Practical issues in a refund under GST

To facilitate the taxpayers, Government needs to provide a hassle-free refund process. An uninterrupted and adequate refund mechanism is essential for tax administration. It facilitates trade by releasing blocked funds for working capital thereby assisting them in expanding and modernising of existing business.

With the second wave hitting the Indian companies massively, Government has been closely focusing on resolving the various issues under GST refund. Recently, CBIC had launched a special drive to clear all the pending refunds within a month. The said initiative was in line with ongoing similar drives by CBIC for refunds under various other laws like customs, duty drawback claims, etc. Further, the Government has brought various new changes like the exclusion of the period of issuance of deficiency memo from the total period of 2 years available to file a new refund application, facility to withdraw refund application, etc. and all such steps are a welcome step and will provide some relief to the taxpayers. However, certain other practical issues still need to be addressed concerning to this key aspect of refund under GST.

Althoughdetailed circulars clarify the entire process to claim GST refund through online application and relevant supporting documents to be submitted, there are various issues still at the ground level. A few of them are as follows:

Supporting documents and their legal sanctity

While processing refund application of cash ledger, there has been demand from the concerned officer for submitting Cash Ledger certified by a Chartered Accountant. It is pertinent to note that a cash ledger is an electronic report available on the GST portal. Thus, certification of the automated report lacks legal justification.

Further, in few cases, officers are demanding a Chartered Accountant certificate conerning the incidence of tax not being passed in case of a refund of the cash ledger. This also s logical reasoning. Balance in Cash ledger can arise either of cash deposited by the taxpayer himself or TDS/TCS deposited by the deductor. Thus, the certificate that no tax incidence has been passed on to the buyer lacks both legal and logical rationale in the said scenario considering that the law also doesn’t specify any such requirement.

Further, in the case of certain refunds, GSTR-2A is required to be uploaded. GSTR-2A is an auto-populated report from the GST portal. Thus, the requirement to upload the auto-mated report while filing the refund application is not reasonable.

As per the circular released in March 2020, the refund of accumulated ITC was restricted to invoices that are uploaded by the supplier in Form GSTR-1 and reflected in Form GSTR-2A of the applicant. However, there has been no clarification on the supporting documents to be uploaded including the self-certified copies of invoices whose details are not found in form GSTR-2A of the relevant period. When there is no refund available regarding the said invoices, uploading such invoices seems to be moot.

Non-clarity of time limits specified under law

As per the provisions under GST, in case of a refund other than a cash ledger refund, the officer is required to issue an acknowledgement within 15 days of filing the application if he is satisfied that the application is complete in all respects and where the officer is satisfied that the whole or part of amount claimed as refund is refundable, he is required to issue order within 60 days from the date of application complete in all respects.

And, where deficiencies are noticed, the proper officer shall issue a deficiency memos. Further, there are no timelines specified under the law for issuing deficiency memo. However, on a thorough reading of the detailed Circular issued in November 2019, it can be interpreted that the timelines of 15 days apply to both.

However, practically, these timelines are not being adhered to, and neither acknowledgement nor deficiency memo are being issued in certain refund applications for more than a year. Thus, the very purpose of introducing the timelines, i.e. faster refunds, is way far to achieve. And, the Government has to come again and again with some special drives for closing a large number of pending refund cases due to such lacunae in law.

Online or Manual?

During refund proceedings, the proper officer has to issue a deficiency memo if any correction is required to be made by the taxpayer. Said clarification or additional information can be obtained through a notice issued via GST Portal. However, multiple notices are being sent directly on the mail ids of taxpayer seeking multiple clarifications through various letters. However, there is no update on the portal, and the status quo of the application remains the same as pending. Thus, such a manual approach is not in alignment with the dream of building a New India with the help of technological advancement.

Fresh application in case of deficiency memo

As per legal provisions, once the officer issues deficiency memo, fresh refund application needs to be filed. There is no provision in GST that allows to rectify the deficiencies specified by the officer. In some cases of refund like inverted duty structure, filing a fresh application is a tedious and time consuming task that leads to delay in refund and also creates a lack of confidence amongst taxpayer on “fully electronic refund process” as submitted by CBIC.

To conclude, the law envisages a simplified, time-bound, technology-driven refund procedure with a minimal human interface between the taxpayer and tax authorities. However, due to some lacunae both in the process and law, there have been several disputed refund claims.

The Government is trying to put an end to the amassed disputes by issuing various clarifications and changes like the allowance of withdrawal of refund application, exclusion of time from the filing of application till the date of issuance of deficiency memo from the two year limitation period for filing the refund application, special drives for early refund processing, etc.

However, there is a need to bring in some structural level changes coupled with some amendments in the law to synchronize rules with the primary provisions to end the long pending list of disputed refund claims and lessen future disputes.

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