur on account of mistakes or unintentional errors by the registered taxpayers. This refund mechanism enables taxpayers to claim refunds easily under such circumstances.
It is unlike the previous indirect tax regime, that was time consuming and called for tedious manual filing of indirect tax refund.
As per the CGST act 2017, there are various situations under which a registered taxpayer can claim GST refund. Let’s have a look at situations that necessitate GST refund and the underlying provisions.
Situations That Necessitate Refund Under GST
There are various situations that require a registered taxpayer to claim GST refund from the government.
A. Export of Goods or Services and Supplies to SEZs Units and Developers
One of the major categories under which registered taxpayers can claim GST refund is zero rated supplies.
According to section 16 of the IGST Act, the term “zero rated supplies” means:
- Export of goods or services or both
- Supply of goods or services or both to a Special Economic Zone (SEZ) developer or unit
Furthermore, a supplier of zero rated supplies can claim ITC even for non – taxable or exempt supplies used in making such zero rated supplies.
Thus, a person claiming GST refund on account of zero rated supplies can use one of the following options to do so:
- He can get a letter of undertaking (LUT) or a bond to cover the amount of IGST for the sale. Then, he can export goods without paying IGST. If he chooses this option, he can claim a refund on the ITC accumulated on account of inputs used in making such supplies.
- If he cannot get a bond or an LUT, he can pay IGST when he exports. When he does that, he can claim a refund on the tax paid by using accumulated ITC.
In case of zero rated supplies, the amount of refund due to the said applicant is granted on a provisional basis. This amount equals to 90% of total amount to be claimed by the applicant.
Such an amount is sanctioned within a period of 7 days from the date of acknowledgement given by a proper officer via common portal. The acknowledgement of refund application is normally issued within 15 days from the date of receipt of application.
Furthermore, such a provisional refund is not granted to a supplier who has been prosecuted for any offence during 5 years immediately preceding the tax period.
B. Deemed Exports
Supplies are considered Deemed Exports under GST if they meet following two conditions:
- Supplies include goods and not services manufactured in India. Further, the goods produced do not leave India.
- Payment with regards to such supplies is received in Indian rupees or in convertible foreign exchange
Deemed exports are separate from zero rated supplies. Such exports do not form part of zero rated supplies by default.
As a result, supplies categorized as deemed exports are liable to taxes. This means that such supplies are made by paying IGST and are not supplied based on a bond or Letter of Undertaking (LUT).
Further, the refund for tax paid on supplies considered as deemed exports is claimed either by the supplier or the recipient.
However, the supplier of deemed exports can file the refund application in situations where:
- recipient does not take the benefit of input tax credit on such supplies and
- the recipient gives an undertaking that claims that the supplier can take such refund
There can be cases where the supplier of deemed export supplies has availed the benefit of tax credit in respect of such supplies. In such a case, the recipient of deemed export supplies can claim the refund of ITC in respect of other inputs or input services.
C. Refund of Wrongly Collected or Paid Tax
Under GST, a registered person might end up paying integrated tax in place of central tax plus state tax. Furthermore, it is is possible that he could do it the other way round – pay central tax plus state in place of integrated tax.
This is because of incorrect application of provisions relating to place of supply. In such cases, the registered person is not required to pay any interest on the amount of tax payable under any of the circumstances.
Furthermore, the GST refund claim on account of wrong payment of tax shall not be subjected to the provision of unjust enrichment.
Unjust enrichment is based on the assumption that a businessman would always shift the incidence of tax to the final consumer.
This is because GST is an indirect tax that is to be borne by the final consumer. So, to avoid such circumstances, every refund claim under GST, barring certain exceptions, need to pass the test of unjust enrichment.
Under such a test, every GST refund claim sanctioned by the proper officer is first transferred to the Consumer Welfare Fund. The claim of refund is paid to the applicant once the test of unjust enrichment is cleared.
D. Refund to UN and Other Notified Agencies
As per international obligations, goods and services supplied to UN bodies and embassies may be exempted from GST. However, to make such an exemption operational, GST refund mechanism comes into play.
So, a taxable person supplying goods or services to such bodies needs to charge tax due on such supplies. Then, such a tax is remitted to the government account.
