GST UPDATE NO. 90TH ON REFUND OF TAX FOR NON-REALISATION FROM RECIPIENT

The ultimate burden of taxes is to be borne by the service recipient in case of indirect taxation laws. There is provision to reverse credit availed by the recipient if payment has not been made to the supplier within a period of 180 days. However, recently, an interesting case was reported wherein the hon’ble Orissa High Court allowed refund of excess taxes paid by the service provider on the grounds that the recipient became bankrupt and the service provider would receive only portion of the amount due from recipient. In the present update, we are discussing the latest judgement pronounced by Hon’ble Orissa High Court in the case of M/S JAGAT JANANI SERVICES where the refund of excess service tax paid was allowed. In the instant case, the petitioner was in the CIRP process under insolvency and bankruptcyproceedings and was entitled to receive a certain sum against the service tax amount. The petitioner has contended that the service receiver has earlier claimed the ITC on the service tax paid by him and has rightfully reversed the same in the ITC ledger maintained by the service receiver. It was also contended that the refund is rightfully eligible to them as there was reduction in outstanding amount from January 2017-December 2017 where the petitioner has paid the service tax liability on the same. Hence the petitioners claim refund of service tax on the reduction of amount receivable from their insolvent recipient. The hon’ble High Court held that since the petitioner is entitled to receive only 20.5% of the admitted claim amount under the IBC, the excess service tax paid by the petitioner is to be refunded back tothem. The above decision is extremely favourable to the assessee as there are situations wherein service tax has been paid but the amount of consideration is not being realised from the service recipient because service tax is to be paid on accrual basis. In such cases, although as per law, the incidence of service tax is to be borne by the service recipient, the said service tax is borne by the service provider as it is being paid by service provider from his own pocket. In such situation, this decision will come to the rescue of the service provider. It is worth mentioning that similar situation arises when recipient is required to reverse input tax credit for non-payment to supplier within a period of 180 days from the date of invoice. Hence, refund should be granted in such cases also by placing reliance on the decision given by the Hon’ble Orissa High Court. One may also ponder upon other situations where tax has been paid by the supplier but recipient is not willing to avail the services infuture. For example, what happens if a supplier receives an advance payment for a service contract for which the supplier has raised an invoice and paid GST but subsequently no service is provided? Whether supplier should claim refund of tax paid or adjust his tax liability in his returns? The CBIC clarifies that in such a situation, the supplier is required to issue a credit note and declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability will be adjusted in the subsequent return and there is no need to file a separate refund claim. However, if there is no output liability against which a credit note can be adjusted, supplier may file a claim under "Excess payment of tax, if any" through Form GST RFD-01.

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GST UPDATE NO. 90TH ON REFUND OF TAX FOR NON-REALISATION FROM RECIPIENT

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