Central Tax Circulars

CGST Circular 45/2018

To,

The Principal Chief Commissioners/Chief Commissioners/Principal
Commissioners/ Commissioners of Central Tax (All) The Principal Directors
General/ Directors General (All)

Madam / Sir,

Subject: Clarifications on refund related issues – reg.

1) The Board vide Circular No. 17/17/2017 – GST dated 15th November 2017,
No. 24/24/2017 – GST dated 21st December 2017 and No. 37/11/2018 – GST
dated 15th March, 2018 has laid down the procedure for manual filing and
processing of different types of refund claims under GST and clarified
the exports related refund issues.

2) Representations have been received seeking clarification on certain
refund related issues. In order to clarify these issues and with a
view to ensure uniformity in the implementation of the provisions of the
law across the field formations, the Board, in exercise of its powers
conferred by section 168(1) of the Central Goods and Services Tax Act,
2017 (CGST Act for short) hereby clarifies the issues raised as below:

3) Claim for refund filed by an Input Service Distributor, a person
paying tax under section 10 or a non-resident taxable person:

3.1 Doubts have been raised in case of claims for refund filed by an
Input Service Distributor (ISD for short), a person paying tax under
section 10 of the CGST Act (composition taxpayer for short)or a
non-resident taxable person in light of para 2.0 of Circular No.
24/24/2017-GST dated 21.12.2017 which mandates that the refund claim for
a tax period may be filed only after filing the details in FORM GSTR-1
for the said tax period and that it is also to be ensured that a valid
return in FORM GSTR-3B has been filed for the last tax period before the
one in which the refund application is being filed.

3.2 In this regard, attention is invited to sub-section (1) of section 37
of the CGST Act read with rule 59 of the Central Goods and Services Tax
Rules, 2017 (CGST Rules for short) which mandates that every registered
person, other than an Input Service Distributor or a non-resident taxable
person or a person paying tax under the provisions of section 10 or
section 51 or section 52, shall furnish the details of outward supplies
of goods or services or both effected during a tax period in FORM GSTR-1.
Further, as per sub-section (2) of section 39 of the CGST Act read with
rule 62 of the CGST Rules, a composition taxpayer is required to furnish
the return in FORM GSTR-4; as per sub-section (4) of section 39 of the
CGST Act read with rule 65 of the CGST Rules, an ISD is required to
furnish the return in FORM GSTR-6 and as per sub-section (5) of section
39 of the CGST Act read with rule 63 of the CGST Rules, a non-resident
taxable person is required to furnish the return in FORM GSTR-5.

3.3 Thus, it is clarified that in case of a claim for refund of balance
in the electronic cash ledger filed by an ISD or a composition taxpayer;
and the claim for refund of balance in the electronic cash and/or credit
ledger by a non-resident taxable person, the filing of the details in
FORM GSTR-1 and the return in FORM GSTR-3B is not mandatory. Instead, the
return in FORM GSTR-4 filed by a composition taxpayer, the details in
FORM GSTR-6 filed by an ISD and the return in FORM GSTR-5 filed by a
non-resident taxable person shall be sufficient for claiming the said
refund.

4) Application for refund of integrated tax paid on export of services
and supplies made to a Special Economic Zone developer or a Special
Economic Zone unit:

4.1 It has been represented that while filing the return in FORM GSTR-3B
for a given tax period, certain registered persons committed errors in
declaring the export of services on payment of integrated tax or zero
rated supplies made to a Special Economic Zone developer or a Special
Economic Zone unit on payment of integrated tax. They have shown such
supplies in the Table under column 3.1(a) instead of showing them in
column 3.1(b) of FORM GSTR-3B whilst they have shown the correct details
in Table 6A or 6B of FORM GSTR-1 for the relevant tax period and duly
discharged their tax liabilities. Such registered persons are unable to
file the refund application in FORM GST RFD-01A for refund of integrated
tax paid on the export of services or on supplies made to a SEZ developer
or a SEZ unit on the GST common portal because of an in-built validation
check in the system which restricts the refund amount claimed (integrated
tax/cess) to the amount of integrated tax/cess mentioned under column
3.1(b) of FORM GSTR-3B (zero rated supplies) filed for the corresponding
tax period.

4.2 In this regard, it is clarified that for the tax periods commencing
from 01.07.2017 to 31.03.2018, such registered persons shall be allowed
to file the refund application in FORM GST RFD-01A on the common portal
subject to the condition that the amount of refund of integrated tax/cess
claimed shall not be more than the aggregate amount of integrated
tax/cess mentioned in the Table under columns 3.1(a), 3.1(b) and 3.1(c)
of FORM GSTR-3B filed for the corresponding tax period.

5) Refund of unutilized input tax credit of compensation cess availed on
inputs in cases where the final product is not subject to the levy of
compensation cess:

5.1 Doubts have been raised whether an exporter is eligible to claim
refund of unutilized input tax credit of compensation cess paid on
inputs, where the final product is not leviable to compensation cess. For
instance, cess is levied on coal, which is an input for the manufacture
of aluminum products, whereas cess is not levied on aluminum products.

