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Indirect Tax Alert - CBIC clarifications on refund related issues

16 March 2021

Various representations have been received seeking clarification on some of the issues relating to GST refunds. The issues have been examined and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issues detailed hereunder:

No restriction on ITC availment in case of refund claim by recipient of Deemed Export Supply

  • Issue: The recipients of the deemed export supplies are finding difficulty in claiming refund of tax paid in respect of such supplies, because the system is not allowing them to the file refund claim under the aforesaid category unless the claimed amount is debited in the electronic credit ledger.
  • Explanation: Para 41 of circular no:125/44/2019 – GST dated 18 November 2019 has placed a condition that the recipient of deemed export supplies shall submit an undertaking that he has not availed ITC on invoices for obtaining the refund of tax paid on such supplies.
  • Thus, in terms of the above circular, the recipient of deemed export supplies cannot avail ITC on such supplies, but when they proceed to file refund on the portal, the system requires them to debit the amount so claimed from their electronic credit ledger.
  • The third proviso to rule 89(1) of CGST Rules, 2017 states that, when the recipient files for refund claim there is no restriction on recipient of deemed export supplies in availing ITC of the tax paid on such supplies.
  • Thus, the said restriction placed by the circular no:125/44/2019-GST dated 18 November 2019 is in contrary to the provisions.
  • In order to ensure that there is no dual benefit to the claimant, the portal allows refund of only ITC to the recipients which is required to be debited by the claimant while filing the application for refund claim. Therefore, whenever the recipient of deemed export supplies files for an application for refund, the portal requires debit of the equivalent amount from the electronic credit ledger of the claimant.
  • Clarification: The para 41 of circular no:125/44/2019-GST dated 18 November 2019 is modified to remove the restriction of non-availment of ITC by the recipient of deemed export supplies on the invoices, for which refund has been claimed by such recipient.

Extension of relaxation for filing refund claim in cases where zero-rated supplies has been wrongly declared in Table 3.1(a) of GSTR 3B

  • Issue: The taxpayers are facing difficulties, in claiming refund of IGST paid on goods or services exported out of India, where taxpayers had inadvertently entered the details of export of services or zero-rated supplies to a Special Economic Zone Unit/Developer in table 3.1(a) instead of table 3.1(b) of FORM GSTR-3B of the relevant period because of a validation check placed on the common portal which prevented the value of refund of IGST in FORM GST RFD-01A from being more than the amount of IGST declared in table 3.1(b) of FORM GSTR-3B.
  • Explanation: The para 26 of circular no:125/44/2019-GST dated 18 November 2019 clarified that such registered persons shall be allowed to file the refund application in FORM GST RFD-01A on the common portal for the tax periods July 2017 to June 2019 subject to the condition that the amount of refund of IGST claimed shall not be more than the aggregate amount of IGST mentioned in the tables 3.1(a), 3.1(b) and 3.1(c) of FORM GSTR-3B filed for the corresponding tax period.
  • Clarification: It has been decided to extend the relaxation provided till March 2021 for filing refund claims where the taxpayer inadvertently entered the details of export of services or zero-rated supplies to a Special Economic Zone Unit/Developer in table 3.1(a) instead of table 3.1(b) of FORM GSTR-3B.

BDO Comments 

This relaxation would lend support to those exporters who could not avail the benefit of refund due to inadvertent reporting of IGST payable in returns. However, since the relaxation is till March 2021 only, the taxpayers need to be careful while reporting in returns.

Manner of calculation of Adjusted Total Turnover under sub-rule (4) of Rule 89 of CGST Rules, 2017

  • Query: Whether the restriction on turnover of zero-rated supply of goods to 1.5 times the value of like goods domestically supplied by the same or, similarly placed as declared by the supplier, imposed by amendment in definition of the “Turnover of zero-rated supply of goods” vide notification no:16/2020-Central Tax dated 23 March 2020, would also apply for computation of ‘Adjusted Total Turnover’ in the formula given under rule 89 (4) of CGST Rules, 2017 for calculation of admissible refund amount.
  • Explanation: Rule 89(4) describes the ‘Adjusted Total Turnover’ to include ‘Turnover in a State or Union Territory’ and ‘Turnover in a State or Union Territory’ includes turnover/ value of export/ zero-rated supplies of goods.
  • The definition of ‘Turnover of zero-rated supply of goods’ has been amended vide notification no:16/2020-Central Tax dated 23 March 2020.
  • In view of the above, it can be stated that the same value of zero-rated/ export supply of goods, as calculated as per amended definition of ‘Turnover of zero-rated supply of goods’, need to be taken into consideration while calculating ‘turnover in a state or a union territory’, and accordingly, in ‘adjusted total turnover’ for the purpose of rule 89(4).
  • Thus, the restriction of 150% of the value of like goods domestically supplied, as applied in “turnover of zero-rated supply of goods”, would also apply to the value of “Adjusted Total Turnover” in rule 89 (4) of the CGST Rules, 2017.
  • Clarification: For the purpose of rule 89(4), the value of export/ zero-rated supply of goods to be included while calculating ‘adjusted total turnover’ will be same as being determined as per the amended definition of “Turnover of zero-rated supply of goods” in the said sub-rule.
  • The same can be explained by the following illustration where actual value per unit of exported goods is more than 1.5 times the value of same/ similar goods in domestic market, as declared by the supplier:

Illustration Suppose a supplier is manufacturing only one type of a good and is supplying the same good in both the domestic and overseas market. During the relevant period of refund, the details of his inward supply and outward supply details are shown in the table below:

Net admissible ITC = INR 270

Outward

Supply

Value per

unit

No of units

supplied

Turnover

Turnover as per

amended definition

Local (Quantity 5)

200

5

1,000

1,000

 

Export (Quantity 5)

350

5

1,750

1,500 (1.5*5*200)

Total

 

 

2,750

2,500

The formula for calculation of refund as per Rule 89(4) is:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover

Turnover of Zero-rated supply of goods (as per amended definition) = INR 1500, Adjusted Total Turnover= INR 1000 + INR 1500 = INR 2500 [and not INR 1000 + INR 1750]; Net ITC = INR 270

Refund Amount = INR 1500*270/2500 = INR 162

Thus, the admissible refund amount in the instant case is INR 162.

[Circular no:147/03//2021-GST 12 March 2021]