The word refund, in simple terms, means an amount of money that is given back to a person upon the happening or occurring of some event. In taxation, refund refers to any amount that is due to the taxpayer from the tax administration due to excess payment of taxes or any other reason.

GST was introduced with an aim to achieve a smooth flow of funds and to boost the Indian economy. In order to facilitate such a smooth flow, it is essential for the legislature to provide a hassle-free refund process. Refund mechanism under the GST law will allow registered taxpayers to claim a refund of the excess GST paid or any input tax credit which has not been utilized.

Earlier, the tax structure was cumbersome and it involved a lot of time to get a refund from the department. Now, the legislature has framed convenient and uncomplicated steps to ensure that excess GST paid does not remain parked with them. The process of claiming a refund has been standardized to avoid confusion. It is completely online and time-bound. Thus, a standardized form has been issued by the legislature for applying for refunds.

Several Types of GST Refund

1. Excess payment of tax due to mistake or inadvertence
2. Excess balance in Electronic Cash Ledger
3. Export with payment of IGST or under Bond/ LUT
4. Supplies made to SEZ unit/developer on payment of IGST or under Bond/LUT
5. Inverted duty structure
6. Deemed Exports
7. Persons holding UIN
8. Miscellaneous refunds

Scope of Refund under the GST Act

1. Explanation to section 54 defines the term “refund” which includes:
2. Refund of tax (output tax) paid on zero-rated supplies of goods and/or services, or
3. Refund of tax (input tax) on inputs or input services used in making zero-rated supplies, or
4. Refund of tax on the supply of goods regarded as deemed exports, or
5. Refund of the unutilized input tax credit as provided under section 54(3) i.e. due to inverted duty structure

The aforesaid explanation prescribes the situations in which the refund can be granted as the term used in the aforesaid explanation is that refund ‘includes’. It clearly means that there can be various other situations wherein refund can be granted to the person and/or the registered persons as per the provisions of refund.

Situations leading to GST refund claims

As per Section 54(3) of the Central Goods and Services Act (hereinafter referred to as the “CGST Act”), a registered person can claim a refund of unutilized ITC under the following situations: 

1. Zero Rated Supply without the payment of Tax: –It includes a supply of goods or services or both to SEZ units/developers and export of goods or services or both goods and services under bond or Letter of undertaking (LUT) without payment of IGST.
2. Inverted Duty Structure: – It is a situation where the rate of tax on inputs purchased is more than the rate of tax on outward supplies (i.e. GST paid on inputs received is more than GST Payable on outward supplies).

In addition to the above situations, there can be other events also where the registered taxpayer can claim a refund. Certain events amongst them inter-alia include: 

1. Export of goods or services
   
2. Supplies to SEZs units and developers
3. Deemed exports
4. Refund of accumulated Input Tax Credit on account of inverted duty structure
5. Finalization of provisional assessment
6. Refund of pre-deposit
7. Excess payment due to mistake
8. Refund of CGST & SGST paid by treating the supply as intrastate supply which is subsequently held as inter-State supply and vice versa

Furthermore, Section 54(3) of the CGST Act specifies some cases where a refund of ITC shall not be allowed: 

1. A refund of unutilized ITC shall not be allowed if goods exported out of India are subjected to export duty.
2. The refund of ITC shall not be allowed if the supplier of goods or services or both has availed drawback in respect of CGST or claims refund of IGST paid on such supply.

Recently, the Government of India has issued circular for clarification on export-related issues: 

“Suppliers availing of drawback only with respect to basic customs duty (BCD) shall be eligible for a refund of any unutilized input tax credit of central tax / State tax / Union territory tax / integrated tax/compensation cess. It was further clarified that refund of eligible credit on account of State tax shall be available even if the supplier of goods or services or both has availed of drawback in respect of central tax.”