5.2 In this regard, section 16(2) of the Integrated Goods and Services
Tax Act, 2017 (IGST Act for short) states that, subject to the provisions
of section 17(5) of the CGST Act, credit of input tax may be availed for
making zero rated supplies. Further, as per section 8 of the Goods and
Services Tax (Compensation to States) Act, 2017, (hereafter referred to
as the Cess Act), all goods and services specified in the Schedule to the
Cess Act are leviable to cess under the Cess Act; and vide section 11 (2)
of the Cess Act, section 16 of the IGST Act is mutatis mutandis made
applicable to inter-State supplies of all such goods and services. Thus,
it implies that all supplies of such goods and services are zero rated
under the Cess Act. Moreover, as section 17(5) of the CGST Act does not
restrict the availment of input tax credit of compensation cess on coal,
it is clarified that a registered person making zero rated supply of
aluminum products under bond or LUT may claim refund of unutilized credit
including that of compensation cess paid on coal.

5.3 Such registered persons may also make zero-rated supply of aluminum
products on payment of integrated tax but they cannot utilize the credit
of the compensation cess paid on coal for payment of integrated tax in
view of the proviso to section 11(2) of the Cess Act, which allows the
utilization of the input tax credit of cess, only for the payment of cess
on the outward supplies. Accordingly, they cannot claim refund of
compensation cess in case of zero-rated supply on payment of integrated
tax.

6) Whether bond or Letter of Undertaking (LUT) is required in the case of
zero rated supply of exempted or non-GST goods and whether refund can
be claimed by the exporter of exempted or non-GST goods?

6.1 As per section 16(2) of the IGST Act, credit of input tax may be
availed for making zero rated supplies, notwithstanding that such supply
is an exempt supply. Whereas, as per section 2 (47) of the CGST Act,
exempt supply includes non-taxable supply. Further, as per section 16(3)
of the IGST Act, a registered person making zero rated supply shall be
eligible to claim refund when he either makes supply of goods or services
or both under bond or letter of undertaking (LUT) or makes such supply on
payment of integrated tax.

6.2 However, in case of zero rated supply of exempted or non-GST goods,
the requirement for furnishing a bond or LUT cannot be insisted upon. It
is thus, clarified that in respect of refund claims on account of export
of non-GST and exempted goods without payment of integrated tax; LUT/bond
is not required. Such registered persons exporting nonGST goods shall
comply with the requirements prescribed under the existing law (i.e.
Central Excise Act, 1944 or the VAT law of the respective State) or under
the Customs Act, 1962, if any.

6.3 Further, the exporter would be eligible for refund of unutilized
input tax credit of central tax, state tax, union territory tax,
integrated tax and compensation cess in such cases.

7) What is the scope of the restriction imposed by rule 96(10) of the
CGST Rules, regarding non-availment of the benefit of notification
Nos. 48/2017-Central Tax dated the 18.10.2017, 40/2017-Central Tax (Rate)
dated 23.10.2017, 41/2017-Integrated Tax (Rate) dated 23.10.2017,
78/2017-Customs dated 13.10.2017 or 79/2017-Customs dated 13.10.2017?

7.1 Sub-rule (10) of rule 96 of the CGST Rules seeks to prevent an
exporter, who is receiving goods from suppliers availing the benefit of
certain specified notifications under which they supply goods without
payment of tax or at reduced rate of tax, from exporting goods under
payment of integrated tax. This is to ensure that the exporter does not
utilise the input tax credit availed on other domestic supplies received
for making the payment of integrated tax on export of goods.

7.2 However, the said restriction is not applicable to an exporter who
has procured goods from suppliers who have not availed the benefits of
the specified notifications for making their outward supplies. Further,
the said restriction is also not applicable to an exporter who has
procured goods from suppliers who have, in turn, received goods from
registered persons availing the benefits of these notifications since the
exporter did not directly procure these goods without payment of tax or
at reduced rate of tax.

7.3 Thus, the restriction under sub-rule (10) of rule 96 of the CGST
Rules is only applicable to those exporters who are directly receiving
goods from those suppliers who are availing the benefit under
notification No. 48/2017-Central Tax dated the 18th October, 2017,
notification No. 40/2017-Central Tax (Rate) dated the 23rd October, 2017,
or notification No. 41/2017-Integrated Tax (Rate) dated the 23rd
October, 2017 or notification No. 78/2017- Customs dated the 13th
October, 2017 or notification No. 79/2017-Customs dated the 13th October,
2017.

7.4 Further, there might be a scenario where a manufacturer might have
imported capital goods by availing the benefit of Notification No.
78/2017-Customs dated 13.10.2017 or 79/2017-Customs dated 13.10.2017.
Thereafter, goods manufactured from such capital goods may be supplied to
an exporter. It is hereby clarified that this restriction does not apply
to such inward supplies of an exporter.

8) It is requested that suitable trade notices may be issued to publicize
the contents of this Circular.

9) Difficulty, if any, in implementation of the above instructions may
please be brought to the notice of the Board. Hindi version would
follow.