GST Refunds: Why to file one application for one tax period under a particular category?

[Kashish Gupta]

So much procedural flaws has been created by executive till date which are removed from time to time by judicial mandates – thanks to the Government for accepting such mandates – recent instance thereof is the Hon’ble Delhi High Court decision in case of Pitambara Books Private Limited reported as 2020 (2) TMI 169 where it was held that refund can spread over two financial years which was accepted by Board as clarified through Circular 135/05/2020 dated 31.03.2020. But so much is still left to resolve with procedural infirmities.

Introduction

It is stated that section 54(3) of the GST Act, 2017 provides substantive right to the applicant to claim refund of unutilized input tax credit. It is pertinent to state that mechanism for making an application for refund on the common portal was not fully automated because of system glitches in the beginning. Therefore, the government vide its Circular No. 17/17/2017-GST dated 15.11.2017 and also vide its Circular No. 24/24/2017 dated 21.12.2017, provided for manual filing and processing of refund claim on account of zero rated supplies, inverted duty structure, deemed exports and excess balance in electronic cash ledger. Accordingly, rule 97A was inserted in GST Rules vide CGST (Twelfth Amendment) Rules, 2017 w.e.f. 15.11.2017 and corresponding notification under State GST Act, which provided for manual filing and processing of application for refund. As a part of procedure, applicant was required to file FORM GST RFD-01A on the common portal, generate the Application Reference Number (ARN), take print-outs of the same, and submit it physically in the office of the jurisdictional proper officer, along with all the supporting documents.

In many cases, it happened that applicant filed an application for refund under a particular category for ₹ 100/- which was curtained automatically by the GSTN portal to a lower amount, say ₹ 60/- on account of embedded portal errors. Or in some cases, applicant on account of human error created the application with lower amount and thereby wants to claim refund for balance amount. However, it is noted that portal restricts such an assessee to create another refund application under the same category again for the same tax period. It has also been seen that if another application for refund is created online under “Any other” category, same is being rejected by the jurisdictional officers. Hence, through the present article, the provisions of the law are being discussed to justify admissibility and legality of such claims.

A. GOING BY PROVISIONS, IT NOWHERE PROVIDES FOR RESTRICTION TO FILE REFUND UNDER A PARTICULAR CATEGORY ONLY ONCE FOR A PARTICULAR TAX PERIOD ON ONLINE PORTAL.

1. It is to be noted that Section 54 of the GST Act provides the substantive right to claim refund of any unutilized input tax credit at the end of any tax period. The section is extracted hereunder for reference:

“Refund of tax.

54. (1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

………………………

(2) ………………….

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than––

1. zero rated supplies made without payment of tax;
2. where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that …………….:

Provided also ……………………..

XXXXXXX”

2. The bare reading of the above section makes it clear that the person making ‘zero rated supply’ or “inverted rated supply”, shall be eligible to claim refund of ‘unutilized input tax credit’ under this section. Therefore, refund of unutilized input tax credit is a vested right of the person doing the zero rated supply; inverted rated supply; and as soon as the goods or services or both are so supplied, the said right gets vested in the assessee by virtue of section 54(3).
3. The above section also provides that refund of input tax credit can be claimed at end of any tax period. It nowhere provides that refund has of unutilized input tax credit for a tax period shall be claimed at end of any tax period only once.
4. Section 164 of the GST Act gives rule making power to the Government. Said section reads as under:

“Power of Government to make rule

164. (1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

(2) Without prejudice to the generality of the provisions of sub-section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

(3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force.

(4) ……….”

5. Under sub section [1] of Section 164 of the GST Act, thus, the Government on recommendations of the Council, by notification, could make rules “for carrying out the provisions of the Act”. This rule making power is thus couched in the widest possible manner empowering the Government to make the rules for carrying out the provisions of the Act. Sub section [2] to Section 164 is equally widely worded, when it provides that, “without prejudice to the generality of the provisions of sub section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be, or may be made by the rules.” Sub section [3] of Section 164, to which we are not directly concerned, nevertheless provides that the power to make rules conferred in the said section would include the power to give retrospective effect to such rules.
6. It is in exercise of this rule making power, the Government has framed the GST Rules in which; as noted, rule 89 of GST Rules is there. It is pertinent to mention that sub-section (3) of section 54 of GST Act nowhere provides that any formula for the purposes of granting refund is to be prescribed by way of sub-ordinate legislation. However, looking at the practical circumstances, government finds this matter in respect of which provisions are required to be made by rules and hence rules have been so drafted under section 164(2) of the GST Act. 
7. It is pertinent to mention that rule 89 of GST Rules provides the procedural law for claiming the refund of ‘unutilized input tax credit’. The relevant portion of rule 89 is extracted hereunder for reference:

“Rule 89. Application for refund of tax, interest, penalty, fees or any other amount-

1. Any person, except the persons covered under notification issued under section 55, claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, may file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner:
2. ……………

8. From the provisions reproduced above, it is clear the refund of unutilized input tax credit is to be filed on online portal in Form GST RFD-01 and amount of refund shall be calculated in the manner prescribed i.e. formula given above. The relevant extracts of refund form are reproduced hereinbelow for reference:

10. Verification

…………………………

I/We declare that no refund on this account has been received by me/us earlier.

Statement – 3A [rule 89(4)]

Refund Type: Export without payment of tax (accumulated ITC) – calculation of refund amount

(Amount in Rs.)

Turnover of zero rated supply of goods and services	Net input tax credit	Adjusted total turnover	Refund amount (1×2÷3)
1	2	3	4

 

9. It is to be noted that Form RFD-01A does not contain any instructions which essentially provides that instructions for filing Form RFD-01 shall apply thereon. The instructions for filing said Form reads as under:

1. ……………..
2. Refund of excess amount available in electronic cash ledger can also be claimed through return or by filing application.
3. Debit entry shall be made in electronic credit or cash ledger at the time of filing the application.
4. Acknowledgement in FORM GST RFD-02 will be issued if the application is found complete in all respects.
5. Claim of refund on export of goods with payment of IGST shall not be processed through this application.
6. Bank account details should be as per registration data. Any change in bank details shall first be amended in registration particulars before quoting in the application.
7. Declaration shall be filed in cases wherever required.
8. ‘Net input tax credit’ means input tax credit availed on inputs during the relevant period for the purpose of Statement-1 and will include ITC on input services also for the purpose of Statement-3A and 5A.
9. ‘Adjusted total turnover’ means the turnover in a State or a Union territory, as defined under clause (112) of section 2 excluding the value of exempt supplies other than zero-rated supplies, during the relevant period.
10. For the purpose of Statement-1, refund claim will be based on supplies reported in GSTR-1 and GSTR-2.
11. BRC or FIRC details will be mandatory where refund is claimed against export of services details of shipping bill and EGM will be mandatory to be provided in case of export of goods.
12. Where the invoice details are amended (including export), refund shall be allowed as per the calculation based on amended value.
13. Details of export made without payment of tax shall be reported in Statement-3.
14. Availability of refund to be claimed in case of supplies made to SEZ unit or SEZ developer without payment of tax shall be worked out in accordance with the formula prescribed in rule 89(4).
15. ‘Turnover of zero rated supply of goods and services’ shall have the same meaning as defined in rule 89(4).

 

10. It is submitted that neither the Act nor rules nor Form as well as instructions provided to submit the Form prescribed by the legislature for claim of refund provides that refund shall be claimed under any particular category and that refund shall be claimed only once under a particular category for a tax period. In order to safeguard double claim of same refund, assessee has been asked to provide a self-verification in para 10 of refund Form wherein assessee confirms that “no refund on this account has been received by me/us earlier”. Therefore, the restriction to claim refund only once under a particular category in one tax period is self-created by the portal which is seriously affecting the vested rights of the assessee.

