Tax Alert on circular 79-GST
GST Council has always taken various steps for streamlining the refund procedure to keep it hassle free and less cumbersome, enabling exporting community to obtain hassle free refund of accumulated input tax credit with less of departmental intervention. The GST Council has issued various clarifications in relation to crucial issues faced by the exporters in refund applications, by virtue of circular no. 79/53/2018-GST dated 31.12.18, which is discussed herein below:
Electronic Streamlining of Refund Applications under GST
Earlier, due to unavailability of complete electronic refund module, the refund form i.e. GST RFD-01A along with Application Reference Number (ARN) and other supporting documents were to be submitted in hard copy and this was becoming a routine exercise for exporters to visit the department and submit refund application. By virtue of the aforesaid circular, henceforth all supporting documents, undertaking, statements, purchase invoices not appearing in form GSTR-2A shall be submitted electronically along with the refund application in form RFD-01A, on the common portal.
Subsequently, such Refund application shall be transferred electronically to the jurisdictional proper officer who shall be able to view it on the system. However, acknowledgement1 for the complete application or deficiency memo, as the case may be, would continue to be issued manually for the time being.
It has also been clarified that if a refund application is electronically transferred to the wrong jurisdictional officer, he/she shall reassign it to the correct jurisdictional officer electronically within a period of 3 days. In such cases, the application shall be deemed to have been filed only after it has been so reassigned.1 No Deficiency memos shall be issued in such cases. However, where the facility of electronic re-assignment is not available, the present arrangement shall continue. However, the prevalent system of manual filing also remains the same in cases wherein deficiency memo has been issued. Also a taxpayer who still remains unallocated to the Central or State Tax Authority will necessarily have to submit the refund application physically.
Input Tax Credit to be considered for calculation of Refund under Inverted Tax Structure:
There was an ambiguity as to the calculation of refund in relation to those cases where there are multiple inputs attracting different rates of tax being higher, lower or equal to the rate of GST on outward supply. With the above clarification such ambiguity has been resolved in as much as while calculating amount of Net ITC2 the same shall include ITC on every inputs availed on all inputs in the relevant period irrespective of the rate of tax of such inputs.
Interest on delayed Refunds:
After issuance of order of Refund if the amount is not refunded within a period of 60 days of the date of receipt of application (ARN), interest at the rate of 6 per cent3 on the refund amount starting from the date immediately after the expiry of 60 days from the date of receipt of application (ARN) till the date of refund of such tax shall have to be paid to the claimant. Also tax shall be considered to have been refunded only when the amount has been credited to the bank account of the claimant. Therefore, interest will be calculated starting from the date immediately after the expiry of 60 days from the date of receipt of the application till the date on which the amount is credited to the bank account. This clarification will work as catelyst for department officers to sanction and transfer fund to the applicant bank account within statutory time frame.
Clarification on refund applications generated on the portal before issuance of this circular, however not physically received:
With the introduction of online submission of documents along with the refund application form, it is expected that the refunds that have been struck due to non submission of documents in physical form, would reduce. However, there are specified guidelines for such application which have though been submitted online before the issuance of this circular, however the physical submission of documents is still pending. Such guidelines are given below:
Cases where amount claimed is less than Rs. 1,000/-
The refund application should be rejected and the amount should be re-credited to the electronic credit ledger of the applicant through the issuance of FORM GST RFD-01B.
Cases where amount claimed is greater than Rs. 1,000/-
- A list of applications which have not been received in the jurisdictional tax office within a period of 60 days starting from the date of generation of ARN may be compiled.
- Communication to be sent to all such claimants on their registered emails informing that the application needs to be physically submitted to the jurisdictional tax office within 15 days of the date of the email. Failing which the application shall be summarily rejected and the debited amount, if any, shall be re-credited to the electronic credit ledger.
Refund Applications relating to refund of excess balance in the electronic cash ledger:
- The amount debited in the electronic cash ledger in such applications may be re-credited through FORM GST RFD-01B provided that there are no liabilities in the electronic liability register. The said amount shall be re-credited even though FORM GSTR-3B has not been filed.
Refund of GST Compensation Cess- A major clarification
The refund in relation to ITC accumulated on account of compensation cess on account of zero rated supplies was also becoming an area of great concern and the procedure for taking credit of the same along with the refund admissible if the export product was not subjected to any compensation cess also demanded clarification. The Council has issued clarifications in this regard under the given scenarios.
Refund admissible- If Credit is not taken of the GST Compensation Cess:
If no ITC is availed of the compensation cess paid on the inputs for the period July, 2017 to May, 2018 and ITC is availed only of the CGST,SGST/UTGST or IGST on such inputs then the refund of compensation cess shall be calculated in the same manner as it was available in the respective months in which the refund of unutilized credit of CGST,SGST/UTGST or IGST was claimed on account of exports made under LUT/Bond.
