written by Khatabook | July 13, 2021

Refund Process Under GST- Situations That Can Lead To GST Refund Claims

GST was enacted to ensure a smooth flow of finances and boost the Indian economy. Therefore, the government had to create a hassle-free return mechanism to support such a smooth flow. The GST refund mechanism would allow registered taxpayers to demand a return of any excess GST paid or any unused input tax credit.

Previously, the tax system was complicated, and getting a return from the government took a long time. Now, the government has enacted simple and straightforward measures to ensure that any extra GST collected does not end up in their hands. To eliminate misunderstanding, the refund process has been standardised. It is entirely online and has a set time limit. As a result, it has created a uniform form for requesting reimbursements.

What is a Refund in GST?

The term "refund" in the context of the GST refers to any money repaid by the government that was:

  • Either in surplus of or in addition to the amount paid by the registered taxpayer
  • Not subject to taxation.

GST was implemented to eliminate roadblocks like duplicate taxation and the lack of a tax credit input, increase transparency and simplify tax compliance.

Why is a Refund of GST important?

The GST process was brought online by the Indian government to make seamless tax compliance a possibility. As a result, almost everything takes place on the GST web platform, from return filing to GST registration and GST refund process and claims.

  • When it comes to the GST refund procedure, a time-bound GST refund mechanism was critical because it would make it easier for businesses to manage their taxes. In addition, a method like this would free up working capital funds.
  • As a result, it would offer a vital pool of funds for business modernization, growth, and expansion.
  • The government established a unified GST refund procedure. However, various circumstances can lead to credit accumulation or the tax payment over what is owed.
  • Such situations can arise as a result of registered taxpayers' blunders or inadvertent errors. In such cases, this return method allows taxpayers to seek rebates readily.
  • It differs from the previous indirect tax regime, which took time and required tiresome manual submission of indirect tax refunds.

According to the Central Goods and Services Tax (CGST) Act of 2017, a registered taxpayer can claim a GST refund in India in various circumstances. Let's look at some of the scenarios that call for GST refunds and the rules that govern them.

Situations That Necessitate A Refund of GST

A registered taxpayer may be required to seek a refund of GST in a variety of circumstances.

1. Export of Supplies, Goods, and Services to Developers and Units in Special Economic Zones:

Zero-rated supplies are the most common categories for which taxpayers who are registered can claim a GST refund.

The phrase "zero-rated supply" is defined in the IGST Act (section 16) as follows:

  • Export of products, services, or a combination of the two.
  • Supply of services or goods, or both, to a developer or unit of an SEZ.

In addition, zero-rated suppliers can claim ITC on exempt or non-taxable materials used to produce zero-rated supplies.

  • A person who wants to claim a refund in GST for zero-rated supplies can do so in the following ways:
  • To cover the sum of IGST for sale, you can seek a LUT (letter of undertaking) or a bond. If you choose this, you can get a refund tax collected on inputs used to make such supplies. You can then export without having to pay IGST.
  • You can pay Integrated Goods and Services Tax (IGST) when you export if you can't secure a bond or a LUT. You can then use your accumulated ITC to get a refund.
  • The reimbursement amount owed to the applicant in concern is awarded on an interim basis in the case of zero-rated supply. This sum is equal to ninety per cent of the total amount that the applicant is claiming.
  • This sum is authorized within 7 days after the acknowledgement date from an officer via the usual portal. The receipt of an application for a refund is generally acknowledged within 2 weeks from the date of receipt.
  • An interim refund is also not available to a provider convicted of any crime five years before the tax period.

2. Exports that are Deemed:

If the following two conditions are met, supplies are classified as Exports that are Deemed under GST:

  1. Indian- manufactured goods are included in supplies, but not services. Furthermore, the manufactured commodities stay in India.
  2. Payment for the aforementioned supplies is made in Rupees or a convertible foreign currency.

Deemed exports and supplies that are zero-rated are two different things. Therefore, by default, such exports are not included in zero-rated supplies. Consequently, supplies that are classified as presumed exports are taxed. This means that zero-rated supplies are made without a Letter of Undertaking or a bond and are made by paying IGST. Furthermore, either the recipient or the supplier can claim a tax refund that is regarded as exports.

The supplier of considered exports, on the other hand, might apply for a refund if the following conditions are met:

  • On such supplies, the recipient does not claim tax credit input.
  • Where the recipient signs an undertaking claiming that the provider is entitled to a reimbursement.

The provider of export supplies may have taken advantage of a tax credit for such products. In this situation, the consignee of presumed export supplies is entitled to a GST refund for other inputs or input services.

3. Refund of Taxes Wrongfully Paid or Collected:

  • A registered person may wind up paying another tax instead of central and state taxes under GST. Furthermore, he may pay both the state and central taxes instead of the integrated tax, IGST.
  • This is because of a misapplication of provisions about the supply site. During such scenarios, the registered person is not obligated to pay any interest on the tax due, regardless of any circumstance.
  • In addition, the provision of unfair enrichment will not apply to GST refund claims based on incorrect tax payment.
  • The concept of unjust enrichment is predicated on the notion that a business person will always change the tax burden to the end consumer.
  • This is because GST is an indirect tax that is passed on to the end consumer. To avoid this, all the refund claims under GST, with a few exceptions, must pass the unjust enrichment test.
  • Each claim for GST refund approved by the officer is initially remitted to the (CWF) Consumer Welfare Fund under this criteria. Once the unjust enrichment test is passed, the refund under GST is paid.

