The Central Board of Indirect Taxes and Customs (CBIC) recently issued Circular 197/09/2023 on July 17, 2023, providing essential clarification on four significant issues regarding Goods and Services Tax (GST) refunds. This circular aims to address concerns raised by various field formations and ensure consistent implementation of GST refund provisions across different regions.
Refund of Accumulated Input Tax Credit (ITC) under Section 54(3)
Issue #1: In the past, GST Circular 135/05/2020 dated March 31, 2020, restricted the refund of accumulated ITC to invoices reflected in FORM GSTR-2A, as uploaded by the supplier in FORM GSTR-1. However, due to subsequent amendments, doubts arose regarding whether refunds should be based on FORM GSTR-2A or the available ITC in FORM GSTR-2B, considering the insertion of clause (aa) in sub-section (2) of Section 16 of the CGST Act and the amendment in Rule 36(4) of the CGST Rules, both effective from January 1, 2022.
Clarification: The CBIC has examined the matter and clarified that the availability of refund of accumulated ITC under Section 54(3) will be restricted to the ITC as reflected in FORM GSTR-2B for the respective tax period. In other words, the refund will be based on invoices available in FORM GSTR-2B for the relevant tax period or any previous tax periods, as long as the ITC is available to the applicant. This clarification modifies the previous guidelines mentioned in GST Circulars 125/44/2019 dated November 18, 2019 and 139/09/2020 dated June 10, 2020. It’s important to note that this restriction on refund availability applies to tax periods from January 2022 onwards. Refund claims for tax periods before this date will not be affected by this circular.
Requirement of Undertaking in FORM RFD-01
Issue #2: Previously, applicants seeking refunds were required to provide an undertaking in FORM RFD-01, in accordance with Rule 89(1) of the CGST Rules. This undertaking included references to Section 42, FORM GSTR-2 and FORM GSTR-3. However, with the omission of Section 42 of the CGST Act from October 1, 2022 and the removal of FORM GSTR-2 and FORM GSTR-3 from the CGST Rules, it became necessary to update the undertaking.
Clarification: To align with the changes in the legislation, the circular removes references to Section 42, FORM GSTR-2 and FORM GSTR-3 from the undertaking in FORM RFD-01. The revised undertaking now focuses solely on compliance with clause (c) of subsection (2) of Section 16 of the CGST Act. This modification ensures the undertaking remains accurate and relevant to the current provisions.
Calculation of Adjusted Total Turnover under Rule 89(4) of CGST Rules
Issue #3: Concerns were raised regarding the calculation of “adjusted total turnover” under Rule 89(4) of the CGST Rules following the insertion of an Explanation in sub-rule (4) through Central Tax Notification 14/2022 dated July 5, 2022. Specifically, there were questions about whether the value of goods exported out of India should be considered as per the Explanation for calculating the adjusted total turnover.
Clarification: To address these concerns, it has been clarified that the value of goods exported out of India, as determined by the Explanation in sub-rule (4) of Rule 89, should be included when calculating the adjusted total turnover. This clarification ensures consistency with the amended definition of “Turnover of zero-rated supply of goods” and enables accurate calculations in accordance with the current provisions.
Admissibility of Refund after Compliance with Rule 96A
Issue #4: Exporters who faced delays in exporting goods or receiving payments for services within the prescribed time frames under sub-rule (1) of Rule 96A of the CGST Rules had voluntarily made payments of due integrated tax along with applicable interest. Questions arose regarding the admissibility of refunds for both unutilized input tax credit and the integrated tax and interest paid after the subsequent export of goods or realization of payment.
Clarification: The circular provides clarity on the matter, emphasizing that the benefits of zero rating should not be denied to exporters who have actually exported goods or received payment for services, even if it is beyond the prescribed time frames. As long as exports have been made in accordance with the relevant provisions, exporters are entitled to claim refunds of unutilized input tax credit under Section 54(3) of the CGST Act. Additionally, exporters can claim a refund of the integrated tax paid earlier on account of goods not being exported or payments not being realized for services, within the prescribed time frames under sub-rule (1) of Rule 96A. However, refunds for the interest paid in compliance with sub-rule (1) of Rule 96A will not be admissible.
Note for Refund Applications
While the portal may not have a specific category for refunds related to sub-rule (1) of Rule 96A, applicants can file refund applications under the “Any Other” category until the portal is updated to include a category for “Excess payment of tax” as per the provisions of sub-rule (1) of Rule 96A.
CBIC GST Circular 197/09/2023 dated 17/07/2023: Clarification on GST Refunds Related 4 Issues
The CBIC’s issuance of Circular 197/09/2023 brings clarity to several crucial aspects of GST refunds. The circular’s clarifications regarding the refund of accumulated input tax credit, the requirement of an undertaking in FORM RFD-01, the calculation of adjusted total turnover and the admissibility of refunds after compliance with Rule 96A provide valuable guidance to taxpayers and promote a standardized approach. By addressing these issues, the CBIC aims to enhance transparency, streamline processes and ensure fairness in the implementation of GST refund provisions.
CA Abhinav Aggarwal is a qualified Chartered Accountant and ICAI member since 2010. He holds vast experience in Audit, Income Tax & GST and is a passionate writer on the CA profession and related topics.
Disclaimer: While reasonable efforts have been made to ensure the accuracy and reliability of the information presented in this article, it should not be considered as professional tax advice or guidance. For compliance, the readers are advised to directly refer to the relevant laws, regulations and notifications issued by the appropriate authorities.