Refund of GST – Section 54 of GST

The GST regime in India allows businesses and individuals to claim refunds under specific conditions. Section 54 of the CGST Act, 2017, lays down the provisions regarding the refund of tax, interest, and other amounts paid under GST.

Who Can Claim a Refund?

Under Section 54, the following entities are eligible to claim refunds:

1. Registered taxpayers – Individuals or businesses that have paid excess tax, either due to an error or an accumulation of input tax credit (ITC).

2. Specialized Agencies – Agencies like the United Nations, embassies, and multilateral financial institutions, as notified under Section 55, can claim refunds on inward supplies of goods and services.

3. Exporters – Businesses involved in zero-rated supplies (exports or supplies to SEZs) are eligible for refunds.

4. Other Specified Persons – Entities facing a tax reversal due to court orders or excess tax payments.

Time Limit for Claiming Refund

An application for a refund must be filed before the expiry of two years from the relevant date, which varies based on the nature of the transaction:

• Exports: The date when the goods leave India or when payment is received for services.

• Deemed Exports: The date of filing the return.

• Tax Paid by Mistake: The date of tax payment.

• Judgment-based Refunds: The date of the order, decree, or ruling.

Types of Refunds Under GST

1. Refund of Unutilized ITC

A taxpayer can claim a refund of accumulated input tax credit (ITC) in two cases:

• Zero-rated supplies made without payment of tax.

• Inverted duty structure where the tax rate on inputs is higher than the tax rate on outputs.

2. Refund of Excess Tax Paid

If a taxpayer pays more tax than required, they can claim a refund. However, a refund is not available if the supplier has availed of a drawback or claimed an IGST refund.

3. Refund on Account of Exports

Exporters who have paid IGST can claim a refund of the tax paid or apply for a refund of accumulated ITC.

4. Refund Due to Non-Supply

A refund can be claimed for a transaction where tax was paid, but the supply was either not made or was partially canceled, and a refund voucher has been issued.

Process for Claiming Refund

The application for a refund must be submitted in the prescribed form and manner, accompanied by relevant documents to substantiate the claim.

• If the refund amount is below INR 2,00,000, a declaration is sufficient.

• For claims exceeding INR 2,00,000, documentary evidence must be provided.

• Refunds are generally processed within 60 days from the date of application submission.

Provisional Refunds for Exporters

To provide relief to exporters, 90% of the total refund amount is granted on a provisional basis before the final verification process.

Cases Where Refunds Can Be Withheld

The proper officer may withhold a refund in the following cases:

• If the taxpayer has outstanding returns or unpaid taxes, interest, or penalties.

• If an appeal is pending and granting a refund could adversely impact revenue.

• If fraudulent activities or malpractices are suspected.

Minimum Refund Threshold

No refund is processed if the amount is less than INR 1,000.

Recent Amendments and Notifications

Several amendments and notifications have modified Section 54 provisions. For instance:

• Notification No. 13/2022 – CT (05.07.2022) introduced changes effective from 01.03.2020.

• Notification No. 18/2022 – CT (28.09.2022) modified the refund claim form and manner.

• Notification No. 28/2023 – CT (31.07.2023) omitted certain provisions related to refund claims.

Conclusion

Understanding Section 54 of the CGST Act is crucial for businesses to optimize tax compliance and ensure timely refunds. By keeping track of eligibility criteria, documentation requirements, and deadlines, businesses can efficiently manage their GST refunds and improve cash flow.