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GST Refunds: EximGuru.com



Timely refund mechanism is essential in tax administration, as itfacilitates trade through the release of blocked funds for workingcapital, expansion and modernisation of existing business.

The provisions pertaining to refund contained in the GST law aimto streamline and standardise the refund procedures under GSTregime. Thus, under the GST regime, there will be a standardisedform for making any claim for refunds. The claim and sanctioningprocedure will be completely online and time bound, whichis a marked departure from the existing time consuming andcumbersome procedure.

Situations Leading to Refund Claims

The relevant date provision embodied in Section 54 of the CGSTAct, 2017, provision contained in Section 77 of the CGST Act, 2017and the requirement of submission of relevant documents aslisted in Rule 1(2) of Refund Rules is an indicator of the varioussituations that may necessitate a refund claim. A claim for refundmay arise on account of:

1. Export of goods or services
2. Supplies to SEZs units and developers
3. Deemed exports
4. Refund of taxes on purchase made by UN or embassies etc.
5. Refund arising on account of judgment, decree, order ordirection of the Appellate Authority, Appellate Tribunal orany court
6. Refund of accumulated Input Tax Credit on account ofinverted 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 inIndia and carried abroad at the time of their departure fromIndia11. Refund on account of issuance of refund vouchers for taxespaid on advances against which, goods or services have notbeen supplied12. Refund of CGST & SGST paid by treating the supply as intraStatesupply which is subsequently held as inter-State supplyand vice versa

Thus, practically every situation is covered. The GST law requiresthat every claim for refund is to be filed within 2 years from therelevant date.

Credit Notes

Further, Section 34 of the CGST Act, 2017 provides for issuanceof credit notes for post supply discounts or if goods are returnedback within a stipulated time. When such credit notes are issued,obviously it would call for reduction in output liability of thesupplier. Hence, the taxes paid initially on the supply wouldbe higher than what is actually payable. In such a scenario, theexcess tax paid by the supplier needs to be refunded. However,instead of refunding it outright, it is sought to be adjustedafter verifying the corresponding reduction in the input taxcredit availed by the recipient. Section 43 of the CGST Act,2017 provides for procedure for reduction in output liability onaccount of issuance of such credit notes. This is another form ofrefund by adjustments in the output tax liability. Such refund isnot governed under the general refund provisions contained inSection 54 of the CGST Act, 2017.

Treatment for Zero Rated Supplies

One of the major categories under which, claim for refund may arisewould be, on account of exports. All exports (whether of goods orservices) as well as supplies to SEZs have been categorised as ZeroRated Supplies in the IGST Act. “Zero rated supply” under Section 16of the IGST Act, 2017 means any of the following supplies of goods orservices or both, namely:
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zonedeveloper or a Special Economic Zone unit.


On account of zero rating of supplies, the supplier will be entitled toclaim input tax credit in respect of goods or services or both usedfor such supplies even though they might be non-taxable or evenexempt supplies. Every person making claim of refund on accountof zero rated supplies has two options. Either he can export underBond/LUT and claim refund of accumulated Input Tax Credit orhe may export on payment of integrated tax and claim refund ofthereof as per the provisions of Section 54 of CGST Act, 2017. Thus,the GST law allows the flexibility to the exporter (which, will includethe supplier making supplies to SEZ) to claim refund upfront asintegrated tax (by making supplies on payment of tax using ITC) orexport without payment of tax by executing a Bond/LUT and claimrefund of related ITC of taxes paid on inputs and input services usedin making zero rated supplies.

Grant of Provisional Refund in Case of Zero Rated Supplies

GST law also provides for grant of provisional refund of 90% ofthe total refund claim, in case the claim relates for refund arisingon account of zero rated supplies. The provisional refund wouldbe paid within 7 days after giving the acknowledgement. Theacknowledgement of refund application is normally issued withina period of 14 days but in case of refund of integrated tax paid onzero rated supplies, the acknowedgement would be issued within aperiod of three days. The provisional refund would not be granted tosuch supplier who was, during any period of five years immediatelypreceding the refund period, was prosecuted.

Payment of Wrong Tax

Under GST it might happen that the taxable person may payintegrated tax instead of central tax plus state tax and vice versabecause of incorrect application of the place of supply provisions. Insuch cases, while making the appropriate payment of tax, interestwill not be charged and the refund claim of the wrong tax paidearlier will be entertained without subjecting it to the provision ofunjust enrichment.

Claim by a Person who has Borne the Incidence of Tax

Any tax collected by the taxable person more than the tax due onsuch supplies must be credited to the Government account. The lawmakes explicit provision for the person who has borne the incidenceof tax to file refund claim in accordance with the provisions ofSection 54 of the CGST Act, 2017.

Refunds to Casual/Non-Resident Taxable Persons

Casual/Non-resident taxable person has to pay tax in advance at thetime of registration. Refund may become due to such persons at theend of the registration period because the tax paid in advance maybe more than the actual tax liability on the supplies made by themduring the period of validity of registration period. The law envisagesrefund to such categories of taxable persons also. But the amountof excess advance tax shall not be refunded unless such personhas filed all the returns due during the time their registration waseffective. It is only after such compliance that refund will be granted.

Refund to UN Bodies and Other Notified Agencies

Supplies made to UN bodies and embassies may be exempted frompayment of GST as per international obligations. However, thisexemption is being operationalized by way of a refund mechanism.So, a taxable person making supplies to such bodies would chargethe tax due and remit the same to government account. However,the UN bodies and other entities notified under Section 55 of theCGST Act, 2017 can claim refund of the taxes paid by them on theirpurchases. The claim has to be made before the expiry of six monthsfrom the last day of the quarter in which such supply was received.

