After 3 years of implementation of GST, Taxpayers continue to face various issues in filing refund applications and consequently various representations are filed with CBEC for clarifying on the matter.
Considering the representation, CBEC has clarified various refund related issued vide Circular No. 147/03//2021-GST dated 12th March, 2020 where following issues are clarified:
- Clarification in respect of refund claim by recipient of Deemed Export Supply,
- Extension of relaxation for filing refund claim in cases where zero-rated supplies has been wrongly declared in Table 3.1(a),
- The manner of calculation of Adjusted Total Turnover under sub-rule (4) of Rule 89 of CGST Rules, 2017.
1. Clarification in respect of refund claim by recipient of Deemed Export Supply
- As per third proviso to Rule 89(1) of CGST Rules 2017, in case of deemed export, refund application can be filed by either of the following person:
- the recipient of the deemed export supplies, or
- the supplier of deemed export supplies in cases where the recipient has not avail input tax credit on such supplies. For this purpose, the supplier is required to furnish an undertaking to the effect that the supplier may claim the refund.
- With respect to refund by recipient against deemed export, CBEC issued a clarification vide Para No. 41 of Circular no. 125/44/2019 – GST dated 18/11/2019. In such a circular, CBEC placed a condition that the recipient of the deemed exports shall be entitled to refund only with respect of invoices for which he has not claimed any ITC. Therefore, according to this circular the recipient of deemed export supplies cannot avail ITC with respect to invoice for which refund application is being filed.
- Following the same, the recipient did not avail any ITC for such inward supplies while filing GST returns.
- However, supplier filed representations that the system is not allowing them to file a refund application unless the claimed amount is debited in the electronic credit ledger. Therefore, while filing refund application system was debiting the refund amount in electronic credit ledger
- Therefore, credit ledger was debited, however, such amount was never credited in credit ledger causing loss to the person.
- Wide circular No. 147/03//2021-GST dated 12th March, 2020, CBIC clarified that 3rd proviso to Rule 89(1) of CGST Rules, 2019 don’t place any condition that the recipient of deemed export can’t claim ITC for invoices for which he will be claiming refund.
- Further, to avoid any dual benefits to the claimant, GST portal allows refund of ITC only after debiting the claimed amount from electronic credit Ledger. Therefore. Whenever a refund application is filed for any ITC amount, the system debits the claimed amount to electronic credit ledger.
- To avoid hardship to the recipient of deemed export, CBIC removed the condition of non-availment of ITC by the recipient of deemed export. Following clarification is inserted vide amended pare:
- 3rd proviso to rule 89(1) of CGST Rules allows refund of taxes paid on deemed export to either the recipient or the supplier.
- Where refund is sought by the supplier, the documentary evidence as specified in notification No. 49/2017- Central Tax dated 18.10.2017 are required to be furnished. Further, an undertaking is also required that the recipient of deemed export supplies shall not claim the refund in respect of such supplies and also shall not avail any input tax credit on such supplies.
- Similarly, where refund is claimed by the recipient, he is required to submit an undertaking that refund has been claimed only for those invoices which are mentioned in statement 5B* and the amount does not exceed the amount of input tax credit availed in the valid return filed for the said tax period.
- The recipient shall also declare that the supplier has not claimed refund with respect to the said supplies.
* contains details of deemed export invoices for which refund is being claimed.
2. Extension of relaxation for filing refund claim in cases where zero-rated supplies has been wrongly declared in Table 3.1(a)
- Earlier also, various representations were filed with CBIC wherein registered persons has inadvertently entered details of their export of services or zero-rated supplies in table 3.1(a)-Outward Taxable supplies (other than Zero rated supply, nil rated and exempted instead of table 3.1(b)- outward taxable supplies (zero rated) of the form GSTR-3B.
- Due to this error, registered persons were unable to claim refund for such export invoices due to validation checks placed on common portal. Such validation checks allowed refund in Form GST RFD-01A only to the extent of IGST declared in Table 3.1 (b) of GSTR-3B.
