When the Goods and Services Tax or GST came into the origin, it also brought into place multiple systems and mechanisms for refunds. After that, multiple refund claims have been filed by taxpayers and a standardized form has been introduced.
What is GST Refund?
GST refund is a process in which, registered taxpayers can claim excess amount if they paid more than the GST liability. They can claim after submitting a refund application with the necessary details in the GST portal.
The cash flow and working capital requirements of manufacturers and exporters could be adversely affected if a refund is delayed. As a result, one of the intentions of the implementation of GST is to ensure that the refund process is smoother so that manufacturers and exporters do not face issues due to delays. By ensuring that the refund process is facilitated quickly, tax administration becomes more effective.
The GST regime has provisions relating to refunds, and it aims at streamlining and standardizing the procedures about refunds under GST. Therefore, a standardized form has been created to make claims for refunds. The procedure for making claims can be completed online on time.
Situations that can lead to Refund Claims
A proper refund mechanism is necessary for effective tax administration, as trade is facilitated via the release of blocked finances for modernization, expansion, and working capital requirements of a business. The situations that could lead to refund claims include the following:
- Exports of commodities or services
- Deemed exports
- Refund of taxes when embassies make purchases
- Supplies to developers and units in special economic zones
- Refund of accrued input tax credit on account of inverted duty structure
- Refund of pre-deposit
- Refund arising from order, judgment, direction or decree of the Appellate Tribunal, Appellate Authority or any court of law
- Refund of taxes when embassies make purchases
- Finalisation of provisional assessment
- Excess payment because of an error
- Refund due to issuance of refund vouchers for taxes paid on advances against which commodities or services haven’t been supplied
- Refunds to overseas tourists of GST paid on commodities within the country and carried to an international location when they depart India
- Refund of SGST and CGST paid by considering the supply in the course of inter-state commerce or trade
Refund Process under GST
In order to process a refund claim, the following procedure must be adhered to:
- Visit the GSTN portal and fill in the application form meant for claiming refund.
- You will receive an email or SMS which contains an acknowledgment number after the filing of application is done electronically.
- The cash and return ledger will be adjusted and the “carry-forward input tax credit” will be reduced automatically.
- The application for refund along with the documents you have submitted will be scrutinised by the authorities with a 30-day period after you have filed the refund application.
- “Unjust enrichment” (explained below) is a concept that will be thoroughly scrutinised by the authorities. In case the application does not qualify, the refund will be transferred to a Consumer Welfare Fund (CWF).
- In case the refund claimed by the individual in excess of the predetermined amount of refund, a pre-audit process will be conducted before the refund is sanctioned.
- The credit of the refund will be done electronically to the applicant’s account through NEFT, RTGS or ECS.
- Individuals are allowed to make their applications for refund at the end of each quarter.
- In case the amount of refund is below Rs.1000, no refund will be provided to the individual.
It is usually presumed that a business owner will transfer the incidence of tax to the final consumer because GST is an indirect taxation structure and the consumer has to bear its incidence. For the very same reason, every refund claim (excluding specified exceptions) is required to pass the “unjust enrichment” test. If such claims are sanctioned, they are first transferred to the Consumer Welfare Fund. The test is inapplicable for a refund of accumulated ITC, refund of payment of wrong tax, refund on account of exports, refund of tax paid on a supply, etc. Apart from the aforementioned incidents, the “unjust enrichment” test has to be carried out if the applicant is to receive the claim amount.
Applicants who wish to make a claim will have to file elaborate documents in addition to the refund claim. The documents that have been prescribed for the same are standard. Therefore, for each claim, the primary document that has to be submitted is a statement of relevant invoices relating to the claim. If the refund is made on account of the export of services, not including the statement of invoices, the relevant bank realization certificates verifying receipt of payment in overseas currency should also be furnished. In case a claim is made by the supplier to the Special Economic Zones (SEZ) unit, the authorized officer will have to make an endorsement verifying the receipt of such commodities or services in the SEZ and submit the same along with the other documents. Moreover, the SEZ unit will also have to provide a declaration stating that the ITC of the tax paid by the supplier has not been availed.