Clarifications on issues related to making zero-rated supplies

1. The export of goods has been made before the furnishing of LUT Bond. In such cases, the delay in furnishing of LUT may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case.
2. The Exporter would be liable to pay the tax due along with the interest as applicable within a period of fifteen days after the expiry of three months or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export if the goods are not exported out of India. The time period in case of services is fifteen days after the expiry of one year or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export if the payment of such services is not received by the exporter in convertible foreign exchange.
1. It is emphasized that exports have been zero-rated under the IGST Act and as long as goods have actually been exported even after a period of three months, payment of Integrated tax first and claiming refund at a subsequent date should not be insisted upon. In such cases, the jurisdictional Commissioner may consider granting an extension of time limit for export as provided in the said sub-rule on post facto basis keeping in view the facts and circumstances of each case.
3. Where the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act, the lower of the two values should be taken into account while calculating the eligible amount of refund.
4. It is clarified that insistence on proof of realization of export proceeds for processing of refund claims related to the export of goods has not been envisaged in the law and should not be insisted upon.
5. It is clarified that in respect of refund claims on account of export of non-GST and exempted goods without payment of Integrated tax; LUT/bond is not required.

Clarification on the calculation of refund amount for claims of refund of accumulated ITC on account of inverted tax structure

It is clarified that while processing the refund of unutilized ITC on account of inverted tax structure the Tax Authorities cannot deny a refund of ITC of GST paid on those inputs which are procured at an equal or lower rate of GST than the rate of GST on outward supply. For example, multiple inputs such as inputs @ 5% and inputs @ 18% are used for outward supply which has a GST rate of 12%. While computing the refund both inputs i.e. rate of 5% and a rate of 18% will be considered.

Exceptions, Withholding, and Non-Payment of Refund

Exceptions according to provisos to Section 54 (3) of the CGST Act:

1. No refund of the unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:
2. No refund of the input tax credit shall be allowed, if 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.

Withholding of Refund under section Section 54 (10) of the CGST Act:

1. Defaulted in furnishing any return;
2. Defaulted in payment of any tax, interest or penalty and
3. The Proper Officer is authorized to deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law.

Withholding of Refund under section Section 54 (11) of the CGST Act:

1. Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act are pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

Withholding of Refund Casual Taxable Person or Non-Resident Taxable Person – Section 54 (13) of the CGST Act:

1. The amount of advance tax deposited by a casual taxable person or a non-resident taxable person under sub-section (2) of section 27, shall not be refunded unless such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39.

Non Payment of Refund – Section 54 (14) of the CGST Act:

1. No refund under sub-section (5) or sub-section (6) shall be paid to an applicant if the amount is less than one thousand rupees. Sub-sections 5 and 6 are about the application of refund claiming refund amount less than one thousand rupees. It is clarified vide circular 125/44/2019 that the limit of rupees one thousand shall be applied for each tax head separately and not cumulatively.

Time Period and GST Form for application of refund by the person other than the person ( UNO etc. ) notified under section 55

1. In the case of goods exported out of India where a refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods,—
1. 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
2. if the goods are exported by land, the date on which such goods pass the frontier; or
3. if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;
2. In the case of a 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 furnished;
3. 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—
1. receipt of payment in convertible foreign exchange 55[or in Indian rupees wherever permitted by the Reserve Bank of India], where the supply of services had been completed prior to the receipt of such payment; or
2. issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice;
4. In the case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, the date of communication of such judgment, decree, order or direction;
5. In the case of a refund of unutilized input tax credit under clause (ii) of the   first proviso to sub-section (3) ( accumulation of tax due to inverted tax structure ), the due date for furnishing of return under section 39 for the period in which such claim for refund arises;
6. 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;
7. In the case of a person, other than the supplier, the date of receipt of goods or services or both by such person; and
8. In any other case, the date of payment of tax.

Time Period and GST Form for application of refund by the person ( UNO etc. ) notified under section 55.

According to Section 54 (2) of the CGST Act, the person ( UNO, etc. ) notified under section 55 shall apply for the refund through GST Form GST RFD-10 before the expiry of six months from the last day of the quarter in which such supply was received. Such supply means an inward supply on which the tax has been paid.

The procedure, Processing, and Sanction of Refund – Application Filed Online

At present i.e. with effect from 26-09-2019 refund procedure is fully electronic. All steps of submission and processing in regard to refund shall be undertaken electronically. The GST Policy Wing issues a Circular 125/44/2019-GST by which a detailed set of guidelines and processing of the refund to be done electronically have been laid down.