Refund Process under GST

When the Goods and Services Tax or GST came into origin, it also brought into place multiple systems and mechanisms for refunds. After that, multiple refund claims have been filed by taxpayers and a standardised form has been introduced.

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 standardising the procedures pertaining to refunds under GST. Therefore, a standardised form has been created to make claims for refunds. The procedure for making claims can be completed online in a timely manner.

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 modernisation, 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.

Unjust Enrichment

It is usually presumed that a business owner will transfer the incidence of tax to the final consumer, due to the fact that 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 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.

Documents Required

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 export of services, not including the statement of invoices, the relevant bank realisation 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 authorised 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 ITC of the tax paid by the supplier has not been availed.

News About Refund Process under GST

  • CBIC clears off Rs.11,052 crore worth of GST refund claims since April 8

    The Central Board of Indirect Taxes (CBIC) has recently announced that it has sanctioned GST refund claims worth Rs.11,052 crore in a span of 47 days.

    The tweet from the official twitter handle of the CBIC mentioned that it has made a commitment towards the GST taxpayers to ensure liquidity. It has also mentioned that the MSME sector is getting special priority in this case. The tweet summed up that the CBIC has sanctioned and settled 29,230 refund cases wherein the claim amount has been Rs.11,052 crore. This amount has been disposed between the 8th of April 2020 and the 24th of May 2020.

    27 May 2020

  • Government contemplates tax refunds to large companies

    Government is considering providing income tax and GST refunds to large firms. The plan is to induce and ensure additional liquidity during the lockdown caused by the COVID-19 pandemic. According to sources, the refunds could be much higher than the refunds of Rs.18,000 crore rolled out to the small taxpayers recently.

    The primary aim of the roll out is to provide enough liquidity to industries in the times of crisis.

    20 April 2020

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