How are GST refunds claimed?

GST refunds in India are governed by provisions in the Central Goods and Services Tax Act, 2017 (CGST Act) and Rules framed under the Act. Refunds are issued to taxpayers to prevent undue accumulation of taxes and to provide relief in cases like exports, excess payments, or zero-rated supplies.

1. Legal Provisions for GST Refunds

1.1. Relevant Sections in the CGST Act, 2017:

1. Section 54: Refund of Tax
   • This is the primary section governing GST refunds. Taxpayers can apply for refunds of:
     • Excess tax paid.
     • Unutilized input tax credit (ITC) in case of zero-rated supplies (exports) or inverted duty structure.
     • Tax paid on purchases by embassies or specified persons.
     • Refund in case of deemed exports.
2. Section 55: Refunds for Certain Persons
   • Refund provisions for UN bodies, embassies, and specified international organizations.
3. Section 56: Interest on Delayed Refunds
   • If the refund is delayed beyond 60 days from the date of receipt of a complete application, interest is payable at a specified rate.
4. Section 77: Refund of Tax Paid Under Wrong Head
   • If a taxpayer mistakenly pays CGST/SGST instead of IGST (or vice versa), they can claim a refund.

1.2. GST Rules:

• Rule 89: Procedure for filing refund claims.
• Rule 90: Acknowledgment of refund applications.
• Rule 96: Refund of IGST paid on exports of goods or services.
• Rule 97: Constitution and utilization of the Consumer Welfare Fund (used for refunds that cannot be directly paid back to taxpayers).

2. Common Scenarios for GST Refund Claims

1. Exports (Zero-Rated Supplies):
   • With Payment of Tax: Refund of IGST paid on export goods/services.
   • Without Payment of Tax: Refund of accumulated ITC due to zero-rated supplies.
2. Inverted Duty Structure:
   • Refund of unutilized ITC when the GST rate on inputs is higher than the rate on outward supplies.
3. Excess Payment of Tax:
   • Refund of tax paid in excess due to clerical errors or incorrect returns.
4. Deemed Exports:
   • Refund for supplies categorized as deemed exports (e.g., supplies to EOUs or SEZ units).
5. Refund for Input Tax Credit Accumulation:
   • Refund of unutilized ITC due to rate changes or other circumstances.
6. Provisional Assessment Refunds:
   • When final tax liability is determined to be less than provisionally assessed tax, the excess can be claimed as a refund.

3. Process of Claiming GST Refund

The refund process is primarily online and managed through the GSTN portal. Here’s a step-by-step guide:

1. Application Filing:
   • File Form RFD-01 on the GST portal within two years from the relevant date.
   • Provide supporting documents (e.g., export invoices, shipping bills, ITC ledger details).
2. Acknowledgment:
   • The tax officer issues an acknowledgment in Form RFD-02 within 15 days of application if no deficiencies are found.
3. Refund Processing:
   • Refund claims are scrutinized by tax officials. If additional information is needed, a deficiency memo is issued via Form RFD-03.
4. Refund Sanction:
   • Refunds are sanctioned in Form RFD-06, and payment orders are issued within 60 days.
5. Payment to Taxpayer:
   • Approved refunds are credited to the taxpayer’s bank account via the PFMS system.

4. Relevant Landmark Cases

1. Case: Union of India v. VKC Footsteps India Pvt. Ltd. (2021)
   • Issue: Refund of unutilized ITC in cases of inverted duty structure.
   • Judgment: The Supreme Court upheld that refunds of unutilized ITC are limited to input goods and not input services, as per Rule 89(5). It clarified legislative intent and scope of refunds under the GST law.
2. Case: Deepak Print v. Union of India (2020)
   • Issue: Delay in GST refunds for exports.
   • Judgment: Gujarat High Court directed the GST department to expedite refunds for exporters, emphasizing the importance of timely disbursal to ensure working capital for businesses.
3. Case: Re New Nalbandh Traders (2020)
   • Issue: Refund denial for a tax paid under the wrong head.
   • Judgment: Allahabad High Court allowed refund under Section 77, stating that taxpayers should not be penalized for genuine errors.
4. Case: Bharat Electronics Ltd. v. Union of India (2022)
   • Issue: Interest on delayed refunds under Section 56.
   • Judgment: Karnataka High Court ruled that the taxpayer is entitled to interest on delayed refunds and directed the authorities to process it promptly.

5. Key Deadlines and Timelines

1. Refund application must be filed within two years from the “relevant date.”
   • For exports: Date of shipping bill or export invoice.
   • For excess tax paid: Date of tax payment.
   • For deemed exports: Date of invoice.
2. Refund must be processed within 60 days of receiving a complete application.
3. Interest is payable at 6% p.a. for delays beyond the stipulated time.

6. Challenges and Practical Issues

1. Delays in Refunds:
   • Despite legal provisions, procedural bottlenecks cause delays.
2. Technical Errors:
   • Errors in GST returns or mismatch between invoices and shipping bills can delay refunds.
3. Interpretation Disputes:
   • Cases like VKC Footsteps highlight ambiguities in refund rules.

Conclusion

The GST refund mechanism under the CGST Act, 2017, ensures that taxpayers do not face undue tax burdens and facilitates ease of doing business. However, timely compliance, proper documentation, and addressing procedural lapses are crucial for claiming refunds efficiently. Landmark judgments have clarified ambiguities and strengthened the refund process, benefiting taxpayers while upholding the law.