What are the grounds for GST refund claims?

Grounds for GST Refund Claims in India

Under the Goods and Services Tax (GST) regime, taxpayers can claim refunds for excess taxes paid, input tax credit (ITC) accumulation, or other specific circumstances. The refund process is governed by Section 54 of the CGST Act, 2017, and accompanying rules.

Grounds for Claiming GST Refund

The CGST Act, 2017, identifies the following grounds for claiming GST refunds:

1. Refund of Excess Tax Paid

• Reason: Excess payment of GST due to calculation errors or misunderstanding of applicable rates.
• Provision: Section 54(1) of the CGST Act.
• Relevant Date: Date of payment of excess tax.

2. Refund of Unutilized Input Tax Credit (ITC)

• Reason: Accumulation of ITC due to:
  • Zero-rated supplies (exports or supplies to SEZs without payment of tax).
  • Inverted duty structure, where the tax on inputs is higher than on output supplies.
• Provision: Section 54(3) of the CGST Act.
• Exclusion: No refund is allowed for unutilized ITC on:
  • Output supplies subject to export duty.
  • Inputs used in goods or services notified by the government.

3. Refund of IGST on Export of Goods/Services

• Reason: Exporters who pay IGST on exports can claim a refund.
• Provision: Section 16(3) of the IGST Act, 2017, read with Section 54 of the CGST Act.
• Procedure: Filed via shipping bills and Export General Manifest (EGM).

4. Refund for Export Without Payment of Tax

• Reason: Exporters opting for zero-rated supply without paying IGST (under LUT/Bond) can claim a refund of accumulated ITC.
• Provision: Section 54(3) and Rule 89 of the CGST Rules.

5. Refund for Deemed Exports

• Reason: Refund claims for supplies classified as “deemed exports,” e.g., supply of goods to EPCG holders or advance authorization holders.
• Provision: Notification under Section 147 of the CGST Act.
• Relevant Date: Date of receipt of goods by the recipient.

6. Refund Due to Tax Paid Under Protest or Litigation

• Reason: Tax paid but later deemed inapplicable due to court rulings or departmental decisions.
• Provision: Section 54(1) of the CGST Act.

7. Refund of Taxes Paid Under the Wrong GST Head

• Reason: Payment of tax under the wrong category (e.g., CGST instead of IGST).
• Provision: Section 77 of the CGST Act and Section 19 of the IGST Act.
• Timeline: Refund application within two years from the date of the incorrect payment.

8. Refund of Pre-Deposit Made for Appeal

• Reason: Refund of pre-deposits made as part of the appellate mechanism once the dispute is resolved in favor of the taxpayer.
• Provision: Section 54 of the CGST Act.

9. Refund for Excess Balance in Cash Ledger

• Reason: Taxpayer has excess balance in their electronic cash ledger.
• Provision: Section 49(6) of the CGST Act.

10. Refund Due to Tax Exemptions

• Reason: Tax wrongly paid when supplies are exempt under GST law.
• Provision: Section 54 of the CGST Act.

11. Refund of Provisional Assessment Finalization

• Reason: Refund due to overpayment in provisional assessments.
• Provision: Section 60 of the CGST Act.

Relevant Provisions in GST Law

1. Section 54 of the CGST Act, 2017:
   • Primary section governing GST refunds, detailing eligibility, timelines, and procedures.
2. Rule 89 of the CGST Rules, 2017:
   • Specifies the process for filing refund applications using Form GST RFD-01.
3. Section 16 of the IGST Act, 2017:
   • Covers refund eligibility for zero-rated supplies.
4. Section 56 of the CGST Act:
   • Provides for interest on delayed refunds at a rate of 6% or 9% (for refund under litigation).

Landmark Cases Related to GST Refunds

1. VKC Footsteps India Pvt. Ltd. v. Union of India (2021)

• Issue: Refund of unutilized ITC in an inverted duty structure.
• Judgment: The Supreme Court upheld that refund of ITC on input services is not permissible under Section 54(3). This highlighted legislative intent and restrictions on refund eligibility.

2. Willowood Chemicals Pvt. Ltd. v. Union of India (2020)

• Issue: Time limit for claiming refunds.
• Judgment: Gujarat High Court ruled that refunds must be claimed within the stipulated time under Section 54, emphasizing compliance.

3. Union of India v. Hamdard Laboratories (2019)

• Issue: Refund of ITC on exported goods under LUT.
• Judgment: The Delhi High Court directed the department to process refunds promptly, stressing administrative efficiency.

4. M/s Micromax Informatics Ltd. v. Union of India (2022)

• Issue: Delay in processing refunds.
• Judgment: The court emphasized that refund claims should not be delayed unnecessarily and interest must be paid for delays beyond 60 days.

5. Bharti Airtel Ltd. v. Union of India (2021)

• Issue: Rectification of GSTR-3B and refund claim due to errors.
• Judgment: Supreme Court held that rectification of GSTR-3B is not allowed after filing, emphasizing the importance of accurate return filing.

Timeline for Filing GST Refunds

1. Refund claims must be filed within 2 years from the “relevant date” as defined under Section 54.
2. Refund for exports can be filed based on the shipping bill or realization of foreign currency.
3. Excess balance refunds in the electronic cash ledger can be filed anytime.

Constitutional Backing

• Article 265: No tax shall be levied or collected without the authority of law.
• Article 14: Equal treatment under the law ensures taxpayers’ right to a fair refund process.

Conclusion

Refund claims under GST are essential for ensuring liquidity and preventing tax cascading. Taxpayers must understand the grounds, relevant provisions, and timelines to claim refunds effectively. Landmark judgments like VKC Footsteps and Willowood Chemicals demonstrate judicial emphasis on procedural adherence and clarity in refund laws. Proper filing and compliance with Section 54 and Rule 89 ensure smooth refund processing.