Sign In

Browse By

Bar on refund of ITC not reflecting in 2A: Is it ultra vires ?

 ITC not reflecting in 2A , No refund as per Circular 135/05/2020

Refunds in GST went through a lot of amendments. Kept playing with the online and offline stuff. Many of the issues were settled.  Circular No.135/05/2020 – GST tried to sum up the things. But while simplifying it raised a new bar on the refund. In case of a refund of input tax credit condition of reflection in 2A was inserted. The insertion of Rule 36A was quoted as a reason for this restriction.

Thus now while filing the refund of ITC, if the invoice is skipped by the supplier. You will lose the refund. Let me explain with an example. 

Mr. B is an exporter of clarified butter. He purchased the following items from Mr. X. The value of the items was Rs. 10 lac with ITC of Rs. 180000. Now Mr. X skipped their invoices from GST return but paid the tax on full turnover. As per the circular Mr. B will not be eligible to get the refund of this amount of Rs. 1,80,000.

Why it may be ultra vires of CGST Act

Section 54 of the CGST Act and section 16 of the IGST Act. They are two major provisions covering the refunds in case of zero-rated supply. Now in case of a refund of ITC for zero-rated supply, there is no bar on it’s reflection in 2A. Even if I go to section 16of CGST Act. It talks about the payment of tax by supplier and filing of return by the recipient. Once I fulfill all the conditions of section 16 of the CGST Act, I am eligible for a refund(if it is not  17(5) restricted). Now CBIC via circular put an additional restriction of reflecting tat amount on 2A. In the case of Pitambra Books, it is held by honorable Delhi high court that a right is given via Law, cant be curtailed down by a circular. The same case is even referred by CBIC in the same circular also. 

Will it sustain as a provision? Past precedence

Let us discuss two important cases on this issue. The honorable court already quashed this kind of provision in earlier taxation laws.

On quest Merchandising Pvt Ltd. Vs. Govt of NCT of Delhi:

There were some provisions in the VAT law on the same lines. In the case of On quest Merchandising Pvt Ltd. Vs Govt of NCT of Delhi. The same type of provision under the VAT Act was set aside by the honorable court.

M/S Gheru Lal Bal Chand vs The State Of Haryana And Another (2011)

“Para 33: To conclude, no liability can be fastened on the purchasing registered dealer on account of non-payment of tax by the selling registered dealer in the treasury unless it is fraudulent, or collusion or connivance with the registered selling dealer or its predecessors with the purchasing registered dealer is established.”

Now some open questions:

  • The rule that is base on this restriction is disputed in itself. It is under litigation for being ultra vires. It is a firm belief that it will be set aside. There is no authority under the CGST Act to put a restriction on ITC which is not there in Law itself. The Act provides for some restrictions. Once we fulfill all those conditions the ITC shall be allowed. Many practical issues are also there.
  • The input tax credit in 2A may get reflected in the future. What will be the case in that situation? In the formula of refund for the input tax credit. We need to consider the ITC availed during the period. Here the period means the relevant period for which I am filing a refund. But when the ITC of say March is reflected after June. I may have already been filed a refund of that month. Whether I will be eligible to amend that refund or file an additional refund amount for the same period. Also, I availed the input tax credit via GSTR 3b in March month but it is reflected now. Whether it will be covered by the refund of March month or June month. the provisions talk only about the restriction of refund of the ITC not reflecting in 2A. But it is silent about its refund in future when it will get reflected. 
  • Now because that refund was pending, But I was unable to include it in the refund of the month to which it belongs. Will I be eligible for the interest for the period of pendency? Provisions make me eligible for the interest-only when I file a refund application and the amount is pending after that for a specified period. In this case, my refund is pending. I don’t have sure to get it in the future. I am also not eligible for any interest on this refund. 


  • Nowadays GST refund is slow and the taxpayer is already suffering. once I file the refund application there is. a time limit to respond to the department. But there is no provision of deemed acceptance of refund application in case the concerned office doesn’t reply for the refund application within the prescribed time limit. this results in the dragging of filing. My claim is final and I get an acknowledgment only when after the Deficiency memo he finalizes it. This is only the acceptance of refund application. Processing and grant of actual refund is a different area. This may end up in getting my right to refund getting time-barred by the Law. What is the remedy for that?

In my humble view, this provision will not sustain the floor of Courts. CBIC should take an acknowledgment of all these issues and rectify it. 

Pls share the issues you are facing in GST refunds. Let us make a voice.



Profile photo of CA Shafaly Girdharwal CA Shafaly Girdharwal


New Delhi, India

CA Shaifaly Girdharwal is a GST consultant, Author, Trainer and a famous You tuber. She has taken many seminars on various topics of GST. She is Partner at Ashu Dalmia & Associates and heading the Indirect Tax department. She has authored a book on GST published by Taxmann.

Discuss Now
Opinions & information presented by ConsultEase Members are their own.