Refund of provisionally accepted input tax credit under GST : 24th GST Council Meeting Decision

By | July 2, 2018
(Last Updated On: July 2, 2018)

Refund of provisionally accepted input tax credit

24th GST Council Meeting held on 16 December, 2017 and taken following agenda and decision on Refund of provisionally accepted input tax credit under GST

As per 24th GST Council Meeting Agenda item

Agenda Item 3: Any other agenda item with the permission of the Chairperson

Agenda Item 3(i): Refund of provisionally accepted Input Tax Credit In order to alleviate the problem of capital blockage faced by trade and industry due to the non-availability of the refund module on the common portal, the GST Council in the 22nd Meeting recommended that the applications / documents / forms pertaining to refund claims on account of zero-rated supplies shall be filed and processed manually till further orders.

2. Further, on the recommendations of the GST Council, the due dates for filing of details in FORM GSTR-2 and the return in FORM GSTR-3 have been postponed till further orders while the return filing frequency of the details in FORM GSTR-1 is monthly for registered persons having aggregate turnover above Rs. 1.5 crores and quarterly for those having aggregate turnover upto Rs. 1.5 crores.

3. The report of the Committee on Exports set up by the GST Council dealt with the issue of delays in grant of refunds of IGST and input tax credit on goods and services used in exports. This was discussed in the 22nd meeting of the GST Council held on 6th October, 2017. Due to various reasons like non-availability of FORM GSTR-1 for the month of August, 2017 and subsequent months till the cycle of filing FORM GSTR-1, FORM GSTR-2, FORM GSTR-3 is completed for previous months and lack of readiness of refund module in GSTN, it was decided to process refunds manually till such time the system related issues were resolved.

4. Thus, in view of the above relaxations of the due dates for filing the details in FORM GSTR-1 and FORM GSTR-2 and the return in FORM GSTR-3 together with manual processing of refunds, it was decided to grant refunds on the basis of details furnished in the return in FORM GSTR-3B which captures the details of tax liability and tax payment by the registered persons on a monthly basis. Accordingly, the Law Committee proposed issuance of a Circular which was issued by the GST Policy Wing, CBEC (Circular No. 17/17/2017-GST dated 15/12/2017 refers).

5. Whereas, section 54(6) of the CGST Act, 2017 reads as follows:

(6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed, excluding the amount of input tax credit provisionally accepted, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant.

6. Doubts have been raised about granting refunds of provisional credit as it appears to be not in line with the provisions of section 54(6) of the CGST Act which states that refund on provisional basis should exclude the amount of input tax credit which has been provisionally accepted.

7. In this regard, it is sought to clarify that in light of the fact that the return in FORM GSTR-3B is being filed by the registered persons which also entails tax payment and since the due dates for filing the details in FORM GSTR-2 and the return in FORM GSTR-3 have been postponed till further orders, the registered person should be allowed refund of accumulated input tax credit in case of zero-rated supplies and inverted duty structure as well as IGST paid on export of goods and services or both though the matching of input tax credit has not taken place. This can be done in terms of provisions contained in section 148 of the CGST Act, 2017. It may be submitted that as per section 42 of the CGST Act, in case it is found that excess credit has been claimed by the recipient and the same is not corrected within the stipulated time, the said amount shall be added to the output tax liability of the recipient in his return along with interest. Further, as per sections 73 and 74 of the CGST Act, erroneous refund or wrongly availed or utilized input tax credit is liable to be recovered along with interest and penalty.

8. The GST Council is requested to approve the proposal, in exercise of the provisions contained in section 148 of the CGST Act, 2017, to clarify that registered persons would be allowed refund of accumulated input tax credit in case of zero-rated supplies and inverted duty structure as well as IGST paid on export of goods and services or both though the matching of input tax credit has not taken place.

