Refunds

Q 1. What is refund?

Ans. Refund has been discussed in section 54 of the
CGST/SGST Act.
“Refund” includes

(a) any balance amount in the electronic cash ledger so
claimed in the returns,

(b) any unutilized input tax credit in respect of (i) zero
rated supplies made without payment of tax or, (ii) 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),

(c) tax paid by specialized agency of United Nations or any
Multilateral Financial Institution and Organization notified
under the United Nations (Privileges and Immunities) Act,
1947, Consulate or Embassy of foreign countries on any
inward supply

Q 2. Can unutilized Input tax credit be allowed as refund?

Ans. Unutilized input tax credit can be allowed as refund
in accordance with the provisions of sub-section (3) of
section 54 in the following situations: –

(i) Zero rated supplies made without payment of tax;

(ii) Where credit has accumulated on account of rate of tax
on inputs being higher than the rate of taxes on output
supplies (other than nil rated or fully exempt supplies)
However, no refund of unutilized input tax credit shall be
allowed in cases where the goods exported out of India are
subjected to export duty, and also in the case where the
supplier of goods or services or both avails of drawback in
respect of central tax or claims refund of the integrated tax
paid on such supplies.

Q 3. Can unutilized ITC be given refund, in case goods Exported outside India are subjected to export duty?

Ans. Refund of unutilized input tax credit is not allowed in
cases where the goods exported out of India are subjected
to export duty – as per the second proviso to Section 54(3)
of CGST/SGST Act.

Q 4. Will unutilized ITC at the end of the financial year (after introduction of GST) be refunded?

Ans. There is no such provision to allow refund of such
unutilized ITC at the end of the financial year in the GST
Law. It shall be carried forward to the next financial
year.

Q 5. Suppose a taxable person has paid IGST/ CGST/SGST mistakenly as an Interstate/intrastate supply, but the nature of which is subsequently clarified. Can the CGST/SGST be adjusted against wrongly paid IGST or vice versa?

Ans. The taxable person cannot adjust CGST/SGST or
IGST with the wrongly paid IGST or CGST/SGST but he is
entitled to refund of the tax so paid wrongly – Sec.77 of
the CGST/SGST Act.

Q 6. Whether purchases made by Embassies or UN are taxed or exempted?

Ans. Supplies to the Embassies or UN bodies will be taxed,
which later on can be claimed as refund by them in terms
of Section 54(2) of the CGST/SGST Act. The claim has to
be filed in the manner prescribed under CGST/SGST
Refund rules, before expiry of six months from the last day
of the month in which such supply was received.

(The United Nations Organization and Consulates or Embassies are required
to take a Unique Identity Number section 26(1) of the CGST/SGST Act) and purchases made
by them will be reflected against their Unique Identity
Number in the return of outward supplies of the
supplier(s)]

Q 7. What is the time limit for taking refund?

Ans. A person claiming refund is required to file an
application before the expiry of two years from the
“relevant date” as given in the Explanation to section 54
of the CGST/SGST Act.

Q 8.Whether principle of unjust enrichment will be applicable in refund?

Ans. The principle of unjust enrichment would be
applicable in all cases of refund except in the following cases: –

i. 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

ii. Unutilized input tax credit in respect of (i) zero
rated supplies made without payment of tax or,
(ii) where the credit has accumulated on account
of rate of tax on inputs being higher than the rate
of tax on output supplies

iii. refund of tax paid on a supply which is not
provided, either wholly or partially, and for which
invoice has not been issued;

iv. refund of tax in pursuance of Section 77 of CGST/SGST Act i.e. tax wrongfully collected and
paid to Central Government or State Government

v. if the incidence of tax or interest paid has not been
passed on to any other person;

vi. such other class of persons who has borne the
incidence of tax as the Government may notify.

Q 9. In case the tax has been passed on to the consumer, whether refund will be sanctioned?

Ans. Yes, the amount so refunded shall be credited to the
Consumer Welfare Fund – Section 57 of the CGST/SGST Act

Q 10. Is there any time limit for sanctioning of refund?

Ans. Yes, refund has to be sanctioned within 60 days from
the date of receipt of application complete in all respects.
If refund is not sanctioned within the said period of 60
days, interest at the rate notified will have to be paid in
accordance with section 56 of the CGST/SGST Act.
However, in case where provisional refund to the extent of
90% of the amount claimed is refundable in respect of
zero-rated supplies made by certain categories of
registered persons in terms of sub-section (6) of section 54
of the CGST/SGST Act, the provisional refund has to be
given within 7 days from the date of acknowledgement of
the claim of refund.

Q 11. Can refund be withheld by the department?

Ans. Yes, refund can be withheld in the following
circumstances:

i. If the person has failed to furnish any return till he
files such return;

ii. If the registered taxable person is required to pay
any tax, interest or penalty which has not been
stayed by the appellate authority/Tribunal/ court,
till he pays such tax interest or penalty;
The proper officer can also deduct
unpaid taxes, interest, penalty, late fee,
if any, from the refundable amount –
Section 54(10) (d) of the CGST/SGST
Act

iii. The Commissioner can withhold any refund, if, the
order of refund is under appeal and he is of
the opinion that grant of such refund will adversely
affect revenue in the said appeal on
account of malfeasance or fraud committed – Sec.54
(11) of the CGST/SGST Act.

