Under the GST regime refund of tax amount can be claimed by a tax payer under various situations viz. refund of tax paid on zero-rated supplies, refund of unutilized input tax credit due to inverted tax structure or refund of input tax credit used in zero rated export supplies made without payment of tax, etc.
For the aforesaid purpose, the applicant is required to follow the provisions and rules as set out in the CGST Act, 2017 and the Rules framed there under. Though, the Government has taken various initiatives to streamline the refund procedures, however recently Notification No. 16/2020-Central Tax dated 23.03.2020 the Central Goods and Service Tax (third amendment) Rules, 2020 were introduced wherein the following major changes were made in order to pave way for better refund synchronization:
Refund of tax wrongly paid/ paid in excess:1
For refund application made for wrong payment of tax / tax paid in excess for which electronic credit ledger was debited then that amount of refund applied will be re-credited in the same ledger by proper officer if it is considered admissible. The order to be passed for re-crediting will be in FORM GST PMT -03.
Change in definition of Turnover of zero-rated supply of goods for Refund purpose:2
Turnover of zero-rated supply of goods, for the refund purpose have been substituted. The turnover of zero-rated supply of goods will be lower of the following two values:-
- Value of zero-rated supplies of goods during the relevant tax period without payment of tax under bond or letter of undertaking or,
- Value which is 1.5 times the value of similar/like goods supplied domestically by the same supplier or similarly placed supplier, except the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) of Rule 89 of the CGST Rules, 2017 or both.
Refund to be paid proportionately in cash and proportionately by re-credit in Electronic Credit Ledger:3
For refund application except refund of tax paid on zero-rated supplies or deemed export, if the proper officer is satisfied that a refund is admissible as per Section 54(5) of the CGST Act,2017 then he shall pass sanction order in FORM RFD-06 for refund. However, such refund amount will be paid in cash proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax the proper officer shall re-credit the said amount as Input Tax credit.
Refund of IGST paid on export of goods/ services allowed even if exemption is availed for basic customs Duty:4
A clarification has been added for clause (b) of Rule 96(10) w.e.f. 23.10.2017 that refund of IGST and compensation cess will be allowed if the benefit of exemption has been taken of only basic customs duty (BCD). It has been clarified that in case of EPCG and Advance Authorization the refund of IGST and Compensation Cess will be available even if exemption is availed of basic customs duty.
Recovery of Refund if the export proceeds are not realized:5
The refund of unutilized input tax credit or IGST paid on export of goods will be recovered by the department if the export proceeds are not realized fully or partly within the time limit allowed as per Foreign Exchange Management Act,1999 i.e. 9 months from the date of export. If the export proceeds are not received within the above time period then the person to whom refund has been made shall have to deposit the amount refunded to the extent of non-realization of sale proceeds and interest will be charged after 30 days from the expiry of above time limit. The recovery provisions of the CGST Act,2017 would be applicable.
However, if RBI relaxes the requirement of realization of export proceeds then amount refunded would not be recovered by the department. If after recovery by the department, the applicant realizes the sale proceeds partly or fully and produces the evidence of realization within 3 months from the date of realization then amount recovered would be refunded back to the applicant to the extent of sale proceeds realized but the realization should be within such extended time limit given by the RBI. A new undertaking is also to be given in the refund form GST RFD-01 in order to give effect to the aforesaid provision
The aforesaid notification has bought out significant amendments in the refund procedures with a view that refunds are not fraudulently obtained. Moreover, the government has also taken an initiative to clarify certain ambiguity by inserting clarifications in the CGST Rules, 2017.
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