GST Refund – A Detailed Analysis

The concept of refund in the parlance of GST is a crucial aspect for a taxpayer as it facilitates trade by releasing blocked funds for working capital, expansion and modernisation of existing business. The GST refund can arise on account of excess cash balance in the electronic cash ledger or the accumulated Input Tax Credit unable to be utilised for tax payments due to zero-rated sales or inverted duty structure or on account of various other reasons that have been discussed below in the article.

The refund provisions in the GST law aim to streamline and standardise the GST refund procedure. Under the GST regime, there is a standardised form for making any claim for refunds. The claim and sanctioning procedure are primarily online and time-bound, which is a marked departure from the earlier time-consuming and cumbersome process.

In this article, we have tried throwing some light upon the important facets of GST Refund...

Situations Leading to Refund Claims

A claim for a GST refund may arise in the following situations:

* Refund of IGST paid on a specified class of goods and/or services exported by a specified class of persons.

* Refund of IGST paid on goods and/or services supplied for authorised operations to an SEZ developer/unit by a specified class of persons.

* Refund of unutilised ITC in case of exports or supply to SEZ developer/unit for authorised operations without payment of IGST or in the case of inverted duty structure.

* Refund of taxes paid on the supply of goods considered as deemed exports.

* Refund of any excess balance in the electronic cash ledger after payment of tax dues and other dues payable under the CGST Act or the rules made there under.

* Refund of taxes paid on a supply which is actually not made, either wholly or partially, and for which the invoice hasn’t been issued (tax paid on advance payment).

* Refund of tax wrongly collected and deposited to the Government (i.e., IGST paid by treating the supply as inter-state supply, which is subsequently held as intra-state supply and vice-versa).

* Refund of the IGST paid by tourists leaving India on any supply of goods taken out of India by him.

* Tax becoming refundable due to judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any Court.

* Any tax becoming refundable to the taxpayer on finalisation of provisional assessment (on account of assessed tax on the final assessment being less than the tax deposited by the taxpayer).

* Refund of taxes paid on purchases made by UN bodies or embassies, etc.

* Refund of taxes to retail outlets established in the departure area of an international airport beyond immigration counters, making a tax-free supply to an outgoing international tourist.

* Refund of advance tax paid by a casual taxable person/Non-resident taxable person.

Excess payment of tax refund in GST

.The list mentioned above is only indicative and not exhaustive.

Application for Claiming Refund

Any person wanting to claim a refund of any tax, interest, penalty, fees or any other amount paid by him has to file an application in Form GST RFD-01 electronically through GST common portal.

However, in the case of export refund under GST, i.e., refund of IGST paid on goods exported out of India, there is no need to furnish Form GST RFD-01 since the shipping bill filed by the exporter is itself considered a refund claim.

Further, a registered person claiming a refund of any balance in the electronic cash ledger may claim such refund through the return filed for the relevant tax period under section 39 in Form GSTR-3/GSTR-4/GSTR-7, as the case may be.However, presently, the application for refund of the balance in the Electronic Cash Ledger is also being filed in Form GST RFD-01. Earlier, Form GST RFD01A was filed to claim the cash refund in place of Form GST RFD-01.

Time Limit for Claiming Refund

Any person claiming a refund of any tax, interest, if any, paid on such tax or any other amount paid by him shall have to apply for such refund before the expiry of 2 years from the ‘Relevant Date’.

However, no GST refund time limit is applicable in cases of refund of excess balance in the electronic cash ledger.

Meaning of Relevant Date

‘Relevant Date’ in respect of different scenarios is defined as follows:
 

S.No.	Cases	Relevant Date
1	In case of goods exported out of India where the refund of tax paid is available for the goods themselves or, as the case might be, the inputs/input services utilised in such goods and
	the goods are exported by sea or air	the date on which the ship/aircraft in which such goods are loaded leaves India
	the goods are exported by land	the date on which such goods pass the frontier
	the goods are exported by post	the date of dispatch of goods by the Post Office concerned to a place outside India
2	In case of services exported out of India where a refund of tax paid is available for services themselves or, as the case may be, the inputs or input services utilised in such services, and
	the supply of services had been concluded before the receipt of such payment	The date of receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India
	payment for the services was received in advance before the date of issue of the invoice	The date of issue of the invoice
3	In case of zero-rated supply of goods and/or services to an SEZ developer or an SEZ unit where a tax refund is available for such supplies themselves, or as the case may be, the inputs or input services utilised in such supplies	The due date for filing of return under section 39 in respect of such supplies
4	In case of the supply of goods treated as deemed exports where a refund of tax paid is available in regard to the goods	The date on which the return in respect of such deemed exports is furnished
5	Where tax becomes refundable as a result of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal/any court	The date of communication of such judgment, order, decree or direction
6	In case of a GST refund on inverted duty structure of unutilised ITC	The due date for filing of return u/s 39 for the period in which such refund claim arises
7	In the case where tax is paid provisionally under this Act/rules made thereunder	The date of adjustment of tax after the final assessment thereof
8	In the case of a person other than the supplier	Date of receipt of goods and/or services by such person
9	Any other case	Date of payment of tax

Principle of Unjust Enrichment

‘Unjust Enrichment’ takes place when a person retains money which belongs to someone else in justice, equity and good conscience.This principle states that no person can be allowed to enrich inequitably at the expense of another.

The theory of unjust enrichment, under GST, stipulates that only the person who has not passed the burden of tax to some other person will be eligible to claim the refund. Where the tax amount has been recovered from the recipient, it shall be considered that ‘The tax incidence has been shifted to the ultimate consumer’.

