GST UPDATE ON REFUND OF ADVANCE

GST UPDATE ON REFUND OF ADVANCE

Business has received advance payment for 1 year service and accordingly invoice has been raised. Later in middle consumer stated that he doesn’t require service of us and accordingly request for refund which shall be provided to him for part period. In such cases following shall be the impact under GST regime:
Advances received from customer are liable to GST at the time of receipt of advance. Further, advance voucher is liable to be issued at the time of receipt of advance. Say, advance of Rs. 12 lakhs was received in context of services to be provided for one financial year. Suppose, we paid the tax of Rs. 216000/- on receipt of advance and receipt voucher of this amount was also issued.
Suppose the contract gets cancelled after six months. Therefore, an amount of Rs. 6 lakhs is liable to be paid back to the buyer and tax of Rs. 108000/- comes excess paid due to cancellation of contract. At the time of cancellation of contract, we are required to issue a refund voucher as well as the credit note to the recipient. In the month of cancellation, the tax amount of Rs. 108000/- which is excess paid is eligible to be adjusted by showing in the return filed for that tax period.

Earlier, in service tax regime, refund was allowed on payment of Service Tax on advance receipts against which service is not provided later under Rule 6(3) of Service Tax Rules, 1994. The said rule states that where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason, [or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract], the assessee may take the credit of such excess service tax paid by him, if the assessee.-
(a) has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or]
(b) has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.

In this case upon cancellation of contract, the complete amount received in advance will be refunded to the buyer. Thus, provisions of Rule 6(3) squarely apply in our case and service tax portion on the amount so admissible will be refunded to us.

Further, as per section 142(5) of the CGST Act, 2017 “Every claim filed by a person after the appointed day for refund of tax paid under the existing law in respect of services not provided shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944.”
In view of above, if the service tax was paid on the advance and contract is cancelled in GST regime, we shall be eligible to claim its refund.

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Your Need Our Concern…
Thanking you,
Regards,

Pradeep Jain, F.C.A.

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GST UPDATE ON REFUND OF ADVANCE

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