PROVISIONAL REFUND IN DRAFT RULES FOR REFUND

GST Update 28.09.2016

GST DAILY DOSE OF UPDATION:-

PROVISIONAL REFUND IN DRAFT RULES FOR REFUND:- The Draft Rules for Refund were placed in public domain on 27.09.2016 for suggestions by 28.09.2016. The time frame given for studying and reviewing the Draft Rules is very short and reflects the determined attitude of government to implement GST by April, 2017. The provision as regards grant of provisional refund under section 38(4A) of the Model GST Law appeared to be lucrative but the Draft Rules tend to dilute the intention of the provision. It is provided in section 38(4A) that in case of refund claim pertaining to export of goods/services, refund of eighty per cent of the total amount so claimed may be granted by proper officer subject to conditions, limitations and safeguards as may be prescribed. The intention of the provision is to enable speedy disbursal of refund claims to exporters so that they working capital is not adversely effected. However, the Draft Refund Rules have come up with three conditions for grant of provisional refund as follows:-

(a)              the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an earlier law where the amount of tax evaded exceeds two hundred and fifty lakh rupees;

(b)             the GST compliance rating of the applicant is not less than five on a scale of ten;

(c)              no proceeding of any appeal, review or revision is pending on any of the issues which form the basis of the refund and if pending, the same has not been stayed by the appropriate authority or court.

It is observed from the above cited conditions that there will be a mechanism of compliance rating in GST regime. The assessees will be rated for their compliance on the scale of ten and applicant having rating less than five will not be eligible to claim 80% refund on provisional basis. Nonetheless, 80% refund on provisional basis will not be given if the issue pertaining to refund is pending in any appeal, review or revision and the same has not been stayed by appropriate authority or court. It is worth noting that generally, refund claims are filed on regular basis and the condition no. (c) has the effect that if the issue is pending in any judicial forum, refund on provisional basis shall not be granted. To illustrate, recently, refund of service tax under notification no. 41/2012-ST dated 20.06.2012 to exporters was being largely disputed as the language stated that refund is admissible for specified services availed beyond place of removal. As in case of exports, place of removal is port of export, refund of various services availed upto port of export was being denied and was pending in appeals at various forums. In such situations, the claimant will not get provisional refund. Such a condition is against the intention of the government to provide speedy refund claims to the exporters. Moreover, it is pertinent to note that now the facility of stay by appellate authority has been dispensed with and concept of mandatory pre-deposit has been introduced. As such, there can only be stay by High Court and the condition no. (c) will also be a big hurdle in claiming provisional refund by assessees.

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GST Update 28.09.2016

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