4. Refunds to the United Nations and other agencies that have been notified:

  • Services and goods provided to UN entities may be excluded from GST due to international responsibilities. However, the GST refund process is used to make an exemption.
  • As a result, a taxable person that delivers services or products to such groups must charge the tax owed. The tax is then deposited into the government's account.
  • UN organisations and other similar entities listed in the CGST Act - section 55, on the other hand, can demand a refund of the taxes they paid on purchases. They must submit such a refund claim within six months of the last day of the involved quarter in which they received the supply.
  • Furthermore, because such agencies do not require state-by-state registration, the central government approves the return. For them, one registration is adequate for the entire country.

Also Read: Types of GST Returns: Forms, Due Dates & Penalties

5. Refunds Due to an Appellate Authority's or Court's Order:

  • As a result of a decree, judgement, order, or instruction of the appellate tribunal, appellate authority, or any court, tax paid may become refundable. In such circumstances, the registrant must file a refund application within two years after the appropriate date.
  • According to the CGST Act - section 54, the relevant date is when the decree, judgment, direction, or order is communicated to a registered person.
  • In circumstances like this, documentary evidence must prove that the petitioner is entitled to a refund.
  • As a result, the registered individual must submit an RFD – 01 application. An application like this is attached with:
    • The copy of the order and an order's reference number issued by the appellate authority, competent official, court, or tribunal that resulted in the refund.
    • payment reference number for an amount paid in response to a registered person's appeal

6. Accumulated ITC Refunds Due to inverted Duty Structure:

  • In the event of an inverted duty structure, the applicant may request a refund. The term "inverted duty structure" cites a situation in which credit accumulates because the input tax rate is higher than the output supplies tax rate.
  • Nevertheless, in an inverted tariff structure, refunding accumulated ITC is not permitted in the following circumstances.
  • When output supplies are not rated or completely exempt from the supply of services or goods, as the government of India may notify based on the GST Council's recommendations
  • As a result, the government has issued a list of commodities for which no unused ITC refund is permitted. In the CGST Act of 2017, these are mentioned in a distinct section.

7. Refund of Provisionally Paid Taxes:

  • A taxable person can request tax payment on an interim basis under section 60 of the CGST Act. He has the authority to do so in the case where the individual in question is incapable of determining:
    • the monetary worth of products or services
    • the tax rate that applies to such products or services
  • A proper official must pass an interim order within 90 days of receiving a request from the registered person to allow the taxable person to pay tax on a provisional basis.
  • In addition, the proper authority must issue an assessment order that is final within six months of receiving the temporary order described above.
  • After the proper authority issues the order of the final assessment, the registered person is entitled to a reimbursement.
  • They are also entitled to interest on the said return once 60 days have passed since the receipt date of the refund application. This type of interest, basically, would be in the range of 6%.
  • Finally, together with application RFD – 01, the registered person must supply the reference number of the final assessment order and a copy of the aforementioned order.

Also Read: The Latest Amendments to CGST Act You Need to Know

8. IGST Refund to International Tourists:

  • International tourists departing India must pay integrated GST on products purchased within India, according to section 15 of the IGST Act.
  • In this case, they may request a refund of the integrated tax paid on the products before leaving India.
  • In the context of IGST refunds to international tourists, ‘tourist’ refers to:
    • any individual who is not a permanent resident of India.
    • any individual who visits for a period of not more than 6 months for purposes that are non-immigrant purposes. Such reimbursement is given in the manner and under the circumstances and safeguards that the government may specify.

9. Refund of Extra Tax Paid Due to Inadvertence or Error:

  • There are times when a person pays too much tax, either intentionally or unintentionally. For instance, a taxpayer may pay more tax than what is owed to the Indian government because of errors in tax calculation. 
  • This means that excess tax is paid that was not necessary to be compensated in the first place. As a result, the taxpayer's overpayment of tax must be reimbursed. The overpayment of tax could be due to a spelling error of:
  • The tax administration confirms whether the taxpayer's claim is accurate in the first two circumstances. The taxpayer files an application for a refund within the timeframe specified by the statute of GST when the proper officer is satisfied.

10. Refunds of Taxes Paid on Advances Received through Refund Vouchers:

  • When delivering huge quantities of items, manufacturers require advance payment for purchasing supplies or goods. Similarly, before beginning work on the underlying services, service providers need a deposit.

  • The service provider or manufacturer must issue a receipt voucher after receiving such an advance. The manufacturer or service provider will not issue a tax invoice if the order is cancelled in the foreseeable future.
  • The service provider or manufacturer also issues a refund voucher for the advance.

Conclusion

This article sheds light on how to claim refund under GST by highlighting the importance of GST and the necessary situations where a GST refund in India is possible. We hope you understood the importance of a refund in GST and the situations that can lead to a refund of GST. If you have any further questions or doubts then we recommend getting in touch with a professional like a Chartered Accountant. 

Also Read: Key Advantages and Disadvantages of GST for Businesses

FAQs 

When can I claim a refund under GST?

Within two years of the payment date, the excess GST can be claimed as a refund. This can be done using the GST Portal.

How can I claim a refund in GST?

By filing a refund application form RFD-01, the balance in the Electronic Cash Ledger can be claimed as a refund. This can be done using the GST Portal/GSTN online. Within two years of the date of payment, the excess GST can be claimed as a refund.

What is the GST refund process?

You can use the GSTN portal to apply for a refund. When an application is submitted electronically, the applicant will receive an acknowledgement number through SMS or email.

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