* Under the principle of unjust enrichment, a presumption is always drawn that the businessman will pass the burden of tax to the final consumer. Hence, every refund claim if sanctioned is first transferred to the Consumer Welfare Fund.

* However, if the applicant passes the test of unjust enrichment (test for determining GST refund eligibility), the refund is paid to the applicant.

* For crossing the bar of unjust enrichment, a self-declaration of the applicant needs to be furnished to establish that the tax incidence has not been passed to any other person in cases where the refund amount claimed does not exceed Rs. 2 lacs. However, if the amount of refund claimed exceeds Rs. 2 lacs, a Certificate by a Cost Accountant or a Chartered Accountant to the effect that there is no unjust enrichment in the case of the applicant needs to be submitted.

Cases where the theory of unjust enrichment is inapplicable

In the following cases, the principle of unjust enrichment is not applicable, i.e., in the following scenarios, the refundable amount shall, instead of being credited to the Consumer Welfare Fund, be paid to the applicant:

* Refund of taxes paid on export of goods or services or both or on inputs or input services used in making such exports;

* Refund of excess cash balance in the electronic cash ledger;

* Refund of unutilised ITC in case of zero-rated supplies made without payment of tax or accumulated ITC due to inverted duty structure;

* Refund of taxes paid on a supply which is actually not provided and for which the invoice has not been issued, or in a case where a refund voucher has been raised;

* Refund of taxes wrongfully paid, i.e., tax paid on a transaction treated to be an inter-State supply but which is later held to be an intra-State supply or vice-versa;

* Refund of the tax and interest, if any, or any other sum paid by the applicant if he had not shifted the burden of such amount of tax and interest to any other person; or

* refund of the tax or interest borne by such other class of applicants as the Government may specify.

Refund of Unutilised ITC

Accumulation of Input Tax Credit (ITC)

Accumulation of Input Tax Credit (ITC) occurs when the tax paid on inputs exceeds the output tax liability. Such accumulation has to be carried over to the next FY until it can be used to pay the output tax liability. However, in the following two cases, theun utilised net ITC in GST refund is permitted by the GST Law at the end of a tax period:

1: zero-rated supplies made without payment of taxes;

2: where the credit has accumulated due to the inverted duty structure, i.e., the tax rate on inputs being more than the tax rate on output supplies (other than nil rated or fully exempt supplies).

In the above two cases, the Electronic Credit Ledger is debited by an amount equal to the refund claimed.

Cases where ITC refund is not allowed

The GST credit refund is not allowed in the following cases:

1: If the goods exported from India are subjected to export duty.

2: If the supplier of goods and/or services avails the drawback in respect of CGST or claims the refund of the IGST paid on such supplies.

Minimum Refund Claim

As per section 54(4) of the CGST Act, an applicant shall not be paid any refund if the amount is less than Rs. 1,000. This limit of Rs. 1,000 applies for each tax head (i.e., CGST, SGST & IGST)separately. Also, this limit would not apply in cases of refund of excess balance in the electronic cash ledger.

Interest on Delayed Refunds

In a case where any tax ordered by the proper officer to be refunded to any applicant is not repaid within 60 days from the date of receipt of the GST Refund application, interest shall be payable to the applicant @6% p.a. on such refund amount from the date immediately following the expiry of 60 days from the date of receipt of the refund application till the date of repayment of such tax.

In a case where any claim of refund arises on account of an order passed by an Adjudicating Authority or Appellate Tribunal or Appellate Authority or Court and the same is not repaid within 60 days from the date of receipt of the refund application filed consequent to such order, interest shall be payable to the applicant @9% p.a. on such refund from the date immediately following the expiry of 60 days from the date of receipt of application till the date of refund.

Consumer Welfare Fund

Consumer Welfare Fund was created to protect and promote the welfare of consumers, spread consumer awareness and strengthen consumer movement in the nation, particularly in rural areas. The refund amount not payable to the applicant is credited to the Consumer Welfare Fund. As already discussed above, the amount of refund is paid to the applicant in cases where the supplier has not passed the incidence of tax to the recipient and in circumstances where the principle of unjust enrichment is inapplicable. In all other cases, the said amount is credited to the Consumer Welfare Fund.

Withdrawal of Refund Application

An applicant is allowed to withdraw the refund application under GST filed by him by filing Form GST RFD-01W at any time before issuance of a provisional refund or final refund or payment order or refund withhold order or notice. On submission of such withdrawal application, any amount debited by the applicant from the electronic cash ledger or electronic credit ledger while applying for refund in Form GST RFD-01 shall be credited back to the ledger from which such amount was debited.

Let’s Conclude

The mechanism of GST Refund for business provides a boost to the export industries. It is the ultimate remedy available to the taxpayers for the excess taxes or wrong taxes paid by them.So, if you have any confusion regarding GST Refund or are wondering how to claim GST refund, you should get in touch with a GST Refund Consultant as it is imperative to understand the instances when a GST refund becomes applicable and the GST Refund rules for claiming such a refund.

In conclusion, the concept of GST refund plays a vital role in facilitating trade by unlocking funds for business expansion and modernization. The GST refund procedure has been streamlined and standardized, making it online and time-bound, eliminating the previous cumbersome process. This article sheds light on various situations leading to refund claims and provides information on the application process, time limits, the principle of unjust enrichment, refund of unutilized Input Tax Credit, and other important aspects. It also emphasizes the significance of the Consumer Welfare Fund and explains the procedure for withdrawal of a refund application.

Take control of your working capital with seamless GST refund process. Contact us at info@manishanilgupta.com to navigate the complexities and maximize your refunds.

Disclaimer: The information given above is to provide general guidance to the readers. This information should not be sought as a substitute for legal opinion.