July 23, 2022

Refund related amendments and clarification under GST | 47th GST Council Meeting

The (Goods and Service Tax) GST Council met for the 47th time on June 28th and 29th, 2022, and was chaired by the Union Finance Minister. In the 47th GST Council meeting, Major decisions were taken around the revision of GST rates on various goods to rationalize an inverted duty structure. GST Rates were also reduced on certain medical instruments such as Ostomy appliances, Orthopedic appliances, etc., and various other services also. GST Council also provided relaxations to suppliers dealing through e-commerce platforms, dealers opted for composition schemes, etc.

Among all the recommendations, GST Council discussed various issues related to GST refunds faced by the industry and came up with various recommendations and clarifications to ensure the smooth release of refunds to the exporters.

In this article, a detailed discussion is made about amendments made by GST Council on various refund-related issues

1. Extension of Period of Limitation for GST refund (N/No. 13/2022 dated 05.07.2022)

Hon’ble Apex Court excluded a period of appx. 2 years for counting of a period of limitation under all statutes due to lockdowns. However, CBIC clarified that such a period shall not be excluded while counting the period of limitation for refund.
An assessee has 2 years to file a refund application from the relevant date.
Due to lockdown, taxpayers could not file refund applications within the time period permitted under GST law and consequently, their refund claims got time-barred.
Considering the hardship done to exports due to genuine problems, GST council recommended certain periods to be excluded while counting periods of limitation.
As suggested by GST Council, CBIC made following extension by N/No. 13/2022 dated 05.07.2022:

a. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for a reason other than fraud u/s 73:

Period	Purpose of issuance of order u/s 73	Extension Granted
FY 2017-18	Recovery of tax not paid or short paid.ITC wrongly availed or utilized	30th September 2023
For all Applicable Financial years	recovery of erroneous refund	The period from 1st March 2020 to 28th Feb 2022 shall be excluded

b. For filing refunds application u/s 54 and 55, while computing the period of limitation, the period from 1st March 2020 to 28th Feb 2022 shall be excluded.

2. Central Goods and Service Tax (Amendment) Rules, 2022 (N/No. 14/2022–Central Tax dated 05.07.2022)

2.1 Recredit of erroneously sanctioned refund amount when same is deposited with interest and penalty

The refund amount claimed by the taxpayer gets debited in his electronic credit ledger.
However, if any refund amount is granted erroneously to the taxpayer then the assessee is required to deposit the same with interest and penalty through the filing of GST DRC-03 by debiting an electronic cash ledger.
Upon deposition, an amount equivalent to the amount of erroneous refund deposited by the registered person shall be re-credited to the electronic credit ledger through an order made in FORM GST PMT-03A.

2.2 Additional Ground of withholding refund under Rule 96

Rule 96(4) provides the following 2 grounds for withholding refund of IGST claimed with respect to the export of goods on payment of IGST:
- Where a refund is claimed u/s 54(10), i.e., Where any refund is due to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest, or penalty or refund is claimed u/s 54(11), i.e., where order giving rise to refund is the subject matter of appeal or further proceedings.
- Where custom officers determine that goods were exported in violation of custom provisions.

CGST Amendment Rules provide for an additional ground of withholding refund where the proper officer, on the basis of data analysis and risk parameters, is of the opinion that verification of credentials of the exporter and ITC availed is essential before granting of refund to safeguard the interest of revenue.

Accordingly, whenever a proper officer has reasons to believe that exporter has not availed valid ITC then he may withhold a refund under Rule 96(4).

2.3 Refund withheld under Rule 96 to be dealt with in accordance with Rule 89 (Alert Cases)

Rule 96(4) provides power to withhold refund claimed with respect to IGST paid on export of goods in case of risky exporters or where goods are exported in violation of custom provisions.
Till now, with respect to the refund withheld, the customs officer was liable to send an intimation to the applicant and jurisdictional commissioner about holding of refund and Where the applicant becomes entitled to refund of the amount withheld, the concerned jurisdictional officer shall proceed to refund the amount.
Now provisions of Rule 96 have been amended to provide that where a refund is withheld, the proper officer shall transmit such claim to the jurisdictional officer electronically in Form GST RFD-01, and intimation about such transmission shall also be sent to the exporter.
Such a system-generated form shall be considered as an application for refund and shall be handled in accordance with provisions of Rule 89.

