GST GST Returns

Complete Synopsis on GST Refund of Unutilised Input Tax Credit

The input Tax credit is accumulated when the tax paid on inputs is more than the actual tax liability. The accumulation process is generally carried over to the next financial year, till the registered person can utilise, this unutilised input tax credited for payment of output tax liability. This article describes Complete Synopsis on GST Refund of Unutilised Input Tax Credit.

The GST law allows refund of the unutilised input tax credit in two circumstances:

• Credit is accumulated on as a result of the making of zero-rated supplies, or

• Supplier furnishes liability that is not required to which leads to claim in GST paid already.

What is Input Tax Credit in GST?

Input Tax Credit also referred as ITC is the tax where a business pays while purchasing goods or supplies, and it can be used to reduce the tax liability when it makes a sale. In other words, businesses can reduce their output tax liability by claiming credit to the amount of GST paid on purchases for the entity. Goods and Services Tax (GST) is an incorporated tax system where every purchase by a business must be matched with a sale by another business.

The introduction of input tax credit in GST was to prevent cascading tax effect that is to prevent charging of tax in each stage of the production of goods.

The term ‘Input’ clearly specifies that any goods other than capital goods used or intended to be used in the business. The taxes paid on the internal supply of inputs, services and capital are called input taxes. These include an integrated GST, State GST or Central GST.

Where is Refund of Input Tax Credit Allowed in GST?

Refund of unutilised input tax credit is permitted in the following two cases:

Zero Rated Supplies Made without Payment of Tax

By Zero rating it can be clearly understood that the entire supply chain of a particular zero-rated supply is tax-free which means that the burden of tax does not levy either on the input tax side or on the output tax side.

The basic nature of zero rating is to bring the Indian goods and services at par in the competitive international market by ensuring that taxes do not get added to the cost of exports.

According to section 16(3) of the Integrated Goods and Service Tax (IGST) Act, 2017-a registered person under GST who makes zero rated supply can claim refund under either of the options mentioned below:

• In case of supply of goods or services or both with respect to bond or letter of undertaking , which may be subject to the specified conditions, safeguards and procedures without paying the integrated tax and then claiming refund of untilised input tax credit as prescribed in Rule 96 of the CGST Rules^[1].
• Supply of goods or services or both with respect to bond or letter of undertaking, which may be subject to the specified conditions, safeguards and procedures on payment of the integrated tax and then claiming refund of unutilized input tax credit. Here the supply is made after the payment of tax.

Inverted Duty Structure

In case of credit accumulation here, if the rate of tax charged on inputs is higher than the rate of tax levied on output supplies (except nil rated or fully exempted supplies). Exception is made on the supplies of goods and services as per the recommendations of the GST council or notification made by the Government.

Some exemptions are made where the unutilised input tax credit is not refunded:

• Where the goods exported out of India are subjected to export duty.
• If the supplier of both the goods and services avails drawback with respect to central tax or refund claims of the integrated tax paid on such supplies.

What is the Time Period for claiming Refund in Input Tax Credit?

The application for refund must be made before the expiry of two years from the relevant date.

Here the relevant date means:

• Goods exported outside India where the refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods,
• Goods exported by sea or air– the relevant date is the date on which the ship or the aircraft in which such goods are loaded or the day when the loaded goods departs from India.
• In case the goods are exported by roadways (land) – the relevant date here is the day when the goods pass the frontier.
• In case postal service is used to export goods– the relevant date will be calculated when dispatch of goods by the Post Office is concerned to a place outside India.
• If the supply of goods  is regarded as deemed exports  and where the refund of tax paid is available in respect of the goods, the  relevant date will be the date on  which the return relating to such deemed exports is furnished.
• Relevant date  in case where the supply of services is completed before the receipt of payment will be , the date when the payment is received in convertible foreign exchange
• In case where payment for the services provided is received in advance before the date of issue of the invoice, the issue of invoice.

What are the Exceptions where No Refund of Unutilised Input Tax Credit is Made?

Unutilised tax credit will not be refunded in the following circumstances:

What are the Documentary Evidence Needed for Refund of Unutilised Input Tax Credit?

As per Section 54 of the Act, if the amount claimed is less than Rs. 2 lakh no documentary evidence needs to be filed. Only a declaration made by the applicant based on the documents available is sufficient.

The application for refund must be attached with:

• Documentary evidence to prove that a refund is due to the applicant.
• Documentary evidence to establish that the amount of tax and interest paid on tax or any other amount which is paid with respect to which refund was claimed and also the incidence of that tax or interest has not been passed to any other person.

