Comparative analysis of refund of tax in revised GST law

1. Earlier old GST Law, the limitation of two years for filing refund claim was not applicable for amount paid under protest. This provision has been deleted in the revised GST Law thereby meaning that there will be no mechanism for paying tax under protest.

2. A new provision for refund of tax by specialised agency of United Nations Organisation or any Multilateral Financial Institution or Embassy of foreign countries has been inserted which provides that such persons shall be entitled to refund of tax paid by them on inward supplies of goods and or services by making an application before expiry of six months from the last day of the month in which supply was made in prescribed form and manner. If the provision is compared with the present scenario, it is found that presently there is exemption prevalent to provision of services to United Nations Organisation which is comparatively easy than claiming refund.

3. There is change in provision regarding refund of unutilised input tax credit. Earlier, proviso specified that refund of unutilised input tax credit shall be allowed only in cases of exports and in cases of inverted duty structure. Inverted duty structure means situation where rate of tax on input is higher than rate of tax on output. But, in revised GST Law, refund of unutilised input tax credit shall be allowed in cases of exports including zero rated supplies, in case of inverted duty structure but not in case of nil rated of fully exempt supplies. A new proviso has also been inserted to clarify that the refund of unutilised input tax credit shall not be allowed if the supplier of goods or services claims refund of output tax paid under IGST Act, 2016. This implies that the refund of unutilised credit will be allowed only in cases where the export is done under bond. If the export is done under rebate claim then the refund of unutilised credit will not be allowed.

4. There is also change in provision regarding grant of refund claim on provisional basis. As per old GST Law, provisional refund of 80% of the total amount so claimed was required to be given but as per the revised GST Law, the provisional refund of 90% of the total amount so claimed is required to be given. The increased amount of provisional refund will solve the liquidity constraints of the exporter.

5. The time limit for passing order under earlier GST law was ninety days from the date of receipt of application. Now, under revised GST Law, this time limit for passing order has been reduced to sixty days from the date of receipt of application. The reduction in time limit for passing refund order is a welcome step.

6. There is also change in provisions regarding applicability of unjust enrichment. The refund amount shall be given to the claimant if it is proved that the incidence of duty has not been passed on to other person. The concept of unjust enrichment is not applicable in certain situations like refund of tax on goods or services exported, refund of unutilised input tax credit etc. Now, a new clause has been added wherein refund of tax paid on a supply which is not provided, either wholly or partially and for which invoice has not been issued will also be sanctioned to the supplier and the principle of unjust enrichment would not apply in such cases. This provision is also beneficial to the assessees claiming refund of tax paid on supply which is cancelled or partially provided.

We discuss some other provisions pertaining to refund of tax in revised GST Law as follows:-

1. A new sub-section 13 has been added in section 48 which states that refund of advance tax deposited by casual or non-resident taxable person shall not be allowed unless they have furnished all returns during their period of registration. Hence, refund of advance tax will be admissible only on filing of returns. Thus, the procedure for casual or non-resident person has been made more difficult. They have to deposit the advance tax and there are terms and conditions for even getting refund of the same.

2. New clauses have been inserted in the meaning of relevant date as follows:-

(g) in the case of a person, other than the supplier, the date of receipt of goods or services by such person; and

(h) in any other case, the date of payment of tax.

Thus, if a person, other than supplier (this implies that person other than supplier can file the refund claim) files the refund claim then in that case the date of receipt of goods or services will be relevant date for computing time limit of refund claim. Furthermore, the clause (c) of the earlier GST Law specifying the relevant date in case of goods returned for being remade, refined, reconditioned or subjected to any other similar process in any place of business as the date of entry into the place of business for such purpose has been deleted. There was no refund mechanism for return of goods in factory premises for repairing or reconditioning purpose but the old GST Law specifically mentioned relevant date for filing refund claim in such cases. However, it appears that the government realised the redundancy of the provision and has deleted the same.

3. A new section 49 has been added for refund of taxes to any specialised agency of the United Nations Organisation or any Multilateral Financial Institution and organisation notified under the United Nations (Privileges and Immunities) Act, 1947.  It is possible that the conditions and restrictions may be specified separately for granting refund in such cases. Presently, there is exemption for clearance to such specified persons under excise notification number 108/95 but under the proposed GST regime, they have to pay the GST and claim the refund.