GST UPDATE No. 107 ON REFUND OF TAX PAID UNDER WRONG HEAD

GST Law was introduced with the motto of simple and easy tax reform but the number of heads of tax such as CGST, SGST, IGST and the complexity in interpretation of Place of Supply provisions often lead to payment of taxes under wrong head, either on account of clerical mistake or due to wrong application of place of supply provisions. Although, section 77 of the CGST Act, 2017 provides relief to the assessee in terms of refund of wrongly paid tax and waiver of interest for short payment of tax in correct head but the ground reality is that it is not easy to claim refund from the government. The refund claims of wrongly paid tax were being denied by interpreting the provision contained in section 77 as only available when the tax payment under wrong head is determined by the revenue authorities. Similar issue came up for consideration before the Hon’ble Chhattisgarh High Court in the case of M/S RADHEMANI AND SONS [W.P. NO. 213 OF 2021]. The outcome of this decision is the subject matter of discussion of our present update. The petitioner filed a refund claim on account of “Excess payment of IGST in February, 2018 in GSTR 3B Return” for the period February, 2018 in RFD-01 to which the department issued a show cause notice proposing to reject the claim. The petitioner failed to reply within the stipulated time which resulted into rejection of refund claim by the department. Aggrieved by this, petitioner filed appeal before Commissioner (Appeals) who rejected the appeal on the basis of wrong interpretation of provisions of Section 77 of CGST Act, 2017 by holding that the term “subsequently held” in the provision implied determination by revenue authorities and refund claim cannot be granted when the mistake is noticed by the assessee themselves. Hence, the present petition has been preferred before the High Court. The hon’ble High Court placed reliance on the recent circular no. 162/18/2021GST dated 25th September 2021 analysing the phrase “subsequently held” in the section 77 of the CGST Act, 2017. The Board interpreted and held that the word used in aforementioned sections covers both the cases where inter-state or intra-state supply, is subsequently found to be intra-state or inter-state respectively and vice-versa, by either the taxpayer himself or the revenue authorities during the process of scrutiny, audit, investigation etc. Hence, in view of the clear cut clarification issued by the CBIC which is favourable to the assessee, the petition was allowed by way of remand directing the revenue authorities to examine the claim of the petitioner in light of the clarification relied upon. It is pertinent to mention that that time limit for claiming the refund amount has also been clarified in the said circular. It is stated that the time limit for claiming refund of tax paid under wrong head shall be period of 2 years from the date of payment of tax under correct head according to amendment made in Rule 89 of the CGST Rules, 2017 vide Notification no. 35/2021-Central Tax dated 24.09.2021. Moreover, in case assessee has made payment in the correct head before the date of issuance of notification No. 35/2021Central Tax dated 24.09.2021, period of 2 years shall be calculated from date of issuance of said notification i.e. 24.09.2021. The clarification issued in the context of refund of tax paid under wrong head is highly beneficial to the assessees as it not only states that the refund can be claimed irrespective of the fact as to who discovered the mistake in payment of tax under wrong head but also ensures that the assessee is not denied refund claim on account of restriction of time limit specified for filing refund claim. The extended period to file refund claim from the date of notification amending Rule 89 is appreciable as practically the mistake in payment of taxes under wrong head can be discovered at a very late date and so the time limit of 2 years for claiming refund should commence from the date of payment of tax under correct head rather than original date of payment of tax under wrong head. The decision rendered by High Court is extension of the clarification issued by CBIC.

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GST UPDATE No. 107 ON REFUND OF TAX PAID UNDER WRONG HEAD

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