GST Refunds: Navigating Practical Challenges and Relevant Case Laws

GST Refunds: Navigating Practical Challenges and Relevant Case Laws

The input tax credit (ITC) system under the Goods and Services Tax (GST) regime is a significant advantage for businesses, as it enables them to claim credit for taxes paid on purchases made for business purposes. Timely refunds of taxes paid are crucial for businesses to ensure the effective functioning of the ITC system. This article will cover different situations where businesses can claim GST refunds and the corresponding legal cases.

Scenario 1: Exports

Under the GST regime, exports are considered as zero-rated supplies, which means that no tax is payable on exports. However, in order to facilitate exports, businesses are allowed to claim refunds of the taxes paid on inputs used for the purpose of exports. The following are some scenarios where GST refunds may be applicable under exports:

Scenario 2: Inverted Duty Structure

In some cases, businesses may end up paying more tax on inputs than on the output, which is known as an inverted duty structure. In such cases, taxpayers may end up paying more input tax than the output tax, resulting in accumulation of unutilized input tax credit (ITC).

Amended formula under CGST Rule 89(5) via Central Tax notification no: 14/2022 for the calculation of refund of accumulated ITC under inverted duty structure is applicable for refund applications filed on or after 5th July 2022. Hence, the refund applications filed before 5th July 2022 shall be processed with the earlier formula. 

Amended Formula Earlier Formula
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} – {tax payable on such inverted rated supply of goods and services x (Net ITC ÷ ITC availed on inputs and input services) Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services.

Scenario 3 : Refund Of Excess Tax Payment

Taxpayers may sometimes end up paying more GST than they are required to. This could happen due to various reasons, such as incorrect calculation of tax liability, mistaken interpretation of the law, or technical glitches in the GST portal. In such cases, taxpayers are entitled to claim a refund of the excess tax paid.

M/s. Maruti Suzuki India Ltd. v. Union of India (2021): In this case, the petitioner had claimed refund of excess GST paid on account of mistake in calculation. The authorities rejected the refund claim on the ground that the petitioner had not provided sufficient evidence to prove the excess payment. The Punjab and Haryana High Court held that the authorities cannot reject the refund claim on technical grounds and directed the authorities to consider the refund claim on its merits.

Process For Claiming GST Refunds

Under the GST regime, businesses can claim refunds for taxes paid on inputs used for the purpose of business. The process for claiming a refund is as follows:

Challenges In Claiming GST Refunds

While the process for claiming GST refunds may seem simple, businesses face several challenges in doing so. Some of these challenges are:

Conclusion

Refunds of the Goods and Services Tax (GST) are essential to the financial flow of businesses, particularly small and medium-sized enterprises (SMEs). Although claiming a refund may appear to be a straightforward process, businesses face numerous obstacles when doing so. By comprehending the various circumstances under which GST refunds can be claimed and the applicable case laws, businesses can ensure that their refund claims are accurate and submitted on time.

In general, claiming a GST refund can be a difficult procedure for businesses. To surmount these obstacles, businesses must have a comprehensive comprehension of the GST refund procedure, eligibility criteria, and required documentation. It is essential for businesses to monitor their reimbursement claims and contact the GST authorities if there are any delays in the processing of their refund requests. By doing so, businesses can ensure prompt and efficient receipt of their refunds.

Written By
Picture of Pankaj Ghosal

Pankaj Ghosal

Experienced Chartered Accountant with a demonstrated history of working in the financial accounting industry. Skilled in Internal Audit, Accounting and GST compliance and litigation matters. Strong finance professional graduated from The Institute of Chartered Accountants of India.

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