Refunds under GST: A Comprehensive Analysis

Key Takeaways:

1. Refunds under GST law are governed by specific provisions in the CGST Act, IGST Act, and CGST Rules.

2. Refunds can be claimed for excess tax paid, unutilized input tax credit (ITC), zero-rated supplies, and certain other scenarios specified in the law.

3. There are time limits and procedural requirements for filing refund applications, including the submission of supporting documents.

4. Provisional refunds of up to 90% of the claimed amount can be granted for zero-rated supplies, subject to conditions.

5. The proper officer has the authority to withhold or deduct refunds in certain circumstances, such as pending returns or tax liabilities.

6. Interest is payable on delayed refunds beyond the prescribed time limit.

7. Judicial precedents have clarified various aspects of refund claims, including the scope of “inputs” for ITC refunds and the treatment of refunds in cases of duty drawback.

8. Illegitimate refund claims through fake invoices or organized crime are subject to scrutiny and recovery by the tax authorities.

Synopsis:

Refunds under GST: Analysis of Relevant Provisions & Important Judgments

Introduction

The concept of refunds under GST law seems straightforward - where GST is paid in excess, the taxpayer is entitled to a refund of the excess amount. However, it is one of the most litigated issues under GST with considerable litigation pending across courts.

Some taxpayers resort to fraudulent means like setting up shell companies, generating fake invoices, or claiming refunds on non-existent exports to extract refunds illegitimately. The department issues notices, conducts audits, and initiates recovery proceedings in such cases, often leading to writ petitions.

Relevant Provisions

CGST Act, 2017

Section 54: Deals with refunds - application, time limit (2 years from relevant date), provisional refund, withholding of refund, interest on delayed refunds etc.

Section 77: Refund when supply subsequently held inter-state

Section 49(6): Refund of balance in electronic cash ledger

IGST Act, 2017

Section 16: Refund of integrated tax paid on zero-rated supplies

Section 19: Refund of tax paid on subsequently held inter/intra-state supply

CGST Rules, 2017

Rule 89: Refund application, documents, formula for refund computation

Rule 90: Acknowledgment, deficiency memo, withdrawal of refund

Rules 91-96A: Provisional refund, withholding refund, export refunds with/without payment of IGST

Important Judgments

1. UOI vs VKC Footsteps India Pvt Ltd: Supreme Court held that for refund of unutilized ITC on account of inverted duty structure, ‘inputs’ means only input goods and not input services based on the statutory definition. Courts cannot re-write statute.

2. UOI vs Bundl Technologies: High Court allowed refund of amount deposited by Swiggy to secure release of directors, though not paid through GST challan, as it was not voluntary payment. Questionable precedent.

3. SAIL vs State of Jharkhand: High Court granted refund of compensation cess on coal along with interest from date of application, rejecting department’s plea to file fresh application.

4. Sunlight Cable Industries vs Commissioner: High Court allowed IGST refund on exports, rejecting department’s objection of double benefit due to higher duty drawback claim.

Conclusion

Refund claims require careful adjudication by tax authorities and judicial scrutiny to avoid loss to the exchequer or taxpayers. Courts must analyze the statutory provisions, rules, and the specific facts while deciding on the maintainability and merits of refund claims and writ petitions.

FAQ:

Q1. What is the time limit for filing a refund application under GST?

A1. The time limit for filing a refund application is two years from the relevant date, as defined in the CGST Act.

Q2. Can refunds be claimed for unutilized input tax credit on input services?

A2. No, based on the Supreme Court judgment in UOI vs. VKC Footsteps India Pvt Ltd., refunds of unutilized ITC can be claimed only for input goods and not input services.

Q3. What is the procedure for claiming refunds on zero-rated supplies?

A3. For zero-rated supplies with payment of IGST, the shipping bill is deemed as the refund application. For zero-rated supplies without payment of IGST, a Bond or Letter of Undertaking must be furnished in FORM GST RFD-11 prior to export.

Q4. Can refunds be claimed for excess tax paid under the Sabka Vishwas (Legacy Dispute Resolution) Scheme?

A4. No, Section 129 of the Scheme explicitly states that declarants are not entitled to any refund of taxes paid under the Scheme.

Q5. What is the interest rate payable on delayed refunds?

A5. The interest rate payable on delayed refunds is specified by the Government on the recommendations of the GST Council, not exceeding 6% per annum for regular refunds and 9% per annum for refunds arising from orders of appellate authorities or courts.