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GST Refund calculations and associated critical Issues

GST Refund calculations and the related concepts

Refund is defined under Section 54

Explanation 1 to Section 54

“Refund” includes refund of:

[1. Refund of excess balance in the electronic ledger [Section 49(6)]

[2. Refund of excess payment of tax]

[3. Refund of tax paid on an intra-state supply which is subsequently held to be inter-state supply and vice-versa (Section 77)]

[4. Refund on account of assessment/ provisional assessment/ appeal/ any other order]

As per Section 54(8) and Circular 125/44/2019

Of tax paid on Zero-rated supplies of Goods or services or both or on inputs or input services used in making such supplies or refund of tax on the supply of goods (deemed exports) or refund of the unutilized input tax credit as provided under sub-section (3)

Section 54(3) subject to the provisions of sub-section (10), a registered person may claim a refund of any unutilized input tax credit at the end of any tax period.  

Section 2(106) “tax period” means the period for which the return is required to be furnished.  
Communication between GST Buyers and Suppliers on the GST portal

Provisions of sub-section (10) – In case of exports the period of 2 years is to be checked from relevant date individually and when the 2 or more relevant dates fall under same tax period then the relevant date from latter should be considered, as there can be a single application for a tax period. As per Law applicant can file a refund application at the end of the tax period only, and the situation is beyond his control. But in this artificial bunching should be avoided to extend the period of limitation and the minimum tax period for which refund can be applied should be considered.  

Provided that no refund of the unutilized input tax credit shall be allowed in cases other than:-
(a) Zero-rated supplies made without payment of tax;
(b) 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 recommendation of the council.  

Provided further that no refund of the unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty.  
Rule 36(4) Adjustment of Total Shortfall of Input Tax Credit

Provided also that no refund of the input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.  
Para 40 of circular 125/44/2019

Notification 15/2017 – Refund is a statutory right. This notification is not applicable to IDS refund.

Refund debarred only on construction service. Refund as per Notification 15/2017 is not barred on Schedule II 5(b) deals with the construction and 6(a) deals with the works contract

GST Refund coverage under GST

ACTSection 54 to 58 Chapter XI
RulesRule 89 to 97A and Forms RFD-01 to RFD-11
Notification and Circulars MASTER CIRCULARSCircular 125/2019
Circular 135/2020
Circular 137/2020
OTHER RELEVANT CIRCULARSCircular No. 17/17/2017 – GST Dated 15.11.2017
Circular No. 24/24/2017 – GST Dated 21.12.2017
Circular No. 37/11/2017 – GST Dated 15.03.2018
Circular No. 45/19/2018 – GST Dated 30.05.2018
Circular No. 59/33/2018 – GST Dated 04.09.2018
Circular No. 70/44/2018 – GST Dated 26.10.2018
Circular No. 79/53/2018 – GST Dated 31.12.2018 Circular No. 94/13/2019 – GST Dated 28.03.2019

Critical Issues with the Case study

Jian International versus Commissioner of Delhi Goods and Services Tax

Facts of the case  

Petitioner stated that in accordance with Section 54(6) read with Rule 91 of CGST Rules 2017, PO was required to refund at least 90% of the refund claimed on account of Zero rated supply of goods or services or both made by registered persons within 7 days from the date of acknowledgment issued under Rule 90.

He stated that despite the period of 15 days from the date of filing of the refund application has expired, the respondent has till that date neither pointed out any deficiency in Form GST RFD-03 nor it had issued any acknowledgment in Form GST RFD-02.

All about Reverse Charge Mechanism – RCM under GST

HC found that Rule 90 and 91 of the CGST rules provide a complete code with regard to acknowledgment, scrutiny, and grand of refund. The said rules also provide a strict timeline for carrying out the aforesaid activities.

Rule 90 states that within 15 days from the date of filing the refund application, the respondent has to either point out a discrepancy in Form GST RFD-03 or acknowledge the refund application in Form GST RFD-02.  

Till the date of the court hearing, the petitioner’s refund application has not been processed, also neither any acknowledgment in Form GST RFD-02 had been issued nor any deficiency memo had been issued in RFD-03 within 15 days.  
Non-Transmission of Export Invoices, IGST Refund got stuck due to SB errors

If the refund is rejected without giving SCN, due to technical glitches, or without providing a deficiency memo, the said order will not hold well.

