GST News & Updates - Fully electronic processing of refunds

The Central Board of Indirect Taxes and Customs (‘CBIC’) has recently issued a Circular No. 125/44/2019 - GST, dated 18 November 2019 (‘the Circular’), to clarify fully electronic refund process through Form GST RFD-01.

The delay in issuance of refunds has been a sore point for exporters under the Goods and Services Tax (‘GST’) regime. 

The Government had initially introduced temporary mechanism wherein the taxpayers were required to file the refund application in Form GST RFD - 01A on the common portal, take a printout of the same and submit it physically with the Jurisdictional Revenue Authorities along with all the supporting documents.

Later, to make process of submission of the refund application electronic, Circular No. 79/53/2018 - GST, dated 31 December 2018 was issued wherein it was specified that the refund application in Form GST RFD-01A, along with all supporting documents, shall be submitted electronically. However, various post submission stages for processing of the refund application continued to be manual.

Finally, refund procedure was made fully electronic and was deployed on the common portal w.e.f 26 September 2019.

Now, the CBIC, in furtherance to the advisory issued by GSTN for implementation of an online refund processing system with disbursal by a single authority, has issued a Circular which supersedes earlier circulars issued. Please note that the provisions of previous circulars would continue to apply for refund applications filed before 26 September 2019, which would be processed manually.

This Circular compiles clarifications already provided vide previous circulars and throws light on other unsettled issues. The contents of the Circular are summarised below: 

Processing of refund application

The taxpayer would need to file Form GST RFD-01 on the common portal for seeking refund. The Circular provides comprehensive list of documents to be provided along with the refund application. 

Refund would be sanctioned based on provisionally accepted Input Tax Credit (‘ITC’), i.e., basis credit claimed in return filed in Form GSTR 3B, as the online functionality of furnishing Forms GSTR 2 and GSTR 3 remains unimplemented.

The taxpayers may file refund claim for a single tax period or by clubbing successive tax periods but cannot spread across different financial years.

Deficiency memos - On issuance of a deficiency memo by the Revenue Authorities, a fresh application for refund would have to be filed. Such rectified application would be required to be submitted within the time limit of 2 years, as prescribed under the CGST Act, 2017 (‘CGST Act’) for filing of refund application.

Disbursal of refunds - Refund applications under all heads (i.e. CGST, SGST, IGST, Compensation Cess), which was previously being disbursed by separate authorities shall be disbursed by a single tax officer. The sanctioned refunds shall be disbursed through a Public Financial Management System (PFMS).

Interest at 6% (notified vide notification No. 13/2017 - Central Tax dated 28 June 2017) is payable in case of delay, beyond 60 days, in the disbursement of refund, as provided under Section 56 of the CGST Act. The Circular clarifies that the time period of 60 days is to be calculated from the generation date of Application Reference Number until the date of credit of the refund amount in the bank account of the taxpayer.

The Circular has clarified the process to recover the refund amount paid provisionally, but subsequently found to be inadmissible, along with interest and penalty under Sections 73 and 74 of the CGST Act.

Guidelines for refund of unutilised ITC

The Circular clarifies the requirement to upload a copy of Form GSTR 2A, for the relevant period in which invoices have been auto populated along with the refund.

Restrictions on availment of ITC up to 20% of the eligible credit available, where details of the relevant invoice/ debit note have not been uploaded by the supplier in Form GSTR 1 as prescribed in Rule 36(4) of the CGST Rules, 2017 (‘CGST Rules’), would also be applicable in case of refund of unutilised ITC. Self-certified copies of such invoices not uploaded by the supplier required to be submitted along with refund application.

Order for utilisation of ITC balance for claiming refund under various heads (i.e. CGST, SGST, IGST) prescribed. However, it is not mandatory for the taxpayers to adhere to this order and the Revenue Authorities would take no adverse view for noncompliance.

If a supplier avails drawback of duties rebated under the erstwhile law, the supplier shall be eligible for refund of unutilised ITC of CGST/ SGST/ UGST/ IGST/ Compensation Cess. 

Guidelines for refund of tax paid on deemed exports

For obtaining refund of tax paid on deemed exports, the supplier or recipient is required to file an application in Form GST RFD - 01 with supporting documents.

Clarifications on refund for zero-rated supplies

The Circular provides relaxation to the taxpayers for refund of ITC for zero-rated supplies made before obtaining Letter of Undertaking (‘LUT’). The Revenue Authorities are advised to condone delay in filing LUT to and ex post facto facility for export under LUT be allowed so that substantive benefit of zero rating not to be denied where it is established that exports in terms of the relevant provisions have been made.

Similar relaxation also provided for payment of tax to be made in case of failure to export goods within three months of issue of export invoice.

No LUT/ bond required in case of refund claims on account of export of non-GST and exempted goods without payment of tax.

Where the value of export declared in the tax invoice is different from the export value declared in the corresponding shipping bill uploaded on ICEGAT, the lower of the two values to be taken into account to calculate eligible amount of refund, and outright rejection of refund is not permitted.

Refund of transitional credit

It is clarified that the refund of unutilised transitional credit, pertaining to duties and taxes paid under the Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, is not admissible since the same has not been availed during the ‘relevant period’ and cannot be treated as part of ‘Net ITC’ under Rule 89 of the CGST Rules.

Restriction imposed on exporters from availing the facility of claiming refund of Integrated tax paid on exports in certain scenarios

Exporter receiving capital goods under the Export Promotion Capital Goods Scheme is not covered under the exclusion prescribed under Rule 96(10) of the CGST Rules, and such exporters shall continue to be eligible to claim refund of integrated tax paid on exports.

Clarification on refund of accumulated ITC on account of inverted tax structure

The Circular clarifies that refund of tax paid on input services and capital goods is barred for refund of ITC on inputs in case of an inverted duty structure.

Refund for inverted duty structure would be available where ITC remains unutilised after setting-off available ITC for payment of output liability, irrespective of the individual rate at which the inputs are taxed.

Refund of TDS/TCS deposited in excess

Tax deducted/ collected (TDS/TCS) and deposited under wrong heads leading to excess balance in the account of deductor / collector may be claimed as refund of excess balance in electronic cash ledger by the deductor / collector. Such excess tax deducted/ deposited can be adjusted for discharging output liability (in Form GSTR 7 / GSTR 8) or can be claimed as refund by the deductee under the category ‘refund of excess balance in the electronic cash ledger’.

Clarifications on other issues

In respect of the supply of taxable goods by registered person to another registered person for export, at a concessional rate [Notification No. 40/2017 - Central Tax (Rate) and 41/2017 - Integrated Tax (Rate), dated 23 October 2017], the following prescriptions have been made: 

1. exporter would mandatorily be required to subsequently export under a LUT/ bond, and 
2. exporter cannot exercise the option of payment of tax to claim rebate.

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