Introduction:
Input Tax Credit (ITC) gets accumulated when the tax paid on input is more than the output tax liability, accumulated tax remains unutilised until output tax liability arises. However, refund of unutilised ITC is allowed under following two circumstances, namely if ITC is accumulated on account of zero rates supplies or on account of inverted duty structure, subject to certain exceptions.
Situation leading to refund claims.
1. Export of Goods or services
2. Supplies to SEZs units and developers
3. Deemed Export supplies
4. Refund of taxes on purchase made by UN or embassies etc.
5. Refund arising on account of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court
6. Refund of accumulated Input Tax Credit on account of inverted duty structure
7. Finalisation of provisional assessment
8. Refund of pre-deposit
9. Excess payment due to mistake
10. Refunds to International tourists of GST paid on goods in India and carried abroad at the time of their departure from India
11. Refund on account of issuance of refund vouchers for taxes paid on advances against which goods or services have not been supplied
12. Refund of CGST & SGST paid by treating the supply as intra-State supply which is subsequently held as inter-State supply and vice versa.
Every claim for refund is to be filed within 2 Years’ from the relevant date.
Relevant provision for claiming Refund of ITC can be understood on reading of Section 54 of the CGST Act, 2017, Section 77 of the CGST Act, 2017 and Rule 89(2) of CGST Rules, 2017.
Zero Rated Supplies:
All exports (whether of goods or services) and supplies to SEZs have been categorised as Zero Rated Supplies in the IGST Act, 2017. “Zero rated supply” under Section 16 of the IGST Act, 2017
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 thereof as per the provisions of Section 54 of CGST Act, 2017. Thus, the GST law allows the flexibility to the exporter, including 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.
Section 54(3) of CGST Act, 2017 allows assesse to claim refund of un-utilised ITC refund
Refund of unutilised ITC is allowed only in the following two cases.
1) Zero rated supplies made without payment of tax (Section 16(3) of IGST Act, 2017)
a) Supplier of goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised ITC
b) Supplier of goods or services or both subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied. This category is applicable in case of supplies made after payment of Tax (IGST)
Refund can be applied under section 54 of CGST Act, 2017 read with Rule 89 or Rule 96 as the case may be, of CGST 2017.
2) Inverted duty structure Section 54(3) of CGST Act, 2017: Where the credit has accumulated on account of rate of tax on input being higher than rate of tax output supplies.
Refund Application:
Application process:
Every claim has to be filed online in a standardised form. The application shall be forwarded to the proper officer who shall, within a period of three days of filing of the said application, scrutinize the application for its completeness and where the application is found to be complete in all terms, an acknowledgement shall be made available to the applicant through the common portal electronically. The claim for refund of amount lying in the credit balance of the cash ledger can be made in the monthly returns also.
Important points to be noted while filing refund claim:
1. In case of physical export, invoice raised during the month supported by shipping bill will be treated as turnover for the month
2. Aggregate realisation against invoice is considered as turnover for relevant month for which refund claim is submitted. Advance received against future services shall not be considered as turnover for the relevant month, instead amount received will be considered as turnover in the month in which invoice is raised against the advance.
3. Unless vendor files GSTR1, supplier is not eligible to claim refund of ITC.
4. Refund of ITC can be claimed in the month it appears in GSTR-2A irrespective of date on the suppliers invoice.
Procedure for filing Refund claim of IGST paid on Export of goods
The shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed only when:-
(a) the person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering the number and the date of shipping bills or bills of export; and
(b) the applicant furnish a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be. The term valid return means a return furnished under section 39(1) of the GST Act, 2017 on which self-assessed tax has been paid in full.
(c) Filing of a correct EGM is a must for treating the shipping bill or bill of export as a refund claim. The details of the relevant export invoices contained in FORM GSTR-1 are transmitted electronically by the GST portal to the Customs system and the said system, in turn, transmits back to the GST portal a confirmation that the goods covered by the said invoices have been exported out of India.
