Refund of ITC which was used in payment of tax

This query is : Resolved

Pradeep Patidar (Querist)
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06 January 2025 Taxpayer had applicability of rule 86B in FY 2021-22. but he has paid output tax through credit ledger instead of cash ledger. in 2024 tax officer has informed that that tax has to be paid in cash with interest. now tax payer has paid tax + interest through DRC 03 in 2024.
Query1: Can taxpayer get refund of ITC which was used in payment of output tax liability in 2021-22.
Query2: If yes then what will be "relevant date" for refund claim application.

CS Advocate Abhishek Goyal

CS Advocate Abhishek Goyal (Expert)
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07 January 2025 As you have availed ITC in payment of output tax liability, on what basis will you be claiming the refund?

Pradeep Patidar

Pradeep Patidar (Querist)
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07 January 2025 on the call of GST officer we have paid that liability in cash in Dec 2024. so we have paid doubled tax on same output tax liability. so one out of two should be refunded.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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12 August 2025 Got it, here’s a clear explanation on your refund of ITC used in payment of tax under Rule 86B situation:

Background:
In FY 2021-22, Rule 86B restricted ITC utilization beyond certain limits.

Taxpayer paid output tax partly by ITC credit ledger instead of required cash ledger.

Tax officer now demands cash payment + interest (paid in 2024 via DRC-03).

Taxpayer wants refund of ITC amount used earlier, because that tax was paid twice (once by ITC, once by cash + interest).

Query 1:
Can the taxpayer claim refund of ITC used to pay output tax liability in 2021-22?

Answer:

Generally, ITC utilized for paying output tax liability is considered utilized correctly.

If Rule 86B restriction applied and payment should have been made through cash ledger, ITC used in excess is considered ineligible ITC.

You cannot claim refund of ITC already utilized unless you can prove that such ITC was wrongly blocked or disallowed by the department.

However, in this case, since you paid tax + interest again in cash in 2024 due to officer's directions, you effectively paid the same tax twice.

The additional cash paid can be claimed as refund (not the ITC already utilized).

So, refund of ITC cannot be claimed directly. Instead, you may claim refund of the extra cash tax paid (which you had already paid by ITC earlier).

Query 2:
If yes, what is the relevant date for refund claim application?

Answer:

The relevant date is usually the date of payment of tax in cash ledger (i.e., the date when you paid the tax + interest via DRC-03 in 2024).

Refund claim has to be filed within 2 years from the relevant date as per GST refund rules.

Summary:
Aspect Explanation
Refund of ITC used in 2021-22 Not allowed directly
Refund of extra cash paid in 2024 Allowed (file refund claim for this amount)
Relevant date for refund claim Date of cash payment (DRC-03 payment date)

Suggested action:
File refund claim for the amount paid in cash (tax + interest) in 2024, stating that tax was already paid once by ITC earlier.

Attach relevant documents and communicate the situation clearly.

Follow up with GST authorities if required.

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