In the taxation administration, refund refers to any amount that is due to the tax payer from the tax administration. In the present taxation system it is considered as a strained area, both for the taxpayer and the tax administration. So in order to establish an effective and efficient tax administration system it is essential that issues on which refund arises ought to be kept at minimum and be clearly defined in the law.
Situations under GST where Refunds may Arise
- Excess payment of tax due to mistake or inadvertence.
- Export (including deemed export) of goods / services under claim of rebate or Refund of accumulated input credit of duty / tax when goods / services are exported.
- Finalization of provisional assessment.
- Refund of Pre – deposit for filing appeal including refund arising in pursuance of an appellate authority’s order (when the appeal is decided in favor of the appellant).
- Payment of duty / tax during investigation but no/ less liability arises at the time of finalization of investigation / adjudication.
- Refund of tax payment on purchases made by Embassies or UN bodies.
- Credit accumulation due to output being tax exempt or nil-rated.
- Credit accumulation due to inverted duty structure i.e. due to tax rate differential between output and inputs.
- Year-end or volume based incentives provided by the supplier through credit notes.
- Tax Refund for International Tourists
- Excess payment of tax due to mistake or inadvertence.
- Such excess payment may be on account of:-
a) wrong mention of nature of tax (CGST / SGST / IGST),
b) wrong mention of GSTIN, or
c) wrong mention of tax amount.
- In the first two situations, administration is required to verify the correctness of the taxpayer’s claim and therefore the taxpayer may file a refund application which should be decided within a period to be prescribed by the GST Law.
- In the third situation i.e. where the amount has been mentioned wrongly, the refund of excess amount of tax, at the option of the taxpayer, would either be automatically carried forward for adjustment against future tax liabilities or be refunded on submission of application (return itself can be treated as a refund application) by the taxpayer
B. Export (including deemed export) of goods/services under claim of rebate or refund of accumulated credit of tax when goods/services are exported:
- Export of goods:
- Option to procure duty free inputs for exported goods should not be available in the GST regime
- Refund applications will have details of Exports.
- It is recommended that there will be integration of GSTN with ICEGATE for auto verification of export bills.
- In respect of refund claimed for GST paid on inputs (including input services) used for exported goods, once the export is established, verification of the GST paid on the inputs (including input services) as well as their utilization for the exports is required to be carried out. For this normally copy of invoices evidencing GST payment are sought from the exporter and the same are verified manually by the jurisdictional authority.
- Besides a declaration is filed by the applicant with the proper officer declaring inter alia input-output ratio for inputs on which refund is sought.
- Export of Services
- Invoice and BRC are the crucial documents for filing of the refund application
- Deemed Export of Goods or Services
- To be treated in equal footing as Export
- The supplier of final goods, in the course of deemed export, will pay the IGST on his supplies and can claim refund, only if, the IGST amount has not collected from the recipient.
- It is also required to be verified that the recipient has not availed the input tax credit in respect of such supplies. CA Certificate may be furnished for the same above a threshold limit.
C. Finalization of provisional assessment:
- In the return itself, there should be a field for indicating whether the tax being paid is provisional or final.
- At the time of finalization of the return/assessment by the assessing officer, a speaking order may be issued, which will also mention the amount that the taxpayer is required to pay or is eligible for refund.
- For satisfying the requirement of unjust enrichment, the taxpayer would be required to submit a Chartered Accountant’s Certificate certifying the fact of non-passing of the GST burden by the taxpayer, being claimed as refund.
D. Refund of pre-deposit for filing appeal including refund arising in pursuance of an appellate authority’s order:
- It is recommended that the taxpayer may file a simple refund application along with a Chartered Accountant’s Certificate certifying the fact of non-passing of the GST burden by the taxpayer, being claimed as refund.
- GST Law may provide for certain pre-defined period during which refund may not be granted which can be regarded as the mandatory waiting period for the outcome of the appeal/application for stay.
E. Payment of duty/tax deposited during investigation but no/less tax liability arises at the time of finalization of investigation/adjudication:
- It is recommended that the taxpayer may file a simple refund application along with a Chartered Accountant’s Certificate certifying the fact of non-passing of the GST burden by taxpayer, being claimed as refund.
- Refund may be withheld only if the department has obtained a stay order on the operation of the adjudication order, failing which, refund has to be allowed.
F. Refund for tax payment on purchase by UN bodies, supplies to CSD canteens, para military forces canteens, etc.:
- The UN Bodies may file their purchase statements (without purchase invoices) along with their claim for refund
- The GST Law may provide that some purchases are ineligible for refund (e.g. invoice value less than the prescribed threshold amount, goods/services specified as ineligible for refund, etc.). Such cases should be specifically marked in the purchase statement or may not be included in the purchase statement.
G. Tax credit on inputs used for manufacturing /generation /production /creation of tax free supplies or non-GST supplies:
It is recommended that the model GST Law may provide that the suppliers of exempted/ NIL rated/non-GST goods or services would not be entitled to the ITC of GST paid on inputs (including input services or capital goods) received by them and consequently for refund of GST paid by them. In case of mixed supplies, ITC may be allowed proportionately.
The tax credit on the inputs used for supply of exempted/NIL rated/non GST goods or services should be treated as “ineligible input tax credit” and there should be an appropriate provision in the return to provide the related invoice details.
H. Refund of carry forward input tax credit:
• ITC may accumulate on account of the following reasons :
Inverted Duty Structure i.e. GST on output supplies is less than the GST on the input supplies: Cash refund may be granted after due audit and should be sanctioned only after the input tax credit has been matched from the purchase and sales statements filed along with monthly returns.
- Stock accumulation/ Capital goods: Refund of carried forward ITC may not be allowed and such amount would be carried forward to the next tax period (s).
- Partial Reverse charge mechanism for certain services: Refund may be granted if the GST law provides for a joint reverse charge mechanism.
I. Refund on account of year end or volume based incentives provided by the supplier through credit notes:
- The refund would be granted on submission of a simple application along with a Chartered Accountant’s Certificate certifying the fact of non-passing of the GST burden by the taxpayer, being claimed as refund.
- The GST Law Drafting Committee may prescribe a threshold amount below which self-certification (instead of CA Certificate) would be sufficient.
- In such cases, the eligibility for ITC at the buyer’s end and the output liability at the supplier’s end will get simultaneously reduced / adjusted on the basis of credit notes issued by the supplier and the corresponding debit notes issued by the buyers.
J. Tax refund for international tourists (TRT):
- TRT scheme provides an opportunity to the foreign tourists to purchase goods during their stay in any country on payment of GST and obtain refund of the GST so paid, at the time of exit from the country.
- This scheme will be implemented through particular retailers, who are registered for this scheme.
- Refund of GST will be available at designated airports and ports only and the refund of the GST paid on retail purchase by the foreign tourists during their stay in India is allowed.
- A part of the eligible amount of refund will be deducted as handling fee for services rendered.
Procedure for Refund
Electronic filing of Refund Applications
Preliminary scrutiny to be carried out within 30 common working days and Deficiency to be communicated to the applicant via portal
Once refund application is complete- Intimation by SMS & Email
Date of Communication – Important for sanction of refund
No refund of amount below Rs 500-1000 as may be fixed.
All sanctioned refunds to undergo review by higher authorities
Refunds above 1 crores- Pre- audit of refund application. This amount may differ for different tax jurisdictions.
Prescribe the time limit of 90 days from the date of system generated acknowledgements of Refund application within which refunds may be paid.
The Committee recommends that the rate of interest in case of refund may be around 6% and that in case of default in payment of GST interest may be around 18%.