REFUND IN GST
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Refund of tax and interest under GST
Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application in that regard to the proper officer of IGST/CGST/SGST before the expiry of two years from the relevant date in prescribe form and manner – clause 38(1) of GST Model Law, 2016.
The limitation of two years shall not apply where such tax or interest or the amount referred to above has been paid under protest.
Refund includes refunds on input taxes paid on exports and deemed exports – “Refund” includes refund of tax on goods and/or services exported out of India or on inputs or input services used in the goods and/or services which are exported out of India, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit – Explanation A to clause 38 of GST Model Law, 2016.
“Export of goods” with its grammatical variations and cognate expressions, means taking out of India to a place outside India – clause 2(41) of GST Model Law, 2016.
“Deemed exports”, as notified by the Central Government/State Government on the recommendation of the Council, refer to those transactions in which the goods supplied do not leave India, and payment for such supplies is received either in Indian Rupees or in convertible foreign exchange – clause 2(37) of GST Model Law, 2016.
Doctrine of unjust enrichment in case of refund of GST
If the supplier of goods and services has recovered GST from recipient, it is clear that he has passed on the burden to the recipient and has already recovered GST from him. In such cases, refund of excess GST paid will amount to excess and un-deserved profit to supplier of goods and service. It will not be equitable to refund the duty to him, as he will get double benefit – first from the recipient of goods and services and again from the Government.
This will be ‘unjust enrichment‘ of supplier.
Unjust enrichment – A benefit obtained from another, not intended as a gift and not legally justifiable, for which the beneficiary must make restitution or recompose – Indian Council for Enviro-Legal Action v. UOI (2011) 8 SCC 161
Refund, if any, should be paid to customer who has borne the burden of GST. However, in majority of the cases, it is not practicable to identify individual consumer and pay refund to him. At the same time, the GST illegally collected and hence cannot be retained by Government.
In UOI v. Roplas Ltd. AIR 1989 Bom 183 = 1988(38) ELT 27 (Bom HC), it was suggested that in such cases, the refund due should be transferred to a Consumer Welfare Fund instead of paying it to the supplier. The fund may be used for activities of protection and benefit of consumers.
With this view in mind, concept of unjust enrichment was introduced in Central Excise Act and Customs Act w.e.f. 20th Sept. 1991.
These provisions are now being continued under GST also.
Provisions relating to unjust enrichment have been held as valid in Mafatlal Industries Ltd. v. UOI 89 ELT 247 = (1997) 5 SCC 536 =111 STC 467 = 17 RLT 907 (SC 9 member Constitution bench).
Precautions while claiming refund
If the burden has been passed on to customer, there is no point in applying for refund of GST.
In other cases, to establish that burden has not been passed on to customer, the amount should be shown as ‘claim receivable’ in books of account and should not be charged to profit and loss account.
In Jaipur Syntex Ltd. v. CCE 2002(143) ELT 605 (CEGAT), assessee had paid higher duty and the differential amount was treated in accounts as ‘claims receivable’. This was treated as part of Balance Sheet and not charged to P&L account. It was held that it is evident that incidence of duty has not been passed on to customers. [In this case, duty was not shown separately in invoice].
In CC v. Virudhunagar Textile Mills (2008) 230 ELT 411 (Mad HC DB), differential duty on capital goods was shown as duty receivable from customs department and balance sheet with CA certificate was produced. It was held that refund is admissible.
In CC v. Maruti Udyog Ltd. 2003 (155) ELT 523 (CEGAT), amount claimed as refund of duty was grouped in ‘Current Assets’ in Balance Sheet as ‘Claim Receivable’. It was held that refund claim to assessee is admissible – similar order in Hero Honda Motors Ltd. v. CC 2000(126) ELT 1014 = 40 RLT 597 (CEGAT) * Welspun Gujarat Stahal v. CC (2014) 306 ELT 513 (CESTAT SMB) * New Tech Stewing Telecom v. CCE (2014) 301 ELT 105 (CESTAT SMB) * CCE v. Shankar Printing Mills (2015) 321 ELT 295 (CESTAT) * Shreyas Intermediates v. CCE (2016) 333 ELT 380 (CESTAT).
In CCE v. Dabur India (2014) 46 GST 233 = 46 taxmann.com 359 (All HC DB), duty was paid under protest. Amount was shown as receivable. MRP/wholesale price was not increased. It was held that refund is admissible and unjust enrichment provisions are not applicable.
No unjust enrichment if Refund if amount returned to buyer by cheque or credit note
If tax amount is refunded by cheque or credit note to recipient, there cannot be unjust enrichment.
Application and procedure of refund
The application shall be accompanied by —
| (a) | Such documentary evidence as may be prescribed to establish that a refund is due to the applicant, and | |
| (b) | Evidence that incidence of duty has not been passed on by him to any other person. However, where the amount claimed as refund is less than five lac rupees, self declaration is sufficient. |
Scrutiny of refund claim and passing of order – If, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the ‘Consumer Welfare Fund’, except where taxable person proves that he has not passed on burden of tax to another person.
Sanctioning 80% of claim on provisional basis in case of exports – In the case of any claim for refund on account of export of goods and/or services made by such category of registered taxable persons as may be notified in this behalf, proper officer may refund eighty percent of the total amount so claimed, excluding the amount of input tax credit provisionally accepted, on a provisional basis. Remaining twenty percent may be refunded after due verification of documents furnished by the applicant – clause 38(4A) of GST Model Law, 2016.