B. ALSO, MAXIMUM AMOUNT OF REFUND HAS BEEN CURTAILED BY THE PORTAL WITHOUT ANY LEGAL AUTHORISATION TO DO SO WHICH HAS AFFECTED VESTED RIGHTS OF THE ASSESSEE.

11. Besides that the restrictions on maximum amount of refund are self-created by the online portal when it goes beyond refundable amount to be calculated as per statement 3A of Form GST RFD-01/01A. Said statement is reproduced hereinbelow, at the risk of repetition, for reference purpose:

Turnover of zero rated supply of goods and services	Net input tax credit	Adjusted total turnover	Refund amount (1×2÷3)
1	2	3	4

 

However, a bare look at Form RFD-01 created online clearly provides that substantive right of assessee to claim refund as per column number 4 has been seriously affected by restricting to any other amount i.e. column number 8. Said additional table, created by the online portal is as under:

	Value as per Statement 3A	Balance in electronic credit ledger	Total credit availed during the period	Eligible Amount (Lowest of All)
	5	6	7	8
Integrated Tax
Central Tax
State Tax
Cess

12. Considering the undue hardships being caused to taxpayers on account of embedded portal formulas, further easiness was ensured vide issuance of Circular Number 59/33/2018-GST dated 04.09.2018 wherein Central Board of Indirect Taxes and Customs acknowledged the lacuna in working of portal and provided for corrective measures and provided as under:

“3.1. Currently, in case of refund of unutilized input tax credit (ITC for short), the common portal calculates the refundable amount as the least of the following amounts:

1. The maximum refund amount as per the formula in rule 89(4) or rule 89(5) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”) [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax +Integrated tax + Cess(wherever applicable)];
2. The balance in the electronic credit ledger of the claimant at the end of the tax period for which the refund claim is being filed after the return for the said period has been filed; and
3. The balance in the electronic credit ledger of the claimant at the time of filing the refund application.

3.2. After calculating the least of the three amounts, as detailed above, the equivalent amount is to be debited from the electronic credit ledger of the claimant in the following order:

1. Integrated tax, to the extent of balance available;
2. Central tax and State tax/Union Territory tax, equally to the extent of balance available and 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).

3.3. The procedure described in para 3.2 above, however, is not presently available on the common portal. Till the time such facility is made available on the common portal, the taxpayers are advised to follow the order as explained above for all refund applications filed after the date of issue of this Circular. However, for applications already filed and pending with the tax authorities, where this order is not adhered to by the claimant, no adverse view may be taken by the tax authorities.

[emphasis supplied]

13. Further, it is submitted that section 54(3) of GST Act provides the substantive right to the assessee making zero rated supply to claim refund and hence, the refund of “unutilized input tax credit” is the vested right of the Assessee. However, the working of online portal results in taking away the vested right of the assessee by restricting it to apply for refund only once under the same category, that too in a situation where bottlenecks in creation of refund application are self-created by the GSTN portal. Thus, the same is being unreasonably affecting the right to carry on business; and taking away the property without there being any law as also taxing without authority of law.
14. Further, subsequent to issuance of Circular 59, no steps were taken by Board to re-open the refund applications filed already or to allow filing of refund claim once again for deficient amount. Rather it was silent as regards execution of claims like of applicant. Therefore, applicant should not be deprived of his vested rights.

Conclusion

In light of the discussion made above, it is to be noted that impugned flaws in working of the GSTN portal which is restricting the vested rights of the assessee shall be removed and pending claims of the assessee should be facilitated. In case due to these flaws, any claim has been barred by time i.e. has already passed 2 years from relevant date, a non-statutory refund claim shall be preferred to be followed by invocation of writ remedy under Article 226 of Constitution of India and provisions of section 17 of Limitation Act shall be resorted to.