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Tax Alert: Government’s relief to counter pandemic impact - Fast-tracking of GST/Customs Duty refunds

10 April 2020

At a time when world is reeling under lock-down and the future landscape looks uncertain, businesses across the world are burdened with formulating effective Business Continuity Plan to cope with the challenges posed by the global pandemic.  However, despite continuous and dedicated efforts by the industry and trade to encounter the challenges, the situation continues to confront them and growing larger with every passing day. One such critical issue is liquidity problems and working capital crunch.

In view of the hardships faced by the businesses, the Central Board of Indirect Taxes & Customs (CBIC) has taken a welcome step with a view to provide immediate relief. On 09 April 2020, the CBIC through its twitter handle has announced that, as an immediate relief measure, government has decided to issue all pending GST and Customs Duty refunds immediately. This move is expected to unlock blocked refunds to an extent of INR 180 Bn to the benefit many taxpayers.

It is imperative to note that the move is at a very preliminary stage and the Ministry of Finance has only released a press note to announce the decision. The modus operandi and the timelines are yet to be notified.  While the decision to fast track refunds is a positive step in the right direction, some pertinent questions that may immediately crop-up in the taxpayer’s mind are the following:

  • Type of refunds covered under the Scheme?

The first question that comes-up in mind is whether all refund applications, including those pertaining to exports on payment of IGST, refund of Input tax credits on account of inverted duty structure, excess tax/duty payments, etc. shall fall within the ambit of the Scheme.Further, what would happen to the refund claims pending at appellate level?

It is imperative to note that as on December 2019, there were around 0.20 Mn refund applications that are pending before the tax authorities. This may prompt the authorities to curtail the benefit only to certain specified situations, subject to terms and conditions. Considering the enormity of the pendency, Government may be compelled to cap the refund amount under this route.

  • Refund provisions of GST Act?

Section 54 of CGST Act, 2017 does not specifically provide for any specific procedure to deal with the situations in hand.Section 54(5) mandates that the tax authorities shall issue a refund order only after satisfying himself with respect to the completeness of the refund application.Unless, a special dispensation is introduced, it might be practically difficult to immediately sanction refunds under the present framework of provisions.

  • Future validation of refunds granted.

On a plain reading of the press note, it may be perceived that refunds shall be granted without following intricate verification process, considering the urgency. However, it would be interesting to see how the tax authorities shall endeavour validate the correctness of the refunds fast-tracked in this manner. Any amount erroneously refunded to a taxpayer can be recovered by initiating proceedings under the provisions of the respective statute, along with interest and penalty, as applicable.Therefore, it is likely that the authorities will exercise adequate caution by introducing number of safeguards.

In light of the above, it is likely that relief shall not be free from verification/validation or free of any conditions. The taxpayer would have to wait for clarity on the methodology and manner in which the scheme would be administered by the Government.

Regardless of the practical challenges, which may be encountered in implementation of the fast track refund, it is undoubtedly a laudable step taken by the union government to minimize the burden of the taxpayers, especially MSMEs during these tough times.