CBEC explains provisions on refund of IGST paid on exports and unutilised ITC
The GST law provides for multiple options to the zero rated suppliers to claim refund of taxes paid on the input side. The persons making zero rated supplies will be entitled to provisional refund of 90% of the claim. Further, the time lines have been set for processing of refund claims and claims not settled within 60 days will be paid with interest @ 6%.
Refund of Integrated Tax paid on account of zero rated supplies
Export of Goods
The normal refund application in GST RFD-01 is not applicable in this case. There is no need for filing a separate refund claim as the shipping bill filed by the exporter is itself treated as a refund claim. As per rule 96 of the CGST Rules, 2017, the shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed only when:- (a) the person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering the number and the date of shipping bills or bills of export; and (b) the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR3B, as the case may be.
Thus, once the shipping bill and export general manifest (EGM) is filed and a valid return is filed, the application for refund shall be considered to have been filed and refund shall be processed by the department.
Service Exporters and Persons making supplies to SEZ
Under this category also, the supplier may choose to first pay IGST and then claim refund of the IGST
so paid. In these cases, the suppliers will have to file refund claim in FORM GST RFD – 01 on the
common portal, as per Rule 89 of the CGST Rules, 2017. Service Exporters need to file a statement
containing the number and date of invoices and the relevant Bank Realisation Certificates or
Foreign Inward Remittance Certificates, as the case may be, along with the refund claim.
In so far as refund is on account of supplies made to SEZ, the DTA supplier will have to file the refund
claim in such cases. The second proviso to Rule 89 stipulates that in respect of supplies to a Special
Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed
by the –
(a) Supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
(b) Supplier of services along with such evidence regarding receipt of services for authorised
operations as endorsed by the specified officer of the Zone.
Thus, proof of receipt of goods or services as evidenced by the specified officer of the zone is a
pre-requisite for filing of refund claim by the DTA supplier.
The claim for refund when made for supplies made to SEZ unit/Developer has to be filed along with
the following documents:
1. A statement containing the number and date of invoices as provided in rule 46 along with the evidence regarding the endorsement specified in the second proviso to sub-rule (1) in the case of the supply of goods made to a Special Economic Zone unit or a Special Economic Zone developer;
2. A statement containing the number and date of invoices, the evidence regarding the endorsement specified in the second proviso to sub-rule (1) and the details of payment, along with the proof thereof, made by the recipient to the supplier for authorised operations as defined under the Special Economic Zone Act, 2005, in a case where the refund is on account of supply of services made to a Special Economic Zone unit or a Special Economic Zone developer;
3. A declaration to the effect that the Special Economic Zone unit or the Special Economic
Zone developer has not availed the input tax credit of the tax paid by the supplier of goods
or services or both, in a case where the refund is on account of supply of goods or services
made to a Special Economic Zone unit or a Special Economic Zone developer.
Grant of Provisional Refund
The above category of persons making zero rated supplies will be entitled to provisional refund of
90% of the claim in terms of Section 54(6) of CGST Act, 2017.
Rule 91 of CGST Rules, 2017 provide that the provisional refund is to be granted within 7 days from the date of acknowledgement of the refund claim. An order for provisional refund is to be issued in Form GST RFD 04 along with payment advice in the name of the claimant in Form GST RFD 05. The amount will be electronically credited to the claimant’s bank account. Rule 91 also prescribe that the provisional refund will not be granted if the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, been prosecuted for any offence under the Act or under an earlier law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
Refund of unutilised Input Tax Credit (ITC)
Accumulation of Input Tax Credit happens when the tax paid on inputs is more than the output tax liability.
Such accumulation will have to be carried over to the next financial year till such time as it can be utilised
by the registered person for payment of output tax liability. However, the GST Law permits refund of
unutilised ITC in two scenarios, namely if such credit accumulation is on account of zero rated supplies
or on account of inverted duty structure, subject to certain exceptions.
As per Section 54(3) of the CGST Act, 2017, a registered person may claim refund of unutilised input tax credit at the end of any tax period. A tax period is the period for which return is required to be furnished.
Thus, a taxpayer can claim refund of unutilised ITC on monthly basis.
Refund of unutilised input tax credit is allowed only in following two cases
a) Zero rated supplies made without payment of tax: As per Section 16(3) of the IGST Act, 2017,
a registered person making zero rated supply is eligible to claim refund under either of the following options, namely: –
• Supply of goods or services or both under bond or Letter of Undertaking, subject to such conditions,
safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
• Supply of goods or services or both, subject to such conditions, safeguards and procedure as may
be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services
or both supplied.
The first category pertains to refund of unutilised ITC for which the registered person has to supply
under Bond/LUT (as prescribed in Rule 96A of CGST Rules)and in the second category supply has been
made after payment of Tax (IGST). In both the cases, refund can be applied under Section 54 of
the CGST Act, 2017 read with Rule 89 or Rule 96 , as the case may be, of the CGST Rules, 2017.
b) Inverted duty structure: Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council.
In such cases also, refund can be applied under Section 54 of the CGST Act, 2017 read with Rule 89 of the CGST Rules, 2017.
