Central Tax Circulars

CGST Circular 59/2018

To,

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

Madam/Sir,

Subject: Clarification on refund related issues- regarding

1) Various representations have been received seeking clarification on
issues relating to
refund. In order to clarify these issues and to ensure uniformity in the
implementation of the provisions of 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 (hereinafter referred to as
“CGST Act”), hereby clarifies the issues as detailed hereunder:

2) Submission of invoices for processing of claims of refund:

2.1 It was clarified vide Circular No. 37/11/2018-GST dated 15th
March, 2018 that since
the refund claims were being filed in a semi-electronic environment and
the processing was completely based on the information provided by the
claimants, it becomes necessary that invoices are scrutinized.
Accordingly, it was clarified that the invoices relating to inputs, input
services and capital goods were to be submitted for processing of claims
for refund of integrated tax where services are exported with payment of
integrated tax; and invoices relating to inputs and input services were
to be submitted for processing of claims for refund of input tax credit
where goods or services are exported without payment of integrated tax.

2.2. In this regard, trade and industry have represented that such
requirement is
cumbersome and increases their compliance cost, especially where the
number of invoices is large.

2.3. In view of the difficulties being faced by the claimants of
refund, it has been decided
that the refund claim shall be accompanied by a print-out of FORM GSTR-2A
of the claimant for the relevant period for which the refund is claimed.
The proper officer shall rely upon FORM GSTR-2A as an evidence of the
accountal of the supply by the corresponding supplier in relation to
which the input tax credit has been availed by the claimant. It may be
noted that there may be situations in which FORM GSTR-2A may not contain
the details of all the invoices relating to the input tax credit availed,
possibly because the supplier’s FORM GSTR-1 was delayed or not filed. In
such situations, the proper officer may call for the hard copies of such
invoices if he deems it necessary for the examination of the claim for
refund. It is emphasized that the proper officer shall not insist on the
submission of an invoice (either original or duplicate) the details of
which are present in FORM GSTR-2A of the relevant period submitted by the
claimant.

2.4. The claimant shall also submit the details of the invoices on the
basis of which input
tax credit had been availed during the relevant period for which the
refund is being claimed, in the format enclosed as Annexure-A manually
along with the application for refund claim in FORM GST RFD-01A and the
Application Reference Number (ARN). The claimant shall also declare the
eligibility or otherwise of the input tax credit availed against the
invoices related to the claim period in the said Annexure for enabling
the proper officer to determine the same.

3) System validations in calculating refund amount

3.1. Currently, in case of refund of unutilized input tax credit (ITC
for short), the common
portal calculates the refundable amount as the least of the following
amounts:

a) The maximum refund amount as per the formula in rule 89(4) or rule
89(5) of the
Central Goods and Services Tax Rules, 2017 (hereinafter referred to as
the “CGST Rules”) [formula is applied on the consolidated amount of ITC,
i.e. Central tax + State tax/Union Territory tax +Integrated tax +
Cess(wherever applicable)];

b) The balance in the electronic credit ledger of the claimant at the
end of the tax
period for which the refund claim is being filed after the return for the
said period has been filed; and

c) The balance in the electronic credit ledger of the claimant at the time of filing the
refund application.

3.2. After calculating the least of the three amounts, as detailed above, the equivalent
amount is to be debited from the electronic credit ledger of the claimant in the following
order:

a) Integrated tax, to the extent of balance available;

b) Central tax and State tax/Union Territory tax, equally to the
extent of balance
available and in the event of a shortfall in the balance available in a
particular electronic credit ledger (say, Central tax), the differential
amount is to be debited from the other electronic credit ledger (i.e.,
State tax/Union Territory tax, in this case).

3.3. The procedure described in para 3.2 above, however, is not
presently available on the
common portal. Till the time such facility is made available on the
common portal, the taxpayers are advised to follow the order as explained
above for all refund applications filed after the date of issue of this
Circular. However, for applications already filed and pending with the
tax authorities, where this order is not adhered to by the claimant, no
adverse view may be taken by the tax authorities.

3.4. The above system validations are being clarified so that there is
no ambiguity in
relation to the process through which an application in FORM GST RFD-01A
is generated.

3.5. Further, it may be noted that the refund application can be filed
only after the
electronic credit ledger has been debited in the manner specified in para
3.2 (read with para 3.3) above, and the ARN is generated on the common
portal.

4) Re-credit of electronic credit ledger in case of rejection of
refund claim:

4.1. In case of rejection of claim for refund of unutilized input tax
credit on account of
ineligibility of the said credit under sub-sections (1),(2) or (5) of
section 17 of the CGST Act, or under any other provision of the Act and
rules made thereunder the proper officer shall order for the rejected
amount to be re-credited to the electronic credit ledger of the claimant
using FORM GST RFD-01B. For recovery of this amount, a demand notice
shall have to be simultaneously issued to the claimant under section 73
or 74 of the CGST Act, as the case may be. In case the demand is
confirmed by an order issued under sub-section (9) of section 73, or
sub-section (9) of section 74 of the CGST Act, as the case may be, the
said amount shall be added to the electronic liability register of the
claimant through FORM GST DRC07. Alternatively, the claimant can
voluntarily pay this amount, along with interest and penalty, if
applicable, before service of the demand notice, and intimate the same to
the proper officer in FORM GST DRC-03 in accordance with sub-section (5)
of section 73 or sub-section (5) of section 74 of the CGST Act, as the
case may be, read with sub-rule (2) of rule 142 of the CGST Rules. In
such cases, the need for serving a demand notice will be obviated.