The list of documementary evidence are as follows:

• The reference number copy of the order which is passed by the proper officer, appellate authority, Appellate Tribunal or Court.
• A statement having the date and number of shipping bills, the bills of export and the number and the date of the relevant export invoices, in a case where the refund is done for export of goods.
• Statement containing the date of invoices along with invoice number attached with relevant Bank Realisation Certificates or Foreign Inward Remittance Certificates where the refund is to be made on account of the export of services.
• Statement with date of invoice and invoice number along with the evidence with regard to the endorsement if the supply of goods is made to a Special Economic Zone (SEZ) unit or to a Special Economic Zone developer.
• A statement having the number and date of invoices as the evidence regarding the endorsement mentioned and the details of payment, along with the essential proof available.
• Declaration that the registered person 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 developer.
• A statement with related evidences where the refund is to be made on account of deemed exports.
• In case of final assessment order, the reference number of the final assessment order along with a copy of the said order in a case where the refund is on account of the finalisation of provisional assessment.
• Statement containing the details of the transactions considered as an intra-State supply but which is later on held to be as inter-State supply.
• Statement showing all the details of the amount of claimed on account of excess payment of tax.
• Declaration to show that the incidence of tax, interest or any other amount claimed as refund is not passed on any other person where the amount of refund claimed does not exceed Rs. 2 lakh.
• Certificate in Annexure 2 of FORM GST RFD-01 issued by a chartered accountant or cost accountant to show that the incidence of tax, interest or any other amount claimed as refund is not passed on any other person, where the amount of refund claimed exceeds Rs.2 lakh.

Refund of Unutilised Input Tax Credit on Provisional Basis

According to S. 54(6) of the CGST Act, where the refund claim on account of zero rated supply of goods or services or both is made by the registered persons, other than the category of registered persons as notified by the Government on the recommendations of the GST council, refund will be made on provisional basis on 90% of the total amount claimed excluding the amount of the input tax credit provisionally accepted.

Here the final order will be issued within a span of sixty days after receiving the completely filled application.

As per Rule 91 under the CGST Rules, 2017 -the provisional refund must be granted within 7 days from the date of acknowledgement of the tax refund claim.

An order regarding the provisional refund claim must be issued in Form GST RFD 04 to be attached with the payment invoice and issued in the name of the claimant of refund in Form GST RFD 05. The refund amount will be credited electronically in the claimant’s bank account.

The rules also specifies that the provisional refund shall not be granted in case the person claiming a refund has not been prosecuted for any offence under the act or in the previous law and the amount of evaded tax must have exceeded Rs. 2, 50,000.

How to Calculate the Refund Amount of the Unutilised Input Tax Credit?

The formula to grant refund on account of zero rated supply is based on the following:

Where,

• Refund amount is the maximum refund available.
• Net ITC-is the input tax credit which is availed on inputs and input services during the relevant period.
• The Turnover for zero rated supply of goods- is the exact value of zero rated supply of goods which is made during the relevant period without the payment of tax specified under bond or letter of undertaking.

Common Provisions for Refund of Accumulated Input Tax Credit for Both Types of Refund Applicants

According to Rule 89(3) of CGST Rules, 2017 –the credit ledger (electronic) shall be debited by an amount equal to the refund amount claimed by the applicant.

As prescribed in Rule 94 of CGST Rules– Interest is to be paid for any delay in made in sanctioning of refund beyond the given period of 60 days. The refund or interest or both will be sanctioned directly to the bank account of the applicant.

Cases Where Refund Amount is Not Credited to Consumer Welfare Fund

According to section 54(5) of the CGST Act, the amount of refund which is due to an applicant is credited to Consumer Welfare Fund by default. Such an amount is credited only when the authorised proper officer gets satisfied that the whole or a part of refund claimed is refundable. The case where the refund is not credited to Consumer Welfare Fund by default is mentioned below:

• Refund of tax on zero rated supply of goods or services or both on inputs or input services used in making such zero-rated supplies.
• Refund of the unutilised input tax credit prescribed under s. 54(3) of the CGST Act.
• Refund on the paid tax amount on supply for which the invoice was not issued or where the refund voucher was issued.
• Refund of tax with respect to section 77.
• The tax and interest or any other amount which is paid by the applicant not passed to any other person.
• The tax or interest by such other class of applicants as specified by the Government.

What is the Process of Filing Refund of Unutilised Input Tax Credit?

The application to claim the refund of unutilised input tax credit is to be made using the GST portal. The process is explained below:

Step 1: In the GST Portal login into your account.

Step 2: Move to Services, then Refunds and then click on Application for Refund.

Step 3: Choose the option Refund of ITC on Export of Goods & Services without Payment of Integrated Tax or on account of supplies made to SEZ unit/SEZ developer (without payment of tax).

Step 4: Select and put the relevant financial year month for which the refund is to be generated and then click on Create. Refund application can be made only when a proper GST return is filed for that relevant period.

Step 5: Enter the details related to the Export of goods and/or services as required under Statement 3. The offline utility is also provided by the department or JSON file can be generated by the software.

Step 6: The relevant amount must be entered in the boxes provided.

Step 7: The maximum refund amount will be automatically calculated on the basis of figures entered in the boxes.

Step 8: The breakup for refund requested under Integrated Tax, Central Tax, State or Union Territory Tax and Cess must be entered below.

Step 9: Click on Proceed button and submit the application using DSC or EVC.

Conclusion

The GST Law provides many options to the zero rated suppliers for claiming refund of taxes on the input side. One of the options provided is making of export under bond or Letter of undertaking and then claim refund of unutilised ITC. The law also mentions about refund of unutilised ITC where credit accumulation is on made on account of inverted duty structure. Some timelines are set for processing of refund claims where the claims are not settled within 60 days, an interest will be paid with an interest of 6%. Furthermore, 90% of the refund claim is to be paid within seven days of receipt of acknowledgment of claim on a provisional basis. Claim for refunds are filed with minimum documents and the refund amount is credited to the claimant’s bank account directly. This process can be done online and without any hassle with minimum interference with the tax authorities.