It should be noted that no refund of unutilised input tax credit is allowed in cases where the goods exported out of India are subjected to export duty. Further, no refund of input tax credit is allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
Refund of ITC on account of zero-rated supplies
The application filed for refund of unutilized ITC on account of zero-rated supplies (with payment of tax
or without payment of tax under Bond/LUT) has to be accompanied by documentary evidence as may
be prescribed to establish that a refunds due to the applicant; and such documentary or other evidence
(including the documents referred to in section 33 of the CGST Act, 2017) as the applicant may furnish to
establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation
to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person.
Rule 89(2) of the CGST Rules, 2017, specifies documents to be attached with the refund application in case of different types of Refund applicants.
However, it has been provided under section 54(4) of the CGST Act, 2017, that where the amount claimed as refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a declaration, based on the documentary or other evidences available with him, certifying that the incidence of such tax and interest had not been passed on to any other person.
It has also been provided under section 54(6) of the CGST Act, 2017, that in cases where the claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as maybe notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed, excluding the amount of input tax credit provisionally accepted; and the final order shall be issued within sixty days from the date of receipt of application complete in all respects (section 54(7) of the CGST Act, 2017 refers).
Rule 91 of CGST Rules, 2017 provide that the provisional refund is to be granted within 7 days from the date of acknowledgement of the refund claim. An order for provisional refund is to be issued in Form GST RFD 04 along with payment advice in the name of the claimant in Form GST RFD 05. The amount will be electronically credited to the claimant’s bank account. The rules also prescribe the provisional refund will not be granted to if the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, been prosecuted for any offence under the Act or under an earlier law where the amount of tax evaded exceeds two hundred and fifty lakh rupees;
It may also be noted that by default, the refund is to be credited to the Consumer Welfare Fund, except in the cases below:-
(a) Refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services
used in making such zero-rated supplies;
(b) Refund of unutilised input tax credit under section 54(3) of the CGST Act, 2017;
(c) Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;
(d) Refund of tax in pursuance of section 77;
(e) The tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the
incidence of such tax and interest to any other person; or
(f) The tax or interest borne by such other class of applicants as the Government may, on the
recommendations of the Council, by notification, specify.
Formula for grant of refund in cases where the refund of accumulated Input Tax Credit is on account of zero rated supply is based on the following:
Refund Amount = (turnover of zero rated supply of goods + turnover of zero rated supply of services) x Net ITC /Adjusted total turnover
Where: –
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;
(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made
during the relevant period without payment of tax under bond or letter of undertaking;
(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services
made without payment of tax under bond or letter of undertaking, calculated in the following
manner, namely: –
Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zerorated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zerorated supply of services for which the supply of services has not been completed during the relevant period;
(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under subsection(112) of section 2, excluding the value of exempt supplies other than zero-rated supplies,
during the relevant period;
(F) “Relevant period” means the period for which the claim has been filed.
Refund of ITC on account of inverted duty structure.
As per Section 54(3), refund of accumulated ITC will be granted where the credit accumulation has taken
place on account of inverted duty structure. However, the Government also has the power to notify supplies where refund of ITC will not be admissible even if such credit accumulation is on account of an inverted duty structure. In exercise of the powers conferred by this section, the government has issued Notification no.15/2017-Central Tax (Rate) dated 28th June 2017 wherein it has been notified that no refund of unutilised input tax credit shall be allowed under sub-section (3) of section 54 of the said Central Goods and Services Tax Act, in case of supply of services specified in sub-item (b) of item 5 of Schedule II of the Central Goods and Services Tax Act. The supplies specified under item 5(b) of Schedule II are construction services. In respect of goods, the central government has issued
Notification no.5/2017- Central Tax (Rate) dated 28th June 2017. The government has notified the goods in respect of which unutilized ITC will not be admissible as refund (Refer Notification no.15/2017-Central Tax (Rate) dated 28th June 2017).
Further, Rule 89(2)(h) of CGST Rules, 2017 stipulate that refund claim on account of accumulated ITC
(where such accumulation is on account of inverted duty structure) has to be accompanied by a statement containing the number and date of invoices received and issued during a tax period. Rule 89(3) of CGST Rules, 2017 also provide that where the application relates to refund of input tax credit, the electronic credit ledger shall be debited by the applicant in an amount equal to the refund so claimed.
Provisions similar for refund of accumulated ITC for both types of Refund Applicants (suppliers making zero-rated / inverted duty supplies)
Where the application relates to refund of input tax credit, the electronic credit ledger shall be debited
by the applicant by an amount equal to the refund so claimed as per Rule 89(3) of CGST Rules, 2017.
Also, interest will be paid for any delay in sanctioning of Refund beyond the mandated period of 60 days (as per Rule 94 of CGST Rules, 2017).
The refund and/or interest sanctioned, if any, will be directly credited to the bank account of the applicant.
Conclusion
The GST Law provides for multiple options to the zero rated suppliers to claim refund of taxes paid on
the input side. One of the options is export under bond or LUT and claim refund of unutilised ITC. The
law also provides for refund of unutilised ITC where credit accumulation is on account of inverted duty
structure, subject to certain riders. Time lines have been set for processing of refund claims and claims
not settled within 60 days will be paid with interest @6%. Moreover, 90% of the claim would be paid
within 7 days of acknowledgement of claim on provisional basis. Claims are to be filed with minimum
documentation and the refund amount will be credited directly to the claimant’s bank account. The
process is online and hassle free and with minimum interface with tax authorities.
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