Notification 13/2017 CT & 6/2017 IT [Section 56 – Interest on delayed refunds]


ParticularsAmount (Rs.)CGSTSGST
Actual Sales with output liability of Rs.5,000/-1,00,0002,5002,500
Sales entered in GSTR-3B and wrongly paid Rs.10,000 instead of Rs.5,000/-1,00,0005,0005,000

Output liability paid

Output LiabilityCGSTSGST
Credit balance available35003500
Paid through cash15001500
Total GST paid50005000

What is Courier Shipping Bill–V (CSB-V)

New Law

Total GST liability of Rs.10,000 was paid in the ratio of 70%/30% i.e., 70% from the credit ledger and 30% from the cash ledger.

Refund will be credited to the same basket from where tax has been utilized in the ratio of the payment.

Excess paid of Rs.5000/- will be credited to:

  • 70% of such amount i.e., 3500 in to the credit ledger through PMT-03
  • 30% of such amount i.e., 1500 in to cash via GST RFD-06.

Circular 135/05/2020

Refund of accumulated input tax credit (ITC) on account of reduction in GST rates on the same goods.

Let’s understand with an illustration

An applicant trading in goods has purchased, say goods “ABC” that attract GST 18%. However, subsequently, through any notification, the rate of the said goods 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 a refund of accumulated ITC under clause (ii) of Section 54(3) of the CGST Act.

IT may be noted that the refund of accumulated ITC in terms clause (ii) of Sec 54(3) is available where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies.

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 Sec 54(3).

It is clarified that the refund of accumulated ITC under clause (ii) of Sec 54(3) would not be applicable in cases where the input and the output supplies are the same.

Maximum refund amount calculation – Rule 89(5)

Maximum refund amount = Turnover of inverted duty structure multiplied by Net ITC divided by Adjusted total turnover minus tax payable on such inverted rate of supply

Adjusted Total Turnover

AddTurnover in the state as per Sec 2(112)
LessTurnover of services
Addturnover of zero-rated services in terms of clause (d) and non-zero rated
Lessexempt supplies (as it has already been added in Sec 2(112) since it does not belong to the ITC
LessTurnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both.


Input tax credit on inputsRs.18,000/-
Total TurnoverRs.1,00,000/-
Tax on turnoverRs.5,000/-
Total output liabilityPaid through ITC available
Credit balanceRs.13,000/-
Maximum refund amount[(100000×18000)/100000]-5000 =Rs.13000/-

Para 37 of Circular 125 – Amount of Refund to be allowed:

Least of the following
Maximum refund amount as per the formula (consolidated for all heads)The balance in the electronic credit ledger at the end of the tax period for which the refund claim is being filed. The balance in the electronic credit ledger at the time of filing the refund application.
After calculating the least of the 3 amounts, the amount is divided into heads as per the following sequence
IGST to the extent of balance available CGST/SGST/UTGST equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger, the differential amount is to be debited from the other electronic credit ledger.

Refund amount calculation (Para 54 of Circular 125)

Input AInput BOutput Y
GST Rate 5%GST Rate 18%GST Rate 12%
Purchase = 500 Input = 25Purchase = 2000 Input = 360Sale = 3000 Output = 360

Total Output liability of Rs.360/- will be paid through ITC available of Rs.385/- (360+25). Whatsoever be the GST rate (5/12/18/28), irrespective of the GST Rates ITC amount to be consolidated. No one can deny on the ground of lower rate of tax available to the taxpayer. Hence, the balance available in the credit ledger would be Rs.25/-

Maximum refund amount = [(3000*385)/3000]-360 = Rs.25/-

Note: If Input B is for the Service, then it would not have been the case of an inverted duty structure.

Note2: While calculating the maximum amount of ITC, the ITC of Trading activity is to be included in case of mixed turnover i.e., from manufacturing and trading activity.

Can two GST refund applications be made for the same tax period?

Yes, provided they are applied under different categories. For say Refund of cash balance and refund on account of exports.



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