In an earlier Circular4 it was clarified that refund of accumulated ITC of compensation cess on account of zero rated supplies made under bond/LUT is available even if the exported product is not subject to levy of cess.
Therefore, after the issuance of the aforesaid circular the exporter decided to avail refund of ITC for the aforesaid period and subsequently also starts exporting under bond/LUT without payment of tax in order to avail the ITC of compensation cess to the maxim. In such a case the amount admissible as refund would be limited to the aggregate of total amount as computed as if the credit of the compensation cess was made available in the respective months. A question arises as to whether the respective month shall be a month in which corresponding GST credit has been availed by the Applicant or the date of Bill of Entry/invoices, we advice to take credit in month to which corresponding GST credit had been earlier availed. Also the recomputed amount of eligible refund (of compensation cess) in respect of past periods, as aforesaid, would not be admissible in respect of consignments exported on payment of IGST.
If Compensation Cess is paid for coal captively consumed:
A registered person uses coal for the captive generation of electricity which is further used for the manufacture of goods (say aluminium) which are exported under Bond/Letter of Undertaking without payment of duty and refund claim is filed for accumulated Input Tax Credit of compensation cess paid on coal.
There is no distinction between intermediate goods or services and final goods or services under GST. Inputs have been clearly defined to include any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Since coal is an input used in the production of aluminium, albeit indirectly through the captive generation of electricity, which is directly connected with the business of the registered person, input tax credit in relation to the same cannot be denied.
Refund of Compensation Cess in cases where some amount of ITC has been Reversed:
Refund of Compensation Cess shall be available to the extent of ITC availed on compensation cess and the amount of ITC reversed of such compensation cess is a cost to the company. However, if at a later date such reversed amount is again availed then the refund would be admissible to the ratio of export turnover to that of total turnover.
Inclusion of earlier tax period invoices in processing of refund application of subsequent tax period: It may happen that the goods purchased against a particular tax invoice issued in a particular month, say August 2017, may be declared in the FORM GSTR-3B filed for a subsequent month, say September 2017. However, it has been observed that field officers are excluding such invoices from the calculation of refund of unutilized ITC filed for the month of September, 2017. In this regard, it is now clarified that “Net ITC” as defined in Rule 89(4) of the CGST Rules means input tax credit availed on inputs and input services during the relevant period and relevant period means the period for which the refund claim has been filed. Further, Input tax credit can be availed when it is entered into the electronic credit ledger of the registered person, while filing return in FORM GSTR-3B. Moreover, section 16(4) of the CGST Act stipulates that ITC may be claimed on or before the due date of filing of the return for the month of September following the financial year to which the invoice pertains or the date of filing of annual return, whichever is earlier. Therefore, the input tax credit of invoices issued in August, 2017, availed in September, 2017 cannot be excluded from the calculation of the refund amount for the month of September, 2017.
Inclusion of earlier tax period invoices in processing of refund application of subsequent tax period:
It may happen that the goods purchased against a particular tax invoice issued in a particular month, say August 2017, may be declared in the FORM GSTR-3B filed for a subsequent month, say September 2017. However, it has been observed that field officers are excluding such invoices from the calculation of refund of unutilized ITC filed for the month of September, 2017.
In this regard, it is now clarified that “Net ITC” as defined in Rule 89(4) of the CGST Rules means input tax credit availed on inputs and input services during the relevant period and relevant period means the period for which the refund claim has been filed. Further, Input tax credit can be availed when it is entered into the electronic credit ledger of the registered person, while filing return in FORM GSTR-3B.
Moreover, section 16(4) of the CGST Act stipulates that ITC may be claimed on or before the due date of filing of the return for the month of September following the financial year to which the invoice pertains or the date of filing of annual return, whichever is earlier. Therefore, the input tax credit of invoices issued in August, 2017, availed in September, 2017 cannot be excluded from the calculation of the refund amount for the month of September, 2017.
Meaning of Inputs further clarified
ITC of the GST paid on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items shall be available to a registered person as long as the same is being used or intended to be used for the purposes of business and there is no specific restriction on the availment of such ITC anywhere else in the GST Act. Moreover, it should be noted that the ITC for such inputs is not restricted under section 17(5) of the CGST Act.
1Rule 90(2) of the CGST Rules, 2017
2Rule 89(5) of the CGST Rules, 2017
3Notification No. 13/2017- Central Tax dated 28.06.2017
4Circular No. 45/19/2018-GST dated 30.05.2018