GST Refunds Mechanism under Service Export

GST Refunds Mechanism under Service Export

• Export refunds are often a subject matter of dispute and bone of contention between the exporter and the tax department in the context of indirect taxes in India.
• While the policy of the Government is to free exports from the burden of taxes, the tax administration often finds ways and means to somehow avoid granting refunds/rebates. This results in dilution of the avowed policy and objective of the Government.
• As we expect the GST law to be unveiled shortly, the exporters hope to see a significant change in the stance taken by the tax administration in the matter of refund w.r.t. export of services. The Joint Committee on Business Processes for GST has submitted its report on refund processes in the month of August 2015, which has been placed in the public domain recently.
• While the report deals with a plethora of issues relating to refund processes, this article contains a brief analysis of the processes recommended for a refund of service tax for service exporters.
• The objective is to understand the measures that would be taken to hasten this process (as per the report) and also to recommend/suggest further measures as the process of granting refund expeditiously to the service exporters cannot be derailed or delayed in future, when GST is introduced.

POSITIVE INITIATIVES:

1. Invoice and bank realization certificates would be the crucial documents for filing the refund application.
2. The refund application would be examined for deficiency to see whether it is complete (mistakes / omissions, errors to be avoided).
3. 90% of the refund amount would automatically be credited by the system.
4. Balance amount of 10% would be sanctioned after verification of documents.
5. Interpretation as to whether the tax cost has been factored in the price charged/ realized for export at times has led to claims being rejected due to the concept of unjust enrichment. Considering that international trade is very competitive, this concept has been finally discarded except for deemed exports.
6. In case of rejection of the refund application the system of automatic (suomotu) credit has been continued.
7. A long standing demand of the service exporters of fixation of time limit for sanction of refund would be met, which is a welcome step.
8. The system under central excise for drawback, which is automatic and involves system generated claim processing by avoiding human intervention, is being introduced.
9. In case of disputes which are sure to be there, the refund claims are not to be kept in abeyance. This is unless the stay order is obtained from the higher appellate authority.

RAJPUT JAIN & ASSOCIATES SUGGESTIONS/RECOMMENDATIONS:

1. Restrictions and conditions should be minimized if it cannot be completely eliminated.
2. The policy framed by the Ministry of Commerce should be implemented without any hassles and both the Ministries (Finance and Commerce) should work in tandem and harmony.
3. A separate wing should be created in the Department to process and expedite refund claims and in case of dispute, it should be adjudicated by the same officers, who are empowered to decide demand cases (as per monetary limits).
4. It is a common apprehension that the sanction of high refund amounts to service providers could lead to questions by the Audit including CAG. Specific measures to safeguard honest and efficient officers who sanction refund on merits should be put in place.
5. Training of departmental officers is necessary, which would enable them to understand the spirit of the law. Only then should such an officer take charge of refund adjudication cases. Like all professional courses annually 50 hours of training should be mandated to be attended by the departmental officers, as a part of the annual performance appraisal.
6. Sensitization and training are of departmental officers such that they call for relevant documents and that too once. They should avoid calling for unspecified and unnecessary documents and shun different practices in different Commissionerates/States.
7. The success of any system would depend on adherence to its form and spirit.
8. Timelines should be adhered to strictly in granting refund and monitored by a process of escalation. Age-wise analysis of the pendency should be noted and responsibility should be fixed on the Officers for inordinate delay without valid reasons.
9. In case of delay in sanction of refund, interest rate as applicable to demand cases, should be automatically paid.
10. Adjudication officers should be made accountable for passing orders without application of mind or non-speaking orders.
11. Proper maintenance of records and documents at revenue side would avoid delay and derailing of the refund claim process.

FINAL FACT:

• Fast-tracking of the refund mechanism for exporters is an essential element to gauge the success of GST in India to make the product or service really competitive in Global trade.
• Report has rightly identified a few areas which are very important. The improvements suggested above are based on the actual issues faced by service exporters at the ground level, which we hