Post GST Refund Audit when Erroneous Refund Claim

Goods and Services Tax is a new indirect tax system with new principal for example ‘place of supply’ & GST tax structures. Goods and Services Tax is apply in state in which services/goods are consumed i.e., GST is a consumption-based indirect tax. which can generate confusion in few situations.

Post Refund Audit- Just Filing for and getting a GST refund is not Enough for your Business–

• It is a prevalent misconception among business people that all that is required is to file for and receive a GST refund.
• However, this is not the case, especially now that Post Refund Audits have been implemented. Businesses applying for more return than they are entitled to is very usual these days.
• If it is discovered during these audits that the requested refund is greater than the actual amount (even if it is simply a mistake, which is all too often among businesses these days), the refund will be classified as an Erroneous Refund.

Consequences of an Erroneous Refund Claim

• The Business will then be required to pay the penalty as well as interest on the tax amount. Furthermore, the same is revealed in GSTR 9 (Annual Return) Pt. V, Table 15, and GSTR 9C Pt. V. (GST Audit Report).
• We’ll go over a few instances to show why it’s so common for businesses to request for an incorrect refund amount when their GST responsibilities aren’t done properly.
• Not only that, but you’ll lose a lot of points on the Department’s SCORECARD and raise your RISK SCORE, increasing your possibilities of assessments, investigations, audits, and other things in your case.
• This is why we stress the need of considering a variety of factors when estimating refund amounts. Choosing to go without the services of a GST specialist or sacrificing on acquiring professionals might lead to several other problems for your organization.
• Businesses must avoid triggering a chain of audits that could begin with a little error while reporting taxes or refunds.

Example to help you understand the concept

Let’s look at an example to help you understand the concept.

• ABC is an exporter who performs his business in two ways: with IGST payment and without IGST payment, i.e. with LUT.
• It is critical to note that when ITC is collected from capital goods as part of an IGST refund, setting off ITC is permitted. In the case of a LUT refund, however, this is not permitted.
• Now, the same company purchases a laptop for Rs. 1 lakh and pays Rs. 18,000 in GST. The Business claimed ITC under GSTR 3B after the payment and adjusted it with the output liability. In this situation, there is no problem because the quantity can be adjusted according to the rules.
• However, this is not the situation with the LUT return; if you read Rule 89(4) closely, you’ll notice that the ITC accumulated from capital items is not meant to be taken into account when calculating the refund. Now, the return claimant must follow the guidelines and not apply for more money than is allowed.
• Businesses frequently request such refunds due to a lack of understanding of the regulations. In most circumstances, the Officer also issues the refund after verifying the amount reported in GSTR 2A.
• It’s understandable because the GST officer often relies on the firm or its agent and examines only those invoices that aren’t shown in GSTR 2A or are too large at the time of refund.

• However, the issue begins with the Post-Refund Audit. The Audit Officer examines the documentation and invoices and discovers the error.
• When an officer notices a problem, he or she will make a demand for money, as well as a penalty and interest sum, usually under section 74. Not only that, but the Officer would also raise an internal scorecard red flag.

How can an experienced consultant assist you in this situation?

• Even in such situations, an expert GST consultant can assist you and help you avoid making costly mistakes. He or she will write a response that portrays the situation as a mistake rather than planned deceit.
• There is a significant difference between the two, since your case is now reviewed under Section 73 rather than Section 74, and you can avoid receiving a Show Cause Notice by paying the sum on the spot!
• This strategy can also help you avoid getting red flags on your scorecard.

When you have an expert, knowledgeable, and qualified consultant for your business, small facts and strategies like these make GST “Easy Se Bhi Aasaan.”

• The only criterion for selecting a consultant should not be “Lower Fees,” but rather a combination of elements. As a Consultants, the knowledgeable, experienced, and qualified consultant should assist you in taking a comprehensive picture of your business while protecting it from current and future issues.
• Competent GST expert should shield your business from a variety of threats and provide you with peace of mind so that you can concentrate on growing it

When a tax is wrongfully collected & deposited with the state or Central Govt.

• short answer is No. Let’s take a different situations at each in details as under :

The table below shows the tax that applicable in different instances, as well as the penalty that may be imposed if the wrongly calculation is made. 

When an interstate sale is erroneously classified as an intrastate sale?

• Consider the situation of a taxable person who pays CGST/SGST on an interstate supply transaction that he mistook for an intrastate supply. he should have collected IGST i.e., instead of CGST/SGST.
• In this instance, Person concerned must have to pay IGST and get a refund of the amount paid as CGST/SGST.

When an intrastate sale is mistakenly classified as an interstate transaction

• When a taxable person pays IGST on an intra-state supply transaction that he mistaken for an inter-state supply, he is in this situation. In an intra-state supply, the tax collected should ideally be CGST/SGST rather than IGST.
• To correct the problem, the individual in question must pay CGST/SGST and receive a refund of the IGST paid.

Note that if the taxpayer pays the right tax later, no interest will be due. In these cases, the penalty will not be applied.

• These refunds for wrong or mistaken tax calculations will be sent individually in order to reclaim tax that has been incorrectly paid.
• The technique is distinct from the standard GST refund process. The GST Bill has a new clause that states that interest would not be charged if the right tax is paid later.
• Businesses, specifically SMEs with limited resources, will be prone to make mistakes when collecting GST in the early days. Interest on wrong or erroneous tax payments would be unnecessarily harsh, according to the GST Council, because such errors would be legitimate and not intended to cheat tax.
• Small businesses will benefit from this clause since they will not be charged interest if they pay the wrong tax by mistake.

What happens if you collect tax but don’t deposit it? Is there supposed to be a penalty?

• In this case, the short answer is ‘Yes.’ Let’s look more closely.

When GST is collected but not deposited with states or Centre.

• While the law is lenient when it comes to wrong tax deposits, the GST has strict requirements for taxes that have not been deposited after they have been collected.
• Anyone who collects GST must deposit it with the federal or state government. This is true regardless of whether or not the supply (for which GST was collected) is taxable.
• Taxpayers cannot collect GST and then claim that they did not deposit the tax since their goods or services were exempt.
• Under any law including the GST, No one can benefit from unjust enrichment. In this situation the penalty will apply regardless of any order from a tribunal or court.
• A show-cause notice will be issued by the proper officer. If the taxpayer requests it in writing, he or she will be given a hearing.
• If the taxpayer requests it in writing, he or she will be given the opportunity for a personal hearing.

Issue of the GST order of payment & Penalty

Process of issuing an GST order for payment of tax due & penalty for is as mention below:

• The appropriate GST officer will first issue an order to the concerned person to pay the amount due, along with the penalty.
• Person has to pay amount collected as GST & also pay interest on late payment.
• Interest period will be calculated from date of tax collection till date of payment.
• The Interest rates will be specified later.
• GST order needs to be issued within 1 year from date of issue of the SCN.
• If court or Tribunal issues a stay order then period of such stay shall be excluded from the period of 1 year.

Surplus

If any money is left over after all dues have been paid, it will either be reimbursed to the individual who borne the cost (the buyer) or credited to the Consumer Welfare Fund under GST. Buyer can apply for a gst refund within six months of issue of public notice.

Conclusion 

 

• As a consequence, we can see that the GST law has strong tax evasion provisions that are in line with the government’s position on the issue.
• On the other hand The government has taken into account the fact that GST is new to everyone, and the laws governing incorrect or erroneous tax payments have been established with the goal of easing the transition and avoiding excessive stress for taxpayers.

GST Update

Govt of India has reinstated status quo that existed before May 22, 2022, & has removed export tariff on lumps & fines of iron ore with a Fe content of less than 58%, iron ore pellets, & stipulated steel products, including pig iron. For details refer the link attached 

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