JANUARY 07, 2019

By Shvetal B Parikh

1. THE law and procedure for encashment of accumulated Input Tax Credit ('ITC') in GST regime remains difficult to understand and follow by taxpayers as well as officers. The Proviso to Section 54(3) of the CGST Act, 2017, inter alia prescribes that no refund of unutilized ITC shall be allowed except in cases of (i) zero rated supplies made without payment of tax; and (ii) inverted rate structure. For brevity, the provisions and procedure regarding refund of accumulated ITC on account of zero rated supplies of goods have been discussed here.

2. The formula for arriving at the maximum refund amount has been prescribed under Rule 89(4) of the Central GST Rules, 2017 and State GST Rules. On its basis, maximum refund amount is to be calculated in the form GST RFD-01A. The present format of RFD-01A with illustrative figures is as under:

GST RFD-01A

Refund of ITC on export of goods & services without payment of tax

3. When the form RFD-01A was introduced in common portal, the figures of Net ITC and Maximum refund amount (as shown in the first Table) were being reflected separately for Integrated Tax, Central Tax, State/UT Tax and Cess (also referred to 'Heads' in this Article). If the taxpayer did not have sufficient balance in one Head and excess balance under another Head, the common portal was not allowing adjustment of refund from one Head to another. Subsequently, the figures under the Heads of Net ITC of Integrated Tax, Central Tax and State/UT Tax have been merged and only total figure was appearing in the revised format of RFD-01A as shown in the first Table hereinabove. Consequently, the figures of Maximum refund amount have also been merged as shown therein.

4. Presently, while filing refund claim online, the taxpayer has to fill refund amount manually in the last column of the second Table from the balance of Tax credit of Integrated Tax, Central Tax and/or State Tax. However, the amount of refund claimed under every Heads should not exceed the balances under respective heads as auto-populated in columns (1) & (2) of the second table, as well as maximum refund amount derived at column (4) of the first table. Within these limits, the common portal presently allows taxpayers to claim/debit the amount of refund from any of the Heads i.e. Integrated Tax, Central Tax and State/UT Tax, which the taxpayer chooses while filling RFD-01A online. As chosen by the taxpayer, the balance in Electronic Credit Ledger under different Heads is deducted before generating Application Reference Number (ARN). Once, ARN has been generated from the common portal, neither the taxpayer nor GST officer can change/revise the amounts or Heads of refund. Presently, the common portal does not allow filing of another refund claim in the same category for the same tax period.

5. If the taxpayer / exporter has large balance of ITC in all the Heads, there was no provision or guideline prescribing that which Head of ITC should be debited against refund, which may impact on the figures of revenue collection of Centre and State. Subsequently, this issue has been discussed and clarified in CBIC's Circular No. 59/33/2018-GST dated 04.09.2018 as under:

QUOTE

3. System validations in calculating refund amount

3.1 Currently, in case of refund of unutilized input tax credit (ITC for short), the common portal calculates the refundable amount as the least of the following amounts:

(a) The maximum refund amount as per the formula in rule 89(4) or rule 89(5) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the "CGST Rules") [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax + Integrated tax + Cess (wherever applicable)];

(b) The balance in the electronic credit ledger of the claimant at the end of the tax period for which the refund claim is being filed after the return for the said period has been filed; and

(c) The balance in the electronic credit ledger of the claimant at the time of filing the refund application.

3.2 After calculating the least of the three amounts, as detailed above, the equivalent amount is to be debited from the electronic credit ledger of the claimant in the following order:

(a) Integrated tax, to the extent of balance available;

(b) Central tax and State tax/Union Territory tax, equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be debited from the other electronic credit ledger (i.e., State tax/Union Territory tax, in this case).

3.3 The procedure described in para 3.2 above, however, is not presently available on the common portal. Till the time such facility is made available on the common portal, the taxpayers are advised to follow the order as explained above for all refund applications filed after the date of issue of this Circular. However, for applications already filed and pending with the tax authorities, where this order is not adhered to by the claimant, no adverse view may be taken by the tax authorities.

