REFUND TO UNREGISTERED PERSONS UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Refund of tax

Section 54(1) of the Central Goods and Services Tax Act, 2017 provides that any person can claim refund of any tax and interest, if any, paid on such tax or any other amount paid by him, by making an application before the expiry of two years from the relevant date in such form and manner as may be prescribed.  The application shall be accompanied by such documentary evidence as may be prescribed to establish that a refund is due to the applicant.

Section 54(5) provides that  if, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order within 60 days from the date of receipt of the application and the amount so determined shall be credited to the Fund .

Section 54(8) provides that refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued shall be paid to the applicant instead of transferring the refund amount to the credit of Consumer Welfare Fund.

Refund due to unregistered persons

The question of refund of GST does not arise.  However in the following events the unregistered person may get refund-

• Cancellation of contract – An unregistered person may enter into contract/agree with other person i.e., contract with builders for the construction of flats/building.  At the time of contract the unregistered may pay the entire amount of contract along with the applicable GST which may by paid by the contractor to the credit of the Government.  In such cases the contract may be cancelled for any of the reason.  In a number of such cases, the period for issuance of credit note on account of such cancellation of service under the provisions of section 34 of the Central Goods and Service Tax Act, 2017  may already have got expired by that time.  In such cases the supplier may refund the eligible amount after deducting the tax proportionate to that amount and the balance amount will be refunded to the unregistered person. 
• In cases of long-term insurance policies the premium for the entire period of term of policy is paid upfront along with applicable GST. The policy may be subsequently terminated or prematurely due to some reasons.   The time period for issuing credit note under the provisions of section 34 of the CGST Act may have already expired and therefore, the insurance companies may refund only the proportionate premium net off GST.

In terms of clause (e) of sub-section (8) of section 54 of the CGST Act, in cases where the unregistered person has borne the incidence of tax and not passed on the same to any other person, the said refund shall be paid to him instead of being credited to Consumer Welfare Fund.

Where the time period for issuance of credit note under section 34 of the CGST Act has not expired at the time of cancellation/termination of agreement/contract for supply of services, the concerned suppliers can issue credit note to the unregistered person. In such cases, the supplier would be in a position to also pay back the amount of tax collected by him from the unregistered person and therefore, there will be no need for filing refund claim by the unregistered persons in these cases.

Circular of the  Board

The Government received representations requesting for providing a facility to such unregistered buyers/ recipients for claiming refund of amount of tax borne by them in the event of cancellation of the contract/agreement for supply of services of construction of flat/ building or on termination of long-term insurance policy.

The Principal Commissioner, in order to redress the above said grievance issued the procedure for claiming the refund by unregistered persons in the GST portal, vide Circular No. 188/20/2022-GST, dated 27.12.2022.

Procedure

Temporary registration

• The unregistered person, who wants to file an application for refund under sub-section (1) of section 54 of CGST Act, in cases where the contract/agreement for supply of services of construction of flat/ building has been cancelled or where long-term insurance policy has been terminated, shall obtain a temporary registration on the common portal using his Permanent Account Number.
• The unregistered person shall select the same state/Union Territory where his/her supplier, in respect of whose invoice refunds is to be claimed, is registered.
• Then he would be required to undergo Aadhaar authentication in terms of provisions of rule 10B of the CGST Rules. 
• Then he is required to enter his bank account details in which he seeks to obtain the refund of the amount claimed.
• Where the suppliers, in respect of whose invoices refund is to be claimed, are registered in different States/Union Territories, the applicant shall obtain temporary registration in the each of the concerned States/Union Territoriess where the said supplier are registered.

Filing of application for refund

•  The refund claim can be filed by the unregistered persons only in those cases where at the time of cancellation/termination of agreement/contract for supply of services, the time period for issuance of credit note under section 34 of the CGST Act has already expired.
• The application for refund shall be filed in Form GST RFD-01 on the common portal under the category ‘Refund for unregistered person’.
• The applicant shall upload statement 8 (in pdf format) and all the requisite documents as per the provisions of  of rule 89(2).
• The refund amount claimed shall not exceed the total amount of tax declared on the invoices in respect of which refund is being claimed.
•  The applicant shall also upload any other document(s) to support his claim that he has paid and borne the incidence of tax and that the said amount is refundable to him.
• Separate applications for refund have to be filed in respect of invoices issued by different suppliers.

Relevant date

As per  section 54(1) of the CGST Act, time period of two years from the relevant date has been specified for filing an application of refund.  The relevant date in respect of cases of refund by a person other than supplier is the date of receipt of goods or services or both by such person in terms of provisions of clause (g) in Explanation (2) under section 54 of the CGST Act.  However, in respect of cases where the supplier and the unregistered person (recipient) have entered into a long-term contract/ agreement for the supply, with the provision of making payment in advance or in installments, for example- construction of flats or long-term insurance policies, if the contract is cancelled/ terminated before completion of service for any reason, there may be no date of receipt of service, to the extent supply has not been made/ rendered.  In such type of cases, it has been decided that for the purpose of determining relevant date in terms of clause (g) of Explanation (2) under section 54 (2)(g) of the CGST Act, date of issuance of letter of cancellation of the contract/ agreement for supply by the supplier will be considered as the date of receipt of the services by the applicant.

Minimum amount

No refund under sub-section (5) or sub-section (6) shall be paid to an applicant, if amount is less than Rs.1000/-. Therefore, no refund shall be claimed if the amount is less than Rs.1000/-.

Refund

The proper officer shall process the refund claim filed by the unregistered person in a manner similar to other RFD-01 claims.  He shall scrutinize the application with respect to completeness and eligibility of the refund claim to his satisfaction and issue the refund sanction order in Form GST RFD-06 accordingly. The proper officer shall also upload a detailed speaking order along with the refund sanction order in Form GST RFD-06.

Where the amount paid back by the supplier to the unregistered person on cancellation/termination of agreement/contract for supply of services is less than amount paid by such unregistered person to the supplier, only the proportionate amount of tax involved in such amount paid back shall be refunded to the unregistered person.