Time limit for deciding refund claim – The proper officer shall issue the order refusing or accepting refund claim within ninety days from the date of receipt of application. The “application” means complete application containing all information as may be prescribed – clause 38(5) of GST Model Law, 2016
Refund to taxable person instead of depositing in consumer welfare fund
Refund, once sanctioned, should be deposited with Consumer Welfare Fund.
However, in following cases, the refundable amount shall, instead of being credited to the Fund, be paid to the applicant [clause 38(6) of GST Model Law, 2016]
| (a) | refund of tax on goods and/or services exported out of India or on inputs used in the goods and/or services which are exported out of India | |
| (b) | refund of unutilized input tax credit (where allowable) | |
| (c) | the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or | |
| (d) | the tax or interest borne by such other class of applicants as the Central or a State Government may, on the recommendation of the GST Council, by notification, specify. |
No refund except in aforesaid cases – Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or in any other law for the time being in force, no refund shall be made except as provided in section 38(6).
Withholding refund if matter is in appeal
If an order giving rise to a refund is the subject matter of an appeal or further proceeding or where any other proceeding under this Act is pending and the Commissioner/Board is of the opinion that grant of such refund is likely to adversely affect the revenue, he may, after giving the taxpayer an opportunity of being heard, withhold the refund till such time as he may determine – clause 38(9) of GST Model Law, 2016.
Where a refund is with held under section 38(9), the taxable person shall be entitled to interest as provided under section 39, if as a result of the appeal or further proceeding he becomes entitled to refund.
No refund if amount less than Rs 1,000
No refund shall be paid to an applicant if the amount is less than rupees one thousand.
Relevant date for filing refund claim under GST
Refund is required to be filed with specified period from ‘relevant date’.
As per Explanation (B) to clause 38 of GST Model Law, 2016, “relevant date” means —
| (a) | in the case of goods exported out of India where a refund of tax paid is available in respect of the goods themselves or, as the case may be, the inputs or input services used in such goods, -(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or (ii) if the goods are exported by land, the date on which such goods pass the frontier, or (iii) if the goods are exported by post, the date of despatch of goods by Post Office concerned to a place outside India. | |
| (b) | in the case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods, the date on which the return relating to such deemed exports is filed. | |
| (c) | in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process in any place of business, the date of entry into the place of business for the purposes aforesaid. | |
| (d) | in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of – (i) receipt of payment in convertible foreign exchange, where the supply of service had been completed prior to the receipt of such payment or (ii) issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice. | |
| (e) | in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of Appellate Authority, Appellate Tribunal or any Court, the date of communication of such judgment, decree, order or direction. | |
| (f) | in the case of refund of unutilized input tax credit under sub-section (2), the end of the financial year in which such claim for refund arises; and | |
| (g) | in the case where tax is paid provisionally under this Act or the rules made thereunder, the date of adjustment of tax after the final assessment thereof. |
Refund of unutilized Input Tax Credit
A taxable person may claim refund of any unutilized input tax credit at the end of any tax period. Such refund will be allowed only in case of exports. Even in case of exports, refund of unutilized input tax credit shall not be allowed in cases where the goods exported out of India are subjected to export duty – clause 38(2) of GST Model Law, 2016.
Refund of unutilized input tax credit shall not be allowed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on outputs.
Adjustment of refund if taxable person is in default
Where any refund is due under the section 38(2) to a registered taxable person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any Court, Tribunal or Appellate Authority by the specified date, the proper officer may—(a) withhold payment of refund due until the said person has submitted the return or paid the tax, interest or penalty, as the case may be (b) deduct from the refund due, any tax, interest or penalty which the taxable person is liable to pay but which remains unpaid.
“Specified date” shall mean — (a) the last date for filing an appeal under this Act, in a case where no appeal has been filed (b) thirty days after the last date for filing an appeal under this Act, in a case where an appeal has been filed.
Interest on delayed refunds under GST
If any tax refundable under section 38 to any applicant is not refunded within three months from the date of receipt of application, interest at such rate as may be specified in the notification issued by the Central or a State Government on the recommendation of the Council shall be payable in respect of such refund from the date immediately after the expiry of the due date for sanction of refund under section 38 till the date of refund of such tax – clause 39 of GST Model Law, 2016.
Interest three months after date of order in appeal, if refund was rejected – Where any order of refund is made by an Appellate Authority, Tribunal or any Court against an order of the proper officer under sub-section (4) or sub-section (4A) of section 38, the order passed by the Appellate Authority, Tribunal or, as the case may be, by the Court shall be deemed to be an order passed under the said sub-section (4) or sub-section (4A) for the purposes of this section.
Note : Thus, if refund is rejected by adjudicating authority but sanctioned by appellate authority, interest will be payable three months after date of order of appellate authority and not date or order of adjudicating authority.
Consumer Welfare Fund
Normally, refund is to be credited to Consumer Welfare Fund, except in few specified cases.
There shall be established by the Central or a State Government a fund, to be called the Consumer Welfare Fund.
There shall be credited to the Fund, in such manner as may be prescribed, –
(a) the amount of tax referred to in sub-section (4) or sub-section (4A) of section 38; and
(b) any income from investment of the amount credited to the Fund and any other monies received by the Central or a State Government for the purposes of this Fund – clause 40 of GST Model Law, 2016.
Utilization of the Fund
Any money credited to the Fund shall be utilised by the Central/State Government for the welfare of the consumers in accordance with such rules as that Government may make in this behalf.
The Central/State Government shall maintain or, if it thinks fit, specify the authority which shall maintain, proper and separate account and other relevant records in relation to the Fund in such form as may be prescribed in consultation with the Comptroller and Auditor-General of India – clause 41 of GST Model Law, 2016.
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