February 02, 2022
For a registered taxpayer, a refund is considered to be a boon even if it is the reimbursement of his own money. The feel amounts to a recovery of funds you have lent to your dude and you have thought that it has been gone in vain.
With a view to offering instant payments to the taxpayer to reduce their loss of interest, every tax regime envisages having a refund system. GST regime also provides an opportunity for a refund. Here we are going to examine refunds under the GST in detail.
As per GST, the matters of the refund could be summed up as follows, and evidently, it is mostly regulated by Section 54 of CGST Act, 2017 and Rules 89/96 of CGST Rules, 2007.
|
Particular |
Rules in the law |
Application Form |
Conditions |
Tax outflow |
Refund |
|
Export of goods/services with LUT (without making any Tax payment ) |
Rule 89rws Section 54 of CGST Act |
RFD-01 |
Restriction on value to 1.5 of the value of domestic goods
The input of capital goods is not allowed
Duty drawback of GST shall not be availed
A refund according to the formula envisaged |
0% on supply |
Refund &ITC allowed |
|
Export of goods along with the tax payment |
Rule 96 rws Section 54 of CGST Act |
Shipping Bill deemed to be refund application |
Validation of return data along with shipping bill/EGM data on ICEGATE
Duty drawback of GST would not be availed |
Levy GST |
Refund of IGST paid allowed |
|
Export of Services along with tax payment |
Rule 89rws Section 54 of CGST Act |
RFD-01 |
Uploading of details regarding export viz. invoices/BRC on portal Duty drawback of GST shall not be availed |
Levy GST |
Refund of IGST paid allowed |
|
Refund in case of supplies to SEZ units/deemed exports with tax payment |
Rule 89rws Section 54 of CGST Act |
RFD-01 |
Uploading of invoice details along with relevant endorsement/declarations |
Levy GST |
Refund of IGST paid allowed |
|
Refund in case of supplies to SEZ without tax payment |
Rule 89rws Section 54 of CGST Act |
RFD-01 |
Refund as per formula envisaged |
0% on supply |
ITC and refund allowed |
|
Unutilized credit in case of inverted duty structure |
Rule 89rws Section 54 of CGST Act |
RFD-01 |
ITC of services disputed
Refund as per formula envisaged
No refund on invoices not appearing in GSTR 2A
HSN/SAC wise summary of inward supplies required |
Tax payable under the same head (CGST/IGST/SGST) |
Refund of excess credit allowed |
Due to different verdicts are given by Gujarat High Court and Madras High Court, it is a matter of concern for the taxpayer whether or not to include the unutilized ITC amount with respect to input services in their refund application.
in the case of VKC Footsteps India Pvt. Ltd. Vs. Union of India, Gujarat High Court has declared that Rule 89(5) is ultra-vires to Section 54(3) of the CGST Act in as much as it restrains the refund of ITC on input services. However, in the case of Tvl. Transtonnelstroy Afcons Joint venture, Madras High Court ruled out:-
"The extension of the benefit of refund only to the unutilized credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilized input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power”
The verdicts of these high courts are only applicable to the respective states and unless the matter is settled by the supreme court only recourse at the taxpayer’s disposal is to file a writ petition in the respective states in case the refund of unutilized ITC with respect to input services is sought.
Section 16(3) of the CGST Act, 2007 entitles a person making zero rated supply to make a claim for refund under Section 54 of the CGST Act,2007 in the following two ways:-
a)Claim a refund of unutilized tax credit (aka rebate under LUT); or
b) Claim a refund of tax paid on exported goods (aka export without LUT).
Section 54 defines refund to include a refund of the unutilized ITC of every kind. however, Rule 89 governing form and manner of refund prescribes a formula that includes only input and input services in net ITC and thereby excludes ITC with respect to capital goods.
Therefore the exporters are often in a dilemma whether or not to include ITC of capital goods in refund applications. To address the same circular no 18/18/2017-GST clarified that ITC on capital goods is not available under the LUT option. however, the matter still can be contested legally by means of the rationale and analogy of ruling of Gujarat high court in the case of VKC Footsteps India Pvt. Ltd. Vs. Union of India. Another common difficulty in refunds faced by exporters is invoice mismatching. that means the details filed in Table 6A of GSTR-1 or GSTR-3B and Shipping Bill details on Customs EDI are not concurring with it. Circular No. 42/2017 highlights errors noted at customs EDI and possible remedies as below:
|
Error code |
Particular |
Action |
Recommended |
|
SBOO1 |
Invalid Shipping Bill Number |
modify details through Table 9 of GSTR-1 and furnish the correct number |
|
|
SBOO2 |
Unfiled EGM |
The exporter may go to the Shipping Lines to file the EGM immediately. If EGM is already filed by the shipping line correctly, the "Revalidate EGM” option may be used by EGM Officer |
|
|
SBOO3 |
Mismatch of GSTIN in shipping bill and GSTR-1/3B where PAN furnished in shipping bill is the same as that of GSTR-1 |
Furnish undertaking at customs |
|
|
SBOO4 |
Invoice already received and validated |
Duplicated entry. Check shipping bill status on ICES |
|
|
SBOO5 |
The amount of IGST paid is different in Shipping Bill and GSTR-1 |
Modify GSTR-1 and adjust the amount in GSTR 3B of the following period |
Ensure that admitted tax liability of IGST under table 3.1(b) of GSTR-3B(Exports), is equal to, or greater than, the IGST amount claimed to have been paid under Table 6A of GSTR-1 of the corresponding period |
|
SBOO5 |
Incorrect Shipping Bill/ Invoice details in GSTR-1 |
Modify details through Table 9 of GSTR-1 |
According to Section 54(3) along with Rule 89(1)(2) of CGST Rules,2007 with respect to supplies to an SEZ unit (special economic zone) or an SEZ developer (special economic zone), the application shall be filed by the : (a) supplier of goods after such goods have been allowed fully in the SEZ for authorized operations, as approved by the specified officer of the Zone; (b) supplier of services along with such evidence related to the receipt of services for authorized operations as approved by the specified officer of the Zone:
Rule 89 further specifies that a declaration to the effect that the tax has not been collected by SEZ or SEZ developer shall be accompanied with refund application in cases of supply of goods/services made to SEZ unit or developer. Thus it can be concluded from above that SEZ unit or developers themselves cannot file a refund application even in case of unutilized tax credit where SEZ has made Zero-rated supply without payment of tax and supplies have been collected from DTA vendors who have actually recovered tax from them which seems to be a bit weird for the cause that lets the supplier make a claim for a refund and not SEZ unit would result in increased cost & defy the objective of promoting exports. Even if this view has been upheld by the honorable high court in the case of M/s Vaachi International India Private Limited the matter can be suitably challenged at higher forums.
