CBEC’s FAQs on Refunds under GST

The FAQs related to Refunds under GST as per compilation made by the NACEN of CBEC to acquaint stakeholders with the Model GST Law and its nuances, are as under:

Q 1. What is refund?

Ans. Refund has been discussed in section 38 of the MGL. “Refund” includes refund of tax on goods and/or services exported out of India or on inputs or input services used in the goods and/or services which are exported out of India, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit as provided under section 38(2).

Q 2. Can unutilized Input tax credit be allowed as refund?

Ans. Yes, but only in following cases as given in sub-section (2) of section 38:-

(i) Exports of goods on which export duty is not payable;

(ii) Exports of services;

(iii) Where credit has accumulated on account of rate of tax on inputs being higher than the rate of taxes on Outputs.

Q 3. Can unutilized ITC be given refund, in case goods exported outside India are subjected to export duty?

Ans. No (Second proviso to Section 38(2) of MGL).

Q 4. Can ITC of goods lying in stock at the end of the financial year (after introduction of GST) be refunded?

Ans. No. It is proposed to be carried forward.

Q 5. Suppose a taxable person has paid IGST/ CGST/SGST mistakenly as an Interstate/intrastate supply, but the nature of which is subsequently clarified. Can the CGST/SGST be adjusted against wrongly paid IGST or vice versa?

Ans. No. He will have to pay the appropriate tax and claim refund of the tax wrongly paid. (IGST Sec.30 and Sec.53 GST).

Q 6. Whether purchases made by Embassies or UN be taxed or exempted?

Ans. It will be taxed, which later on can be claimed as refund by them.

[The United Nations Organization and Consulates or Embassies are required to take a Unique Identity Number and purchases made by them will be reflected against their number in the return of outward supplies of the supplier and refunds of taxes can be granted. A separate process will be notified in the Rules. GST Sec.19 (6)].

Q 7. What is the time limit for taking refund?

Ans. The person concerned is required to file the application before expiry of two years from the relevant date, as given in the explanation to section 38 of MGL.

Q 8. Whether principle of unjust enrichment will be applicable in refund?

Ans. Yes, except in cases of exports and refund of unutilized ITC as referred to in sub-section (2) of section 38 (also refer to question no. 2 above).

Q 9. In case the tax has been passed on to the consumer, whether refund will be sanctioned?

Ans. Yes, however, the amount so determined shall be credited to the Consumer Welfare Fund.

Q 10. Is there any time limit for sanctioning of refund?

Ans. Yes, it is 90 days in all cases, excepting in a case where the refund to the extent of 80% of the total amount claimed is refundable to certain categories of exporters referred to in sub-section (4A) of section 38. If refund is not sanctioned within the period of three months, interest will have to be paid by the department.

Q 11. Can refund be withheld by the department?

Ans. Yes, refund can be withheld in the following circumstances:

i) If the registered dealer has not submitted return(s), till he files the return(s);

ii) If the registered taxable person is required to pay any tax, interest or penalty which has not been stayed by the appellate authority/Tribunal/ court, till he pays such tax interest or penalty;

[The proper officer can also deduct unpaid taxes if any of the dealer from the refundable amount].

iii) Commissioner/Board can withhold refund, if, the Order of Refund is under appeal and he is of the opinion that grant of such refund will adversely affect revenue – (Sec.38(9) of MGL).

Q 12. Where the refund is withheld under 38(9), as discussed in 11(c) above, will the taxable person be given interest?

Ans. If as a result of appeal or further proceeding the taxable person becomes entitled to refund then he shall be also entitled to interest.

Q 13. Is there any minimum threshold for refund?

Ans. No refund shall be granted if the amount is less that Rs.1000/-. (Sec.38 (11) of MGL)

Q 14. How will the refunds arising out of earlier law be paid?

Ans. The refund arising out of earlier law will be paid as per the earlier law and will be paid in cash (under CGST) or as per the provisions of the earlier law (under SGST) and will not be available as ITC (Section 156, 157 and 158 of MGL).

Q 15. Whether refund can be paid before verification of documents?

Ans. For export refunds to notified category of dealers, 80% refund can be granted before verification subject to such conditions and restrictions as may be prescribed – section 38(4A).

Q 16. In case of refund under exports, whether BRC is necessary for granting refund?

Ans. Since the exporter has a time period of one year from the date of export for remitting of export proceeds, BRC may not be available at the time of refund application. But if export proceeds are received in advance BRC may be available. Thus, refund should be subject to submission of BRC details within a period of maximum one year or as extended by RBI. e-BRC module of DGFT will be integrated with GST module. However for export of services BRC would be required before sanction of refund.

Q 17. Will the principle of unjust enrichment apply to exports or deemed exports?

Ans. The principle of unjust enrichment is not applicable in case of actual exports of goods or services as the recipient is located outside the taxable territory. However, in case of deemed exports it will be applicable.

Q 18. How will the person prove that the principle of unjust enrichment do not apply in his case?

Ans. The person concerned may furnish together with the application such document(s) or evidence(s) 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 not passed on by him to any other person – section 38(3)(b).

Further, to provide relief to taxpayers the above sub-section also provides that where the refund amount, as claimed, is less than Rs 5 lakh a self-declaration will only be required.

Q 19. Today under VAT/CST merchant exporters can purchase goods without payment of tax on furnishing of a declaration form. Will this system be there in GST?

Ans. No, there will be no such provision in GST. They will have to purchase goods upon payment of tax and claim refund of the accumulated ITC as discussed in section 38(2).

Q 20. Presently under Central law, exporters are allowed to obtain duty paid inputs, avail ITC on it and export goods upon payment of duty (after utilizing the ITC) and thereafter claim refund of the duty paid on exports. Will this system continue in GST?

Ans. Under the GST regime exports will be zero rated which means that the export goods would not suffer any actual tax liability although inputs for such exports would be tax paid. Under GST, refund will be allowable on the accumulated inputs as well as on exported finished goods.