GST Update on CLARIFICATION ON REFUND RELATED ISSUES

CLARIFICATION ON REFUND RELATED ISSUES
Various amendments have been made by the government by issuing several notifications and circulars on 31st day of December, 2018. In this update, we are discussing Circular No. 79/53/2018-GST dated 31st December, 2018 being issued to describe the change in mode of submission of refund claims and clarifications regarding various other issues.
1. Change in mode of submission of refund claims with jurisdictional proper officer-
• Till now taxpayers were required to file FORM GST RFD – 01A on the portal, generate the ARN and submit the documents physically in the office of jurisdictional officer. A modification has been made and all the documents, undertakings, statements required to be submitted along with the refund claim shall be uploaded on the portal at the time of filing of refund application. Further the invoices where the details are not found in GSTR-2A for the relevant period can as well be uploaded electronically at the time of filing of refund claim. The taxpayers still have the option to physically submit the application to the proper jurisdictional officer.
• The ARN shall be issued after the completion of the above process and acknowledgement shall be issued within 15 days from the date of generation of ARN. But the said acknowledgement or deficiency memo shall be issued manually by the tax officer.

2. Calculation of Refund amount for refund claim on account of inverted duty structure.
• The departmental officers were denying refund of ITC on inputs having equal or lower rate of GST as on Outward supply. But this circular has clarified that refund of unutilized ITC in case of inverted duty structure is available where ITC remains unutilized after setting off available ITC for the payment of output tax liability. Where there are multiple inputs attracting different rates of tax, in the formula provided in rule 89(5) of the CGST Rules, the term “Net ITC‟ covers the ITC availed on all inputs in the relevant period, irrespective of their rate of tax.
• Let’s understand this with the help of an example. Suppose in the manufacture of final Product A (Taxable @ 12%), we use two different inputs say input X (Taxable @ 5%) and input Y (Taxable @ 18%). Product A is sold at Rs. 5,000/- (the output liability shall be Rs. 600[5000*12/100]) and input X is acquired at Rs. 500/- (the credit amount shall be Rs. 25/-[500*5/100]) whereas input Y is purchased for Rs. 3500/- (the credit amount shall be Rs. 630/- [3500*18/100]).
As per Rule 89(5) of the CGST Rules, 2017- Maximum Refund Amount = (Turnover of Inverted Rated Supply of Goods and Services* Net ITC / Adjusted total turnover)- Tax payable on such inverted rated supply of goods and services. This equals to = {5000*(25+630)/5000}-600= Rs. 55 which is the maximum refund amount that is sanctionable.

3. Disbursal of refund amounts after sanction
• This circular advices the tax officers to issue the final sanction orders in FORM GST RFD-06 within 45 days of the date of generation of ARN. Section 56 of the CGST Act states that if any tax ordered to be refunded is not refunded within 60 days of the date of receipt of application, interest at the rate of 6 per cent on the refund amount starting from the date immediately after the expiry of sixty days from the date of receipt of application (ARN) till the date of refund of such tax. Therefore, if the refund is not sanctioned within 60 days then the department is liable to pay tax payers interest @ 6%. Interest will be calculated starting from the date immediately after the expiry of sixty days from the date of receipt of the application till the date on which the amount is credited to the bank account of the claimant.

4. Refund applications that have been generated on the portal but not physically received by jurisdictional tax offices
• Prior to the issue of this circular, many refund applications might have been filed on the portal but not submitted manually to the officers. This circular prescribes the procedure to be followed by the officers in such cases. It states that
a) All refund applications in which the amount claimed is less than the statutory limit of Rs. 1,000/- shall be rejected and the amount re-credited to the electronic credit ledger.
b) Where the refund amount in the application is greater than Rs. 1000/- has been claimed, 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. A communication may be sent to all such claimants on their registered email ids, informing that the application needs to be physical submitted to the jurisdictional tax office within 15 days of the date of the email. The claimant may be further informed that if he/she fails to physically submit the application within 15 days of the date of the email, the application shall be summarily rejected and the debited amount, shall be re-credited to the electronic credit ledger.

6. ITC on invoices of earlier period availed in the subsequent period (say invoice has been raised in August but goods have been received in September, then the credit is claimed in the month of September) is to be taken into consideration for the calculation of refund of unutilized ITC filed for the subsequent month. In this regard circular clarifies that ITC of invoices issued in earlier period availed in subsequent period cannot be excluded from the calculation of the refund amount for the month of subsequent period.

7. This circular clarifies the term “Inputs” for the purpose of claiming refund under GST regime. Tax Authorities do not consider ITC on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items, as part of Net ITC on the grounds that these are not directly consumed in the manufacturing process and therefore, do not qualify as input. It is clarified that ITC of GST paid on inputs shall be available to a person as long as he/she uses or intends to use such inputs for the purposes of his/her business and there is no specific restriction on the availment of such ITC. The GST paid on inward supplies of stores and spares, packing materials etc. shall be available as ITC as long as these inputs are used for the purpose of the business and/or for effecting taxable supplies, including zero-rated supplies, and the ITC for such inputs is not restricted under section 17(5) of the CGST Act.
8. Refund of tax paid on input services and capital goods is not allowed in the case of refund of input tax credit accumulated on account of inverted duty structure.
This is solely for the educational purpose.

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GST Update on CLARIFICATION ON REFUND RELATED ISSUES

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