However, the UN bodies and other entities mentioned under section 55 of CGST act can claim refund of such taxes paid by them on purchases made. Such claim for refund has to be made before the expiry of six months from the last day of the quarter in which such a supply is received.
Furthermore, the amount of refund is granted by the central government as such agencies do not need state wise registration. One single registration is sufficient for them for whole of India.
E. Refund Arising on Account of Order of Appellate Authority or Court
There are cases where tax paid becomes refundable as a consequence of judgement, decree, order or direction of the appellate authority, appellate tribunal or any court. In such cases, the registered person needs to file an application for refund within 2 years from the relevant date.
As per section 54 of GCST act, relevant date means the date of communication of such judgement, decree, order or direction to a registered person.
In such cases, the documentary evidence needs to be filed in order to establish that the refund is due to the applicant.
Therefore, the registered person needs to file an application in RFD – 01. Such an application is accompanied by:
- the reference number of the order and copy of the order passed by the proper officer or appellate authority, court or tribunal resulting in such a refund.
- reference number of payment of amount with regards to such an appeal made by the registered person
F. Refund of Accumulated ITC on Account of Inverted Duty Structure
The applicant can apply for refund in case of inverted duty structure. Inverted duty structure refers to a scenario where the amount of credit accumulates on account of rate of tax on inputs being higher than rate of tax on output supplies.
However, following are the cases where refund of accumulated ITC in case of inverted duty structure is not allowed.
- where output supplies are nil rated or wholly exempt
- against supply of goods or services as may be notified by the government on the recommendations of the GST Council
Therefore, the government has notified goods and on which no refund of unutilized ITC is allowed. These are mentioned in a separate section in CGST act, 2017.
G. Refund of Tax Paid on Provisional Basis
As per section 60 of CGST act, a taxable person can request for allowing payment of tax on provisional basis. He can do so if such a person is unable to determine:
- value of goods or services
- rate of tax applicable on such goods or services
To allow the taxable person to pay tax on provisional basis, a proper officer needs to pass a provisional order within a period of 90 days from the date of receipt of request from the registered person.
Furthermore, the proper officer needs to pass a final assessment order within a period of 6 months from the date of receipt of provisional order mentioned above.
The registered person thus becomes entitled to claim refund after order of final assessment is passed by the proper officer.
Furthermore, he is entitled to receive interest on such a refund after the expiry of 60 days from the date of receipt of application of refund. Such an interest would be to the extent of 6%.
Lastly, registered person is required to provide reference number of the final assessment order and a copy of the said order along with application RFD – 01.
H. Refund of IGST to International Tourist
As per section 15 of IGST act, the international tourist leaving has to pay integrated tax on goods bought by him within India.
In such a circumstance, he may seek refund of integrated tax paid by him on such goods while leaving the country.
Such a refund is granted in such manner and subject to such conditions and safeguards as may be prescribed. For refund of IGST to international tourist, the term tourist means:
- any person who is not normally resident in India and
- who enters India for a stay of not more than six months for legitimate non – immigrant purposes
I. Refund of Excess Payment of Tax Due to Mistake or Inadvertence
There are situations when a taxpayer makes excess payment of tax either by mistake or inadvertence. Such a scenario may result in payment of tax that is more than due to the government.
This is to say that excess tax is paid which was originally not required to be paid. Hence, the excess amount of tax paid by the taxpayer needs to be refunded. The excess payment of tax maybe due to wrong mention of:
- nature of tax (CGST/SGST/IGST)
- tax amount
In the first two cases, the tax administration verifies whether the taxpayer’s claim is correct or not. After the proper officer is satisfied, the taxpayer files a refund application within a period prescribed by the GST law.
J. Refund of Taxes Paid on Advances Given Via Issuance of Refund Vouchers
Manufacturers demand certain amount of advance when they have to deliver goods in large quantities. Similarly, even the service providers ask for an advance before starting work on the underlying services.
At the time of receiving such advance, the manufacturer or service provider needs to issue a receipt voucher. In case the underlying order is cancelled in the near future, no tax invoice will be issued by the manufacturer or service provider.
Furthermore, the manufacturer or service provider issues a refund voucher for the advance received.