Refund to International Tourist

An enabling mechanism has been introduced in Section 15 of theIGST Act, 2017 whereby an international tourist procuring goods inIndia, may while leaving the country seek refund of integrated taxpaid by them. The term, “tourist” has been defined and refers to anyperson who is not normally a resident of India and who enters Indiafor a stay of not more than 6 months for legitimate non-immigrantpurposes.

Unjust Enrichment

Talking about unjust enrichment, a presumption is always drawnthat the businessman will shift the incidence of tax to the finalconsumer. This is because GST is an indirect tax whose incidence isto be borne by the consumer. It is for this reason that every claimof refund (barring specified exceptions) needs to pass the testof unjust enrichment. And every such claim if sanctioned is firsttransferred to the Consumer Welfare Fund. The GST law makes thistest inapplicable in case of refund of accumulated ITC, refund onaccount of exports, refund of payment of wrong tax (integrated taxinstead of central tax plus state tax and vice versa), refund of taxpaid on a supply, which is not provided or when refund voucheris issued or if the applicant shows that he has not passed on theincidence of tax to any other person. In all other cases, the testof unjust enrichment needs to be satisfied for the claim to be paidto the applicant. For crossing the bar of unjust enrichment, if therefund claim is less than Rs.2 Lakhs, then a self-declaration of theapplicant to the effect that the incidence of tax has not been passedto any other person will suffice to process the refund claim. Forrefund claims exceeding Rs. 2 Lakhs, a certificate from a CharteredAccountant/Cost Accountant will have to be given.

Standardisation of Procedure

The GST laws makes standardised provisions for making a refundclaim. Every claim has to be filed online in a standardised form whichwill be acknowledged (if complete in all aspects) in 14 days. Theclaim for refund of amount lying in the credit balance of the cashledger can be made in the monthly returns also. The Proper Officerhas to convey deficiencies if any in the refund claim within 14 daysand in such cases the claim will be sent back to the applicant alongwith the notified deficiencies, and the applicant can file the refundclaim again after making goods the deficiencies. No deficiencymemos can be raised after the mandatory 14 day period. The claim,if in order, has to be sanctioned within a period of 60 days from thedate of receipt of the claim. If this mandatory period is exceeded,interest will become payable along with refund from the expiry of60 days till the date of payment of refund (rate of interest has beenrecommended as 6% and 9% under the provisions of Section 56 ofthe CGST Act, 2017 by the GST Council in its meeting held on 18thand 19th May, 2017). However, if the refund claim is on account ofpre-deposit made before any appellate authority, the interestbecomes payable from the date of making such payment.


The applicant needs to file elaborate documents along with therefund claim. Standardised and easy to understand documentshave been prescribed. Thus, for every claim, the main documentprescribed is a statement of relevant invoices (NOT THE INVOICESITSELF) pertaining to the claim. In case refund is on account ofexport of services, apart from the statement of invoices, the relevantbank realisation certificates evidencing receipt of payment in foreigncurrency is also required to be submitted. If it is a claim made by thesupplier to the SEZ unit, an endorsement from the Proper Officerevidencing receipt of such goods/services in the SEZ also needs tobe submitted. Further, a declaration is also required from the SEZunit to the effect that they have not availed ITC of the taxpaid bythe supplier. If the claim is for refund of accumulated ITC, only astatement containing invoice details as prescribed in the Refund rules need to be given. In case of claim of refund on account of anyorder or judgment of appellate authority or court, the referencenumber of the order giving rise to refund should also be given. Forcrossing the bar of unjust enrichment, if the refund claim is less thanRs.2 Lakhs, then a self-declaration by the applicant to the effect thatthe incidence of tax has not been passed to any other person willsuffice to process the refund claim. For refund claims exceeding Rs.2 Lakhs, a certificate from a Chartered Accountant/Cost Accountantwill have to be given. It is to be noted that such document need notbe given if it is a claim arising on account of zero rated supplies orclaim of accumulated ITC or payment of wrong tax (integrated taxinstead of central tax and state tax and vice versa) or a claim wheresupply is not done or a refund voucher has been issued.

Compliance with Natural Justice

In case the claim is sought to be rejected by the Proper Officer, anotice has to be given online to the applicant stating the ground onwhich the refund is sought to be rejected. The applicant needs torespond online within 15 days from the receipt of such notice. Thusno claim can be rejected without putting the applicant to notice.

Payment to be Credited Online

The refund claim, wherever due, will be directly credited to thebank account of the applicant. The applicant need not come to theauthorities to collect the cheques or for any other issues relating tothe refund claim.

Power with the Commissioner to Withhold Refund in Certain Cases

GST law provides that where an order giving rise to a refund is thesubject matter of an appeal or further proceedings or where anyother proceedings under this Act is pending and the Commissioneris of the opinion that grant of such refund is likely to adversely affectthe revenue in the said appeal or other proceedings on account ofmalfeasance or fraud committed, he may, after giving the taxableperson an opportunity of being heard, withhold the refund till suchtime as he may determine. But it has been adequately safeguardedby provision for payment of interest @ 9% if, as a result of appeal,or further proceedings, the applicant becomes eligible for refund.


In sum, the law envisages a simplified, time bound andtechnology driven refund procedure with minimal humaninterface between the taxpayer and tax authorities.

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