- Earlier, CBIC clarified such issue vide circular No. 125/44/2019-GST dated 18th November 2019 wherein it clarified that refund application can be filed in Form GST RFD-01A to the extent where refund amount do not exceed aggregate of IGST mentioned in the table 3.1(a), 3.1(b) and 3.1(c) of the form GSTR-3B of corresponding tax period.
- However, such liberalisation was only provided for for the period from 01.07.2017 to 30.06.2019.
- Considering the representations, CBIC extended such liberatsation till 31st March 2021.
3. The manner of calculation of Adjusted Total Turnover under Rule 89(4) of CGST Rules, 2017 for the purpose of refund.
- For the purpose of computation of refund amount in case of zero-rated supplies of goods or services made without payment of tax, following formula is given under Rule 89(4) of CGST Rules:
“Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover”
- “Turnover of Zero-Rated supply of goods” has been defined as least of the following:
- Actual value of zero rated supply of goods made without payment of GST; or
- 1.5 times the value of like goods domestically supplied by the same or similarly placed supplier.
Definition of “Turnover of Zero-Rated Supply of Goods” is amended vide Notification No. 16/2020-Central Tax dated 23.03.2020.
- “Adjusted Total Turnover” means the sum total of the value of-
- the turnover in a State or a Union territory as defined in Section 2(112);
- the turnover of zero-rated supply of services and non-zero-rated supply of services,
i. the value of exempt supplies other than zero-rated supplies; and
(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.’
- Further, “Turnover in state or turnover in Union territory” as per sub-section 2(112) is:
- the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis);
- exempt supplies made within a State or Union territory by a taxable person,
- exports of goods or services or both and
- inter State supplies of goods or services or both
but excludes central tax, State tax, Union territory tax, integrated tax and Cess”
- With combined reading of all above mentioned definitions, exporters filed representation with CBIC raising concern that restriction of 1.5 times given in definition of “Turnover of zero-rated supply of goods” shall also apply while calculating “Adjusted Total Turnover” as turnover of zero rated supply is also considered while computing “Adjusted Total Turnover”.
In this matter, CBIC clarified following points:
- “Adjusted Total Turnover” includes “Turnover in State or Union Territory” as defined in section 2(112) of CGST Act
- As per section 2(112), “Turnover in a State or Union Territory” includes turnover/value of export/zero-rated supplies of goods.
- The definition of “Turnover of zero-rated supply of goods” has been amended vide Notification No. 16/2020-Central Tax dated 23.03.2020 to restrict that value upto 1.5 times the value of like goods domestically supplied by the same or similarly placed supplier.
- In this matter, CBIC clarified that same value of zero-rated/export supply of goods, as calculated as per amended definition of “Turnover of zero-rated supply of goods”, should be considered while computation “turnover in a state or a union territory” and “adjusted total turnover”.
- Therefore, restriction of 150% of the value of goods domestically supplied would also apply while computing “Adjusted Total Turnover”.
To sum up all the provisions discussed above we can understand by the below example where actual value per unit of goods exported is more than 1.5 times the value of same/ similar goods in domestic market, as declared by the supplier:-
Example: Suppose a supplier is manufacturing only one type of goods and is supplying the same goods in both the domestic market and overseas. During the relevant period of refund, the details of his inward supply and outward supply details are shown in the table below:
Net admissible ITC = Rs. 270
|Outward Supply||Value per unit||No of units supplied||Actual Turnover||Turnover as per amended definition|
|Local (Quantity 5)||200||5||1000||1000|
|Export (Quantity 5)||350||5||1750||1500 (1.5*5*200)|
The formula for calculation of refund as per Rule 89(4) is :
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover
- Turnover of Zero-rated supply of goods (as per amended definition) = Rs. 1500
- Adjusted Total Turnover= Rs. 1000 + Rs. 1500 = Rs. 2500 [and not Rs. 1000 + Rs. 1750]
- Net ITC = Rs. 270
Refund Amount = Rs. 1500*270/2500 = Rs. 162
Thus, the admissible refund amount in the instant case is Rs. 162.