3.4 The above system validations are being clarified so that there is no ambiguity in relation to the process through which an application in FORM GST RFD-01A is generated.

UNQUOTE

6. Though the procedure mentioned in Para 3.2 sounds logical, I failed to find corresponding provisions of any Act, Rule or Notification in support of the same. Identical provisions for refund of accumulated ITC have been prescribed in the CGST Act/Rules and in the Acts/Rules of different States. Further, by virtue of Section 20 of the IGST Act and Rule 2 of the IGST Rules, the provisions of the CGST Act & Rules relating to refund have been made applicable to Integrated Tax. The formula for arriving at maximum refund amount under Rule 89(4) of the CGST Rules is as under:

Refund Amount

= Turnover of zero-rated supply of goods & services X Net ITC ÷ Adjusted Total Turnover

Where "Net ITC" means input tax credit availed on inputs and input services during the relevant period, other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both.

The term 'input tax' means Central Tax, State Tax, Integrated Tax and Union Territory Tax charged on any supply of goods or services, as defined at Section 2(62) of the CGST Act. And the term 'input tax credit' has been defined as credit of input tax under Section 2(63) ibid.

Thus, the term Net ITC referred under Rule 89(4) of Central GST Rules refers to ITC of not only Central Tax, but also includes ITC of State/UT Tax and Integrated Tax. Similarly, Net ITC referred under Rule 89(4) of State GST Rules includes ITC of Central Tax and Integrated Tax in addition to ITC of State Tax. Thus, theoretically refunds calculated and admissible under CGST Rules, SGST Rules and IGST Rules are the maximum refund amounts considering total of ITC under different Heads and such refunds are equal. By considering the figures given in the above Tables, refund of Rs.5,000/- is admissible under the CGST Rules; Rs.5,000/- is admissible under SGST Rules; and Rs.5,000/- is admissible under IGST Rules.

7. Now, a question arises whether the taxpayer can file three refund claims of Rs.5,000/- under three sets of rules? The obvious answer is 'No', because the refund amount should not exceed the Net ITC availed during that period. Further, presently the GST portal does not allow filing of such multiple refund claims for a tax period. However, I could not find any legal provision under which three refund claims of Rs.5,000/- each under CGST, SGST and IGST Acts/Rules are deniable and the amount of total refund can be restricted to Rs.5,000/-.

8. Another important problem is that after issuance of the above referred Circular dated 04.09.2018, the taxpayer should debit the balance credit available under the Head of Integrated Tax first and then he should debit the remaining amount, if any, equally from Central Tax and State/UT Tax credits, till the common portal is modified for automatic debiting in this manner (Para 3.2 & 3.3 of the Circular refers). Suppose, due to unawareness about this Circular, a taxpayer applies for refund of Rs.5,000/- after 04.09.2018 by debiting the entire amount under the Head of Central Tax or State Tax, what would be the fate of such refund claim? Whether such refund claims can be rejected on the ground that the taxpayer had balance of more than Rs.5,000/- under the Head of Integrated Tax? As per Para 3.3 of the Circular dated 04.09.2018, the taxpayers are advised to follow the order (of debit) as explained, for all refund applications filed after the date of issuance of that Circular. Whereas, the applications already filed (i.e. prior to the date 04.09.2018) where this order (of debit) was not adhered by claimants, no adverse view is to be taken by tax authorities. In this regard, I am of the view that when there is no change in the relevant provisions of law with effect from the date 04.09.2018, the advice given at Para 3.3 of the Circular should not be treated as mandatory. Thus, in my personal view , rejection of refund claim on this ground only would not be sustainable inasmuch as there is no contravention of any provision of Acts or Rules or Notifications.

9. This issue has not been clarified in the latest Circular No. 79/53/2018-GST dated 31.12.2018 issued by the CBIC. Hope it will be addressed soon.

(The views expressed by the author are his personal views)