2.4 Other Changes

Refund shall be permitted in case of export of electricity and for the purpose of claiming a refund, the person is required to submit a statement containing the number and date of the export invoices, details of energy exported, tariff per unit, and other specified documents.

Application for refund will be filed under the “Any Other” category electronically in FORM GST RFD-01, on the portal. In the remark column of the application, the taxpayer would enter “Export of electricity- without payment of tax (accumulated ITC)”. At this stage, the applicant is not required to make any debit from the electronic credit ledger.

The procedure of claiming a refund is clarified in detail vide Circular No. 175/07/2022-GST dated 6th July 2022.

For granting refund on account of export of goods without payment of GST, the value of goods exported shall be least of the following amount.
- FOB value declared in shipping Bill or
- Value declared in tax invoice or bill of supply

3. Clarification on the refund with respect to supplies regarded as “Deemed Export”

Issue: 1

GST paid on deemed export is eligible for refund and such refund can be claimed by either supplier or recipient of deemed export.
The recipient is entitled to claim a refund with respect to deemed export subject to the condition that he has not availed ITC of such inward supplies.
However, recipients were facing difficulties in claiming a refund as the system was debiting the refund amount in Electronic Credit Ledger even though such amount was never credited in Electronic Credit Ledger.
To beat technical limitations, CBIC clarified vide circular no. 147/03/2021-GST dated 12.03.2021 that recipient can claim ITC of tax paid on deemed export for enabling them to claim a refund on GST portal.
Now, the issue has been raised that whether such ITC claimed by the recipient with respect to deemed export is subject to provisions of Section 17 of CGST Act, 2017 (Apportionment of credit and blocked credits)

Clarification

Department has clarified that such ITC has been made available to the recipient only for enabling them to claim a refund on the portal and it is not an ITC in terms of provisions of Chapter V of CGST Act, 2017.
Accordingly, such ITC will not be subject to provisions of Section 17 of the CGST Act.

Issue:2

Where a refund of ITC is claimed on account of export made without payment of IGST or refund claimed under inverted duty structure, “Net ITC” is to be calculated for computing the eligible refund amount.
The formula for computing Net ITC and eligible refund amount are given under Rule 89(4) and 89(5) of CGST Rules.
Now, the issue has arisen that whether ITC availed by the recipient with respect to deemed export is to be included in “Net ITC” for computation of refund under Rule 89(4) and (5) of CGST Rules.

Clarification:

CBIC has clarified that such ITC claimed for deemed export is not an ITC in terms of Section 17 of CGST Act, 2017.
Therefore, such ITC availed by the recipient is not to be included in the “Net ITC” for computation of ITC refund under rule 89(4) or rule 89(5) of the CGST Rules, 2017.

4. Refund is allowed under inverted Duty structure due to concessional rate of GST on output

Vide para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020, it was clarified that refund on account of inverted duty structure would not be admissible in cases where the input and output supply are the same.
However, the department has clarified that the intention of this circular was not to cover supplies where the supplier is making the supply of goods under a concessional notification and the rate of output supply is less than the rate of input supply (of the same goods) at the same point of time due to concessional notification.
Therefore, refund under the Inverted Duty structure will be allowed under the Inverted Duty Structure where ITC is accumulated because GST rate on outward supply of same goods is less than ITC on inward supplies due to concessional notification.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

No GST on ocean freight under Reverse Charge Mechanism on CIF Contract

Under the CIF contract, Ocean freight is payable by foreign exporters to the foreign shipping company. As per N/No. 8/2017, GST is payable on the value of transportation of goods by a vessel from a place outside India to a customs station of India at @5%.

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