4.2. In case of rejection of claim for refund of unutilized input tax
credit, on account of
any reason other than the eligibility of credit, the rejected amount
shall be re-credited to the electronic credit ledger of the claimant
using FORM GST RFD-01B only after the receipt of an undertaking from the
claimant to the effect that he shall not file an appeal against the said
rejection or in case he files an appeal, the same is finally decided
against the claimant, as has been laid down in rule 93 of the CGST Rules.

4.3. Consider an example where against a refund claim of Rs.100, only
Rs.80 is
sanctioned (Rs.15 is rejected on account of ineligible ITC and Rs.5 is
rejected on account of any other reason). As described above, Rs.15 would
be re-credited with simultaneous issue of notice under section 73 or 74
of the CGST Act for recovery of ineligible ITC. Rs.5 would be re-credited
(through FORM GST RFD-01B) only after the receipt of an undertaking from
the claimant to the effect that he shall not file an appeal or in case he
files an appeal, the same is finally decided against the claimant.

5) Scope of rule 96(10) of the CGST Rules:

5.1 Rule 96(10) of the CGST Rules, as amended retrospectively by
notification No.
39/2018-Central Tax, dated 04.09.2018 provides that registered persons,
including importers, who are directly purchasing/importing supplies on
which the benefit of reduced tax incidence or no tax incidence under
certain specified notifications has been availed, shall not be eligible
for refund of integrated tax paid on export of goods or services. For
example, an importer (X) who is importing goods under the benefit of
Advance Authorization/EPCG, is directly purchasing/importing supplies on
which the benefit of reduced/Nil incidence of tax under the specified
notifications has been availed. In this case, the restriction under rule
96(10) of the CGST Rules is applicable to X. However, if X supplies the
said goods, after importation, to a domestic buyer (Y), on payment of
full tax, then Y can rightfully export these goods under payment of
integrated tax and claim refund of the integrated tax so paid. However,
in the said example if Y purchases these goods from X after availing the
benefit of specified notifications, then Y also will not be eligible to
claim refund of integrated tax paid on export of goods or services.

5.2 Overall, it is clarified that the restriction under rule 96(10) of
the CGST Rules, as
amended retrospectively by notification No. 39/2018-Central Tax, dated
04.09.2018, applies only to those purchasers/importers who are directly
purchasing/importing supplies on which the benefit of certain
notifications, as specified in the said sub-rule, has been availed.

6) Disbursal of refund amount after sanctioning by the proper
officer:

6.1 A few cases have come to notice where a tax authority, after
receiving a sanction
order from the counterpart tax authority (Centre or State), has refused
to disburse the relevant sanctioned amount calling into question the
validity of the sanction order on certain grounds. E.g. a tax officer of
one administration has sanctioned, on a provisional basis, 90 per cent.
of the amount claimed in a refund application for unutilized ITC on
account of exports. On receipt of the provisional sanction order, the tax
officer of the counterpart administration has observed that the
provisional refund of input tax credit has been incorrectly sanctioned
for ineligible input tax credit and has therefore, refused to disburse
the tax amount pertaining to the same.

6.2 It is clarified that the remedy for correction of an incorrect or
erroneous sanction
order lies in filing an appeal against such order and not in withholding
of the disbursement of the sanctioned amount. If any discrepancy is
noticed by the disbursing authority, the same should be brought to the
notice of the counterpart refund sanctioning authority, the concerned
counterpart reviewing authority and the nodal officer, but the disbursal
of the refund should not be withheld. It is hereby clarified that neither
the State nor the Central tax authorities shall refuse to disburse the
amount sanctioned by the counterpart tax authority on any grounds
whatsoever, except under sub-section (11) of section 54 of the CGST Act.
It is further clarified that any adjustment of the amount sanctioned as
refund against any outstanding demand against the claimant can be carried
out by the refund disbursing authority if not already done by the refund
sanctioning authority.

7 Status of refund claim after issuance of deficiency memo:

7.1 Rule 90(3) of the CGST Rules provides that where any deficiencies
in the application
for refund are noticed, the proper officer shall communicate the
deficiencies to the claimant in FORM GST RFD-03, requiring him to file a
fresh refund application after rectification of such deficiencies.
Further, rule 93(1) of the CGST Rules provides that where any
deficiencies have been communicated under rule 90(3), the amount debited
under rule 89 (3) shall be recredited to the electronic credit ledger.
Therefore, the intent of the law is very clear that in case a deficiency
memo in FORM GST RFD-03 has been issued, the refund claim will have to be
filed afresh.

7.2 It has been learnt that certain field formations are issuing show
cause notices to the
claimants in cases where the refund application is not re-submitted after
the issuance of a deficiency memo. These show-cause-notices are being
subsequently adjudicated and orders are being passed in FORM GST
RFD-04/06. It is clarified that show-cause-notices are not required to be
issued where deficiency memos have been issued. A refund application
which is re-submitted after the issuance of a deficiency memo shall have
to be treated as a fresh application. No order in FORM GST RFD-04/06 can
be issued in respect of an application against which a deficiency memo
has been issued and which has not been resubmitted subsequently.

8 Treatment of refund applications where the amount claimed is
less than rupees one
thousand:

8.1 Sub-section (14) of section 54 of the CGST Act provides that no
refund under subsection
(5) or sub-section (6) of section 54 shall be paid to an applicant, if
the amount is less than one thousand rupees.

8.2 In this regard, it is clarified that the limit of rupees one
thousand shall be applied for
each tax head separately and not cumulatively. The limit would not apply
in cases of refund of excess balance in the electronic cash ledger. All
field formations are requested to reject claims of refund from the
electronic credit ledger for less than one thousand rupees and recredit
such amount by issuing an order in FORM GST RFD-01B.

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

10) Difficulty, if any, in implementation of this Circular may please
be brought to the
notice of the Board. Hindi version would follow.

[Encl: Annexure-A]

Annexure -A