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Article Dated 26th March, 2024

Untangling the Knots: A Closer Look at GST Refund Issues


The Goods and Services Tax (GST) system has revolutionized taxation in India, streamlining processes and enhancing transparency. However, when it comes to GST refunds, complexities often arise, leaving businesses and taxpayers perplexed. In this article, we delve into the labyrinth of GST refund issues, exploring unexpected hurdles and common pitfalls. Whether it’s delayed refunds, mismatched data, or procedural bottlenecks, we dissect the intricacies and provide insights to help you navigate the refund landscape effectively.

ISSUE 1: Bunching of refund claims across Financial Years

Vide para 8 of the Circular No. 125/44/2019-GST dated 18.11.2019, the following was contended-

“The applicant, at his option, may file a refund claim for a Tax period or by clubbing successive Tax periods. The period for which refund claim has been filed, however, cannot spread across different financial years. Registered persons having Aggregate turnover of up to Rs. 1.5 crore in the preceding financial year or the current financial year opting to file FORM GSTR-1 on quarterly basis, can only apply for refund on a quarterly basis or clubbing successive quarters as aforesaid. However, refund claims under categories listed at (a), (c) and (e) in para 3 above must be filed by the applicant chronologically. This means that an applicant, after submitting a refund application under any of these categories for a certain period, shall not be subsequently allowed to file a refund claim under the same category for any previous period. This principle / limitation, however, shall not apply in cases where a fresh application is being filed pursuant to a deficiency memo having been issued earlier.”

Hon’ble Delhi High Court in Order dated 21.01.2020 [2020] 20 TAXLOK.COM 064 (Delhi), in the case of M/s Pitambra Books Pvt Ltd., vide para 13 of the said order has stayed the rigour of paragraph 8 of Circular No. 125/44/2019-GST dated 18.11.2019 and has also directed the Government to either open the online portal so as to enable the petitioner to file the tax refund electronically, or to accept the same manually within 4 weeks from the Order. Hon’ble Delhi High Court vide para 12 of the aforesaid Order has observed that the Circulars can supplant but not supplement the law. Circulars might mitigate rigours of law by granting administrative relief beyond relevant provisions of the statute, however, Central Government is not empowered to withdraw benefits or impose stricter conditions than postulated by the law.

Further, same issue has been raised in various other representations also, especially those received from the merchant exporters wherein merchant exporters have received the supplies of goods in the last quarter of a Financial Year and have made exports in the next Financial Year i.e. from April onwards. The restriction imposed vide para 8 of the master refund circular prohibits the refund of ITC accrued in such cases as well.

On perusal of the provisions under sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 and sub-section (3) of section 54 of the CGST Act, there appears no bar in claiming refund by clubbing different months across successive Financial Years.

The issue was examined and it has been decided to remove the restriction on clubbing of Tax periods across Financial Years. Accordingly, circular No. 125/44/2019-GST dated 18.11.2019 stands modified to that extent i.e. the restriction on bunching of refund claims across financial years shall not apply.

ISSUE 2: Refund of accumulated Input tax credit (ITC) on account of reduction in GST Rate

It has been brought to the notice of the Board that some of the applicants are seeking refund of unutilized ITC on account of inverted duty structure where the inversion is due to change in the GST rate on the same goods. This can be explained through an illustration. An applicant trading in goods has purchased, say goods “X” attracting 18% GST. However, subsequently, the rate of GST on “X” has been reduced to, say 12%. It is being claimed that accumulation of ITC in such a case is also covered as accumulation on account of inverted duty structure and such applicants have sought refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act.

It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

However, in a significant ruling, the Kerala High Court, in the case of M/s. Malabar Fuel Corporation, has acknowledged the right of the assessee to claim a refund under the Inverted Duty Structure, even when facing identical inward and outward supplies. The Hon’ble Kerala High Court in the case of M/s. Malabar Fuel Corporation v. Assistant Commissioner Central Tax & Central Excise [WP (C) No. 26112 of 2023 dated January 11, 2024] [2024] 68 TAXLOK.COM 128 (Kerala) allowed the writ petition and held that, Assessee is entitled to claim refund under Inverted Duty Structure even in case of same inward and outward supplies.

Issue 3: Applicability of limitation period on refund application filed post receipt of deficiency memo in original refund application filed within time-

An Application Reference Number (ARN) will be generated only after the applicant has completed the process of filing the refund application in FORM GST RFD-01, and has completed uploading of all the supporting documents/ undertaking/statements/invoices and, where required, the amount has been debited from the electronic credit/cash ledger.

As soon as the ARN is generated, the refund application along with all the supporting documents shall be transferred electronically to the jurisdictional Proper officer who shall be able to view it on the system. The application shall be deemed to have been filed under sub-rule (2) of rule 90 of the CGST Rules on the date of generation of the said ARN and the time limit of 15 days to issue an acknowledgement or a deficiency memo, as the case may be, shall be counted from the said date. This will obviate the need for an applicant to visit the jurisdictional tax office for the submission of the refund application and /or any of the supporting documents. Accordingly, the acknowledgement for the complete application (FORM GST RFD-02) or deficiency memo (FORM GST RFD-03), as the case may be, would be issued electronically by the jurisdictional tax officer based on the documents so received from the common

If a refund application is electronically transmitted to the wrong jurisdictional officer, he/she shall reassign it to the correct jurisdictional officer electronically as soon as possible, but not later than three working days, from the date of generation of the ARN. Deficiency memos shall not be issued in such cases merely on the ground that the applications were received electronically in the wrong jurisdiction.

Now the question that arises is weather the limitation period of two years are applicable for filing of refund application would also apply to a subsequent application filed after the completion of the period of two years when the initial refund application for which deficiency memo was issued was filed within the period of limitation. This question also came up before the Hon’ble HIGH COURT OF DELHI in case of National Internet Exchange of India Vs Union of India & Ors.

The Delhi High Court, considering all aspects, concluded that GST refund cannot be denied on the limitation ground if the application for refund is filed within time and in the prescribed manner, even if there are deficiencies in the submission. This judgment has set a precedent for all GST refund claims, emphasizing the importance of timely and proper filing, and ensuring that taxpayers are not unfairly penalized for deficiencies that can be rectified. It underscores the need for a just and streamlined process in the implementation of tax laws.

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at

CA Pranay Jain
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