(d) Filing of a valid return in GSTR 3B is another pre-requisite for considering the shipping bill/bill of export as the claim for refund. Upon receipt of information regarding furnishing of a valid return in FORM GSTR-3B from the common portal the Customs System, processes the claim for refund and an amount equal to the integrated tax paid in respect of each shipping bill or bill of exports electronically credited to the bank account of the applicant mentioned in the taxpayer exporter’s registration particulars.
Procedure for filing refund claims (other than refund under Rule 96 on account of export of goods and refund of unutilised ITC on account of zero rated supply)
The application for refund of integrated tax paid on zero rated supply of goods to a Special Economic Zone developer or a Special Economic Zone unit or in case of zero-rated supply of services is required to be filed in FORM GST RFD-01 by the supplier on the common portal, within the time stipulated for filing of such refund under the CGST Act, 2017.
Procedure for filing refund claims of unutilised ITC on account of zero rated supply
The application for refund of unutilized input tax credit on inputs or input services used in making zero-rated supplies shall be filed in FORM GST RFD-01 on the common portal and the amount claimed as refund shall get debited in accordance with sub-rule (3) of rule 86 of the CGST Rules, 2017 from the amount in the electronic credit ledger to the extent of the claim.
The common portal shall generate a proof of debit (ARN- Acknowledgement Receipt Number) which would be mentioned in the FORM GST RFD-01 submitted, within the time stipulated for filing of such refund under the CGST Act, 2017.
Rule 89(2) of the CGST Rules, 2017, specifies documents to be attached with the refund application in case of different types of Refund applicants.
Electronic Credit Ledger debit sequence (Circular no. 59/33/2018-GST)
Debit to ECL is done manually by the supplier in the sequence mentioned below at the time of filing of refund claim, if the debit sequence is not followed, refund claim is liable to be rejected.
a. Integrated tax, to the extent of balance available
b. Central tax and State tax/Union Territory tax, equally to the extent of balance available, in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be debited from the other electronic credit ledger (i.e., State tax/Union Territory tax, in this case).
Formula for grant of refund:
Formula for grant of refund of accumulated Input Tax Credit on account of zero rated supply is as follows:
Refund Amount = (Turnover of zero-rated supply of goods+ Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover
Where, -
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under rule 89(4A) or 89(4B) or both;
(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 or letter of undertaking, other than the turnover of supplies in respect of which refund is claimed under rule 89(4A) or rule 89(4B) or both;
(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:- Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by 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 a Union territory, as defined under clause (112) of section 2, excluding –
(a) the value of exempt supplies other than zero- rated supplies and
(b) the turnover of supplies in respect of which refund is claimed under rule 89(4A) or 89(4B) or both, if any, during the relevant period;
Processing of refund:
Step 1 – Proper officer should issue Deficiency memo within 3 days from the date of application if proper documents are not enclosed with the application for refund
Step 2 – If Deficiency memo is received, applicant can file refund claim again after making good the deficiency.
Step 3 – Refund application is deemed to be accepted if deficiency memo is not issued within 3 days from the date of application.
Step 4 – Proper officer will issue show cause notice if there are improper/in eligible refund claim once the refund application is accepted.
Step 5 – 90 % of the amount to be refunded provisionally once refund application is accepted.
As per section 54(6) of the CGST Act, 2017, ninety per cent of the total amount claimed as refund will have to be processed on a provisional basis, and the final order shall be issued within sixty days from the date of receipt of application complete in all respects (Section 54(7) of the CGST Act, 2017 refers).
Rule 91 of CGST Rules, 2017 provide that the provisional refund is to be granted within 7 days from the date of acknowledgement of the refund claim. An order for provisional refund is to be issued in Form GST RFD 04 along with payment advice in the name of the claimant in Form GST RFD 05. The amount will be electronically credited to the claimant’s bank account. The rules also prescribe
the provisional refund will not be granted to if the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for re-Refund of unutilised Input Tax Credit (ITC) fund relates, been prosecuted for any offence under the Actor under an earlier law where the amount of tax evaded exceeds two hundred and fifty lakh rupees;
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