As per 24th GST Council Meeting Minutes

Agenda item 3: Any other agenda item with the permission of the Chairperson

8 Introducing this agenda item, the Secretary stated that as no automated refund system
had been operationalised as yet, the refund applications were being filed online and then the
applicants would take a hard copy of the same to the jurisdictional officer for processing the
refund claim manually, after which a single order would be passed. He stated that some
officers in the field had raised a doubt that as per the law, refund could be given only if the
inward and outward supplies were matched and tax was paid on the supply. He stated that as
presently no matching was possible, it was proposed to take an undertaking as part of refund
application itself that the amount of refund would be paid back to the Government in case it
was subsequently found that the tax had not been paid on the supply as required under Section 16(2)(c) of the CGST Act /SGST Act or the inward and the outward supply involving the
refund claim did not match (requirements under Sections 41 and 42 of CGST/SGST Act). He
stated that it was proposed to allow following refunds (both provisional and fmal) without
matching and without excluding the amount of provisionally accepted input tax credit: (i)
Unutilised input tax credit in case of zero rated supplies (exports and supplies to SEZs) of
goods or services or both; (ii) Unutilised input tax credit in case of inverted duty structure in
case of goods (including supply of goods to merchant exporters); (iii) IGST paid on zero rated
supplies (exports and supplies to SEZs) of goods or services or both; (iv) IGST or
CGST/SGST/UTGST paid on deemed export of goods subject to furnishing an undertaking as
part of refund application itself that the. amount of refund would be paid back to the
Government in case it is found subsequently that the requirement of Section 16(2)(c) read
with Section 42 (2) of the CGST/SGST Act have not been complied with. He stated that this
relaxation was proposed by exercising the power conferred under Section 148 of the CGST/SGST Act regarding special procedure for certain processes.

8.1. The Hon’ble Minister from West Bengal strongly supported the proposal. He stated
that since GSTR-2 stood suspended, no matching of inward .and outward supply was possible,
and therefore, it was a very good proposal to permit refund without matching. The Hon’ble
Minister from Tamil Nadu had circulated a written speech in which it was mentioned that
Section 148 of the CGST/SGST Act had no non-obstante (“notwithstanding clause”) and
hence, it needed to be examined whether the special process prescribed under Section 148 would over-ride the substantive provision of Section 54(6) of the CGST/SGST Act which
required that any claim for refund on account of zero rated supply of goods or services or both
made by registered persons be refunded on a provisional basis to the extent of90% of the total
amount so claimed, excluding the amount of input tax credit provisionally accepted. In the
written speech, he also pointed out that refund based on GSTR-3B returns might lead to bogus
claim of input tax credit by unscrupulous taxpayers taking advantage of non-matching of input
tax credit. He suggested to stipulate sufficient safeguards for the revenue as well as for the
Departmental officers. In view of this, he recommended that the matter be examined in
further detail as it involved substantial question of law. However, the Hon’ble Minister from ~
Tamil Nadu did not express these apprehensions during the Council Meeting. No other
Member expressed any reservation on the proposal. The Hon’ble Chairperson suggested that
the proposal made by the Secretary could be approved. The Council approved the same.

9. For agenda item 3(i), the Council approved the following:

a. to allow following refunds (both provisional and final) without matching and without
excluding the amount of provisionally accepted input tax credit:

(i) Unutilised input tax credit in case of zero rated supplies (exports and supplies to SEZs) of goods or services or both;

(ii) Unutilised input tax credit in case of inverted duty structure in case of goods (including supply of goods to merchant exporters);

(iii) IGST paid on zero rated supplies (exports and supplies to SEZs) of goods or services or both;

(iv) lGST or CGST/SGST/UTGST paid on deemed export of goods.

b. Such refund shall be given subject to furnishing an undertaking as part of refund application itself that the amount of refund would be paid back to the Government in case it is found subsequently that the requirement of Section 16(2)(c) read with Section 42 (2) of the CGST/SGST Act have not been complied with in respect of the  amount refunded.

Refer GST Council Meeting Agenda and Minutes

 

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