Q 12. Where the refund is withheld under Section 54(11) of the CGST/SGST Act, will the taxable person be given interest?

Ans. If as a result of appeal or further proceeding the
taxable person becomes entitled to refund, then he shall
also be entitled to interest at the rate notified section 54(12) of the
CGST/SGST Act.

Q 13. Is there any minimum threshold for refund?

Ans. No refund shall be granted if the amount is less than
Rs.1000/-. Sec.54 (14) of the CGST/SGST Act

Q 14. How will the refunds arising out of existing law be paid?

Ans. The refund arising out of existing law will be paid as
per the provisions of the existing law and will be made in
cash and will not be available as ITC.

Q 15. Whether refund can be made before verification of documents?

Ans. In case of any claim of refund to a registered person on
account of zero rated supplies of goods or services or both
(other than registered persons as may be notified), 90%
refund may be granted on provisional basis before
verification subject to such conditions and restrictions as
may be prescribed in accordance with sub-section 6 of
section 54 of the CGST/SGST Act.

Q 16. In case of refund under exports, whether BRC is necessary for granting refund?

Ans. In case of refund on account of export of goods, the
refund rules do not prescribe BRC as a necessary document
for filing of refund claim. However, for export of services
details of BRC is required to be submitted along with the
application for refund.

Q 17. Will the principle of unjust enrichment apply to exports and supplies to SEZ Units?

Ans. The principle of unjust enrichment would not be
applicable to zero-rated supplies [i.e. exports and supplies
to SEZ units]

Q 18. How will the applicant prove that the principle of unjust enrichment does not apply in his case?

Ans. Where the claim of refund is less than Rs.2 Lakh, a self-
declaration by the applicant based on the documentary or
other evidences available with him, certifying that the
incidence of tax has not been passed on to any other person
would make him eligible to get refund. However, if the
claim of refund is more than Rs.2 Lakh, the applicant is
required to submit a certificate from a Chartered
Accountant or a Cost Accountant to the effect that the
incidence of tax has not been passed on to any other person.

Q 19. Today under VAT/CST merchant exporters can purchase goods without payment of tax on furnishing of a declaration form. Will this system be there in GST?

Ans. There is no such provision in the GST law. They will
have to procure goods upon payment of tax and claim
refund of the tax paid or the unutilized input tax credit in
accordance with section 54(1)/54(3) of the CGST/SGST
Act.

Q 20. Presently under Central law, exporters are allowed to obtain duty paid inputs, avail ITC on it and export goods upon payment of duty (after utilizing the ITC) and thereafter claim refund of the duty paid on exports. Will this system continue in GST?

Ans. Yes. In terms of Section 16 of the IGST Act, a
registered taxable person shall have the option either to
export goods/services without payment of IGST under
bond or letter of undertaking and claim refund of ITC or
he can export goods/services on payment of IGST and
claim refund of IGST paid.

Q 21. What is the time period within which an acknowledgement of a refund claim has to be given?

Ans. Where an application relates to a claim for refund
from the electronic cash ledger as per sub-section (6) of
section 49 of the CGST/SGST Act made through the return
furnished for the relevant tax period the
acknowledgement will be communicated as soon as the
return is furnished and in all other cases of claim of refund
the acknowledgement will be communicated to the
applicant within 15 days from the date of receipt of
application complete in all respect.

Q 22. What is the time period within which provisional refund has to be given?

Ans. Provisional refund to the extent of 90% of the
amount claimed on account of zero-rated supplies in
terms of sub-section (6) of section 54 of the CGST/SGST
Act has to be given within 7 days from the date of
acknowledgement of complete application for refund
claim.

Q 23. Is there any specified format for filing refund claim?

Ans. Every claim of refund has to be filed in Form GST
RFD 1. However, claim of refund of balance in electronic
cash ledger can be claimed through furnishing of
monthly/quarterly returns in Form GSTR 3, GSTR 4 or
GSTR 7, as the case may be, of the relevant period.

Q 24. Is there any specified format for sanction of refund claim?

Ans. The claim of refund will be sanctioned by the proper
officer in Form GST RFD-06 if the claim is found to be in
order and payment advice will be issued in Form GST RFD-
05. The refund amount will then be electronically credited
to the applicants given bank account.

Q 25. What happens if there are deficiencies in the refund claim?

Ans. Deficiencies, if any, in the refund claim has to be
pointed out within 15 days. A form GST RFD-03 will be
issued by the proper officer to the applicant pointing out
the deficiencies through the common portal electronically
requiring him to file a refund application after
rectification of such deficiencies.

Q 26. Can the refund claim be rejected without assigning any reasons?

Ans. No. When the proper officer is satisfied that the
claim is not admissible he shall issue a notice in Form GST
RFD-08 to the applicant requiring him to furnish a reply
in GST RFD -09 within fifteen days and after consideration
of the applicant’s reply, he can accept or reject the refund
claim and pass an order in Form GST RFD-06 only.