Issues on ITC refunds in GST

Issues on ITC refunds by CA Jignesh Kansara

While filing for refunds, we get so much issues about the ITC refunds. Following are the some issues in ITC refund by CA Jignesh Kansara:

Issue # 1

Separate Refund Credit from State and Centre

The Refund application for various taxes, i.e., CT/ST/UT/IT/Cess can be filed with Jurisdictional tax authorities and shall be processed by the said authority, however, the payment of the sanctioned refund amount shall be made only by the respective tax authority of the Centre or State Government. In many cases Centre has released 90% of Refund of Central Tax however State is yet to release SGST Refund amount.

Issue
Even after completion of all formalities, Tax payer is not assured of full refund in prescribed time limit.

Issue # 2

Opportunity should be given to cure Deficiency in Refund Application 

CGST Rule 90(3)

Where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03 through the common portal electronically, requiring him to file a fresh refund application after rectification of such deficiencies.

Issue

Once Deficiency Memo is issued, Refund application gets rejected and minimum delay of 22 days ( 7 days + 15 days) will happen in disbursing said Refund.

Issue # 3

No Refund of ITC on Capital Goods

89(4) CGST Rules

In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula –

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover

Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both

Issue: 

Valid ITC of Capital Goods is not eligible for ITC Refund, forcing Tax payer to go for IGST Refund.

Issue # 4

Net ITC Definition / Lack of Carry forward of ITC for Refund. Tax payer is having Input Tax Credit of 50 Lakhs in the month of August, 2017

Assume in August, 2017 , Tax payer has not made any Domestic or Export Supply of Goods / Services.

Issue:

Eligible Refund Amount as per 89(4) Formula : =
0 * 50 Lakhs * 0
= 0

Further When Tax payer has exported Goods / Service in September 2017, GSTIN system only considers September ITC and ignores August ITC of 2017.

Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both

Issue # 5

Assume In Oct 17, there was only One Export Invoice of Services without Payment of IGST and by mistake this was entered as B2C in GSTR-3B.

This error was rectified in GSTR-1.

Issue

Online Refund Application is not allowing to file Refund application for October, as it is linked only with 3B and does not consider GSTR-1

Issue # 6

Tax payer is 100% Exporter. In GSTR-3B of October he has claimed ITC of say 50 Lakhs. Post filing of 3B, he has received few more Invoice of October 2017 having ITC of say 20 Lakhs.

Issue

Assuming Exporter is filing Refund application today, Whether he can file Refund Application of 70 Lakhs?
System will allow to file Refund Claim of 70 Lakhs, as assesse has further credits of November, December , Jan etc and therefore Debit of electronic credit ledger of 70 Lakhs is possible as per Rule 89(3).

While making Refund Application whether Tax payer is required to look at Net ITC available as on day of making application or Net ITC claimed as per GSTR-3B?

Circular No. 26/26/2017-GST dated 29th December 2017

“Company D, while filing their FORM GSTR – 3B for the month of July, inadvertently, misreported Input tax credit of Rs. 1,00,00,000/- as Rs. 10,00,000/-. They had filed their return and paid Rs. 90,00,000/- in cash. What can they do? Since, the return has already been filed, Company D may add such Input tax credit in their return for subsequent month(s). “

Whether Department is following right approach in rejecting Refund application in cases where Refund amount is more than ITC as per GSTR-3B, more particularly when circular 26 allows such post filling adjustment. In our example as per 3B ITC is only 50 Lakhs, whereas as per Refund application Rs. 70 Lakhs.

Assume there was an error in Filing 3B. Continuing same example as per circular, Actual Input Invoice was of Rs. 1 Cr + 18% GST (18 Lakhs), in GSTR-3B it was shown as 10 Lakhs + 18% GST (1.8 Lakhs). Refund application is filed as per wrong Net ITC shown in 3B. While submitting Copy of Invoices with manual application, error of under reporting of ITC was noticed , which of these 2 option is best suited in this case.?

Whether Part Refund is permissible in one month (Oct 17) and part in another month (Jan 18) against same invoice ?

Whether Tax payer should request officials to reject refund application of Oct 17, file fresh Refund application ignoring GST of Rs. 1,80,000 as of now and claim balance ITC of 16,20,000 in January 2018 GSTR-3B and thereafter claim full ITC Refund of 18,00,000 in Refund application of Jan 18?

