REFUNDS UNDER GST

[Dr. Sanjiv Agarwal]

Timely refund mechanism is essential in tax administration, as it facilitates trade through release of blocked funds for working capital, expansion and modernization of existing business.

The provisions pertaining to refund contained in the GST law aim to streamline and standardise the refund procedures under GST regime. Thus, under the GST regime there will be a standardised form for making any claim for refunds. The claim and sanctioning procedure will be completely online and time bound which is a marked departure from the existing time consuming and cumbersome procedure.

Meaning of ‘Refund’

Though the term ‘refund’ has not been specifically decided in the GST law but for the purpose of section 54, refund has been stated to mean as follows:

“refund includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3).”

The term ‘refund’ has been defined by way of inclusive definition in explanation (1) to section 54(14) of the CGST Act, 2017. Accordingly, refund includes -

1. refund of tax on zero rated supply of goods and or services or both or
2. refund of tax on input or input services used in making zero rated supply of goods and or services or
3. refund of tax on the supply of goods regarded as deemed exports, or
4. refund of unutilized input tax credit as provided under section 54 (3).

Situations leading to Refund Claims

The relevant date provision embodied in Section 54 of the CGST Act, 2017, provision contained in Section 77 of the CGST Act, 2017 and the requirement of submission of relevant documents as listed in Rule 89(2) of CGST Rules, 2017 is an indicator of the various situations that may necessitate a refund claim.

A claim for refund may arise on account of-

• Export of Goods or services
• Supplies to SEZs units and developers
• Deemed Export supplies
• Refund of taxes on purchase made by UN or embassies etc
• Refund arising on account of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court
• Refund of accumulated Input Tax Credit on account of inverted duty structure
• Finalisation of provisional assessment
• Refund of pre-deposit
• Excess payment due to mistake
• Refunds to International tourists of GST paid on goods in India and carried abroad at the time of their departure from India
• Refund on account of issuance of refund vouchers for taxes paid on advances against which goods or services have not been supplied
• Refund of CGST & SGST paid by treating the supply as intra-State supply which is subsequently held as inter-State supply and vice versa.

Thus, practically every situation is covered. The GST law requires that every claim for refund is to be filed within two years from the relevant date.

When can refund application be filed

In the following situations, taxable person can file the refund application/claim in the prescribed form with the department for sanction of refund:

1. On finalization of provisional assessment in section 60,
2. Refund of pre deposit made at the time of filing appeal. (Application to be made at the time of disposal of appeal In favour of taxable person).
3. Refund of balance in electronic cash ledger in accordance with provisions of section 49(6)
4. Excess payment of tax made due to mistake or inadvertence.
5. Tax wrongfully collected and deposited with Central or State Governments under section 77 of the CGST Act, 2017.
6. Refund of tax payments on inward supply made by UN bodies or Embassies or any other person notified under section 55.
7. Refund under section 19 of the IGST Act, 2017.

As the application of refund has to be made within 2 years of the relevant date, therefore, relevant date is very important with reference to refund claims.

Relevant Date

The term ‘relevant date’ has been defined in explanation 2 to section 54 of CGST Act, 2017 to mean-

(a)   In the case of goods exported out of India, where the refund is available in reference to goods itself or inputs or input services used in such goods:

(i)   If the goods are exported by Sea or air, the date on which such ship or aircraft leaves India.

(ii)  If the goods are exported by land, the date on which such goods pass the frontiers.

(iii) If the goods are dispatched by post, the date of dispatch of goods by post office concerned to a place outside India.

(b)  In case of supply of goods regarded as deemed exports – the date on which the return relating to such goods as deemed exports is furnished.

(ba)  In case of zero rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit where a refund of tax paid is available in respect of such supplies themselves, or as the case may be, the input or input services used in such supplies, the due date for furnishing of return under section 39 in respect of such supplies.

(c)   In the case of services exported out of India, where the refund is available in reference to such services, the inputs or input services used in such services;

(i)   The date of receipt of payment in convertible foreign exchange, or Indian rupee wherever permitted by RBI where supply of service is completed prior to receipt of payment.

(ii)  Issue of invoice where payment of the service had been received in advance.

(d)  In case tax becomes refundable as a consequence of judgment, decree, order or direction of Appellate authority, Tribunal or any court, the date of communication of such judgment, order decree or direction .

(e)   In case of refund of unutilized input tax credit, the end of financial year in which such claim of refund arises.

(f)   In case where tax is paid provisionally under the Act or rules – the date of adjustment of the tax after final assessment thereof.

(g)   In case of a person other than the supplier – the date of receipt of goods or services or both by such person.

(h)  In any other case – the date of payment of tax.

The ‘relevant date’ under different situation can be summarized in the following table:

Situation	Relevant Date
Goods are exported by Sea or air	Date on which such ship or aircraft leaves India
Goods are exported by land	Date on which such goods pass the frontiers
Goods are dispatched by post	Date of dispatch of goods by post office concerned to a place outside India
Supply of goods as deemed exports	Date on which the return relating to such goods as deemed exports is filed
Services exported out of India- (a) where supply of service is completed prior to receipt of payment (b) where payment of the service had been received in advance prior to the date of issue of the invoice	(a) Date of receipt of payment in convertible foreign exchange (b) Date of issue of invoice.
Tax becomes refundable as a consequence of judgment, decree, order or direction of Appellate Authority, Tribunal or any Court	Date of communication of such judgment, order decree or direction
Refund of unutilized input tax credit	End of financial year in which such claim of refund arises
Tax is paid provisionally under the Act or rules	Date of adjustment of the tax after final assessment
In case of a person other than supplier	The date of receipt of good or services or both by such person
In case of zero rated supplies to SEZ developer / unit  (Inserted vide Finance Act, 2022)	Due date of furnishing return under section 39 of CGST Act, 2017  (Inserted vide Finance Act, 2022)
In any other case	The date of payment of tax