Issue # 7

Amnesty for LUT Violation

Many Exporters, mainly Exporter of Services have exported Services without submitting LUT.

Whether any Amnesty or circular to grandfather such Export of Services to protect such SMES from vagaries of IGST is under consideration ?

Issue # 8

Many Service Tax payers have not filed Refund application for April to June 2017 and migrated Credit as per last filed Service Tax Return via TRAN-1 in Electronic Credit Ledger.

Issue: 

Refer Circular F.No. 332/6/2016-GST (Policy Wing)Pt.I Dated 15th January, 2018, issued by Ministry of Finance, Department of Revenue, Central Board of Excise & Customs , GST Policy Wing

Certain doubts have been expressed regarding inclusion of the credit flowing into electronic credit ledger through TRAN 1 in “Net ITC”. In this regard, it is clarified that input tax credit which flows on account of transitional provisions is credit availed under the existing law and therefore, cannot be included in the amount of “Net ITC” during the relevant period. You may kindly circulate this clarification amongst the State Govts.

Now whether all such Tax payers will have to file Refund Application under Service Tax?

Further they will be required to Manually Debit Electronic Credit Ledger as and when Refund application under Service Tax is filed. What if their application is subsequently rejected, TRAN-1 facility is already over ?

Any clarification clarifying protection from Interest / Penalty ??

Issue # 9

Definition Export of Goods, does not suggest condition of Realisation of Export Proceeds to qualify as Export of Goods

Definition Export of Services do suggest Pre condition of Realisation of Export Proceeds to qualify as Export of Services.

Even in case of IGST paid Export of Goods , shipping bill is criteria to qualify as export.

Issue: 

Range officials are still asking BRC while submitting Manual Refund Application for Refund ITC in relation to Export of Goods.
Every Range is asking their own set of documents / declaration

Issue # 10

Declaration:

Exporters are required to give a declaration that they have not or will not claim drawback. But they have taken the drawback as the rules allowed them. So exporters wait for the correction in RFD01 declaration else they fear they may be caught for mis- declaration.

Issue # 11

Circular No. 17/17/2017 – GST dated 15th November 2017

2.1 As per sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the IGST Act’) read with clause (i) of subsection (3) and sub- section (6) of section 54 of the CGST Act and rules 89 to 96A of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as ‘the CGST Rules’), a registered person may make zero-rated supplies of goods or services or both on payment of integrated tax and claim refund of the tax so paid, or make zero-rated supplies of goods or services or both under bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilized input tax credit in relation to such zero rated supplies.

Meaning of unutilized input tax credit in relation to such zero rated supplies is not clear. As per Rules Exporter is entitled to Refund of Total unutilized input tax credit

Issue # 12

Section 54(3) r.w. Rule 89(5) and Refund of Inverted Duty.

Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:
• Provided that no refund of unutilised input tax credit shall be allowed in cases other than–

(i) zero rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council

Does this mean in case of Inverted Duty Structure, Input Services are not eligible for Refund.

Issue # 12

Rule 89(5)

In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula –

Maximum Refund Amount = {(Turnover of inverted rated supply of goods) x Net ITC ÷ Adjusted Total Turnover (Goods + Services)} – tax payable on such inverted rated supply of goods

Issue # 13

Notification 40/2017 Central Tax (Rate) dated 23rd October 2017 – Procedural issues

– Supplier should obtain a copy of the shipping bill of the exporter – Confidentiality ??

– Intimation to jurisdictional AO before dispatching the said goods – Merchant Exporters export on daily basis. Day to day Communication

– Responsibility of the supplier to make sure that the export take place from the same warehouse within 90 days after the delivery is completed

Issue # 14

Notification 40/2017 Central Tax (Rate) dated 23rd October 2017 – Interpretation issues

In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereafter in this notification referred to as “the said Act”), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of taxable goods (hereafter in this notification referred to as “the said goods”) by a registered supplier to a registered recipient for export, from so much of the central tax leviable thereon under section 9 of the said Act, as is in excess of the amount calculated at the rate of 0.05 per cent., subject to fulfilment of the following conditions, namely

Issue: 

Some Vendors fears 17(2) will be applicable as there is partial rate exemption and therefore they
will have to reverse their ITC . Suitable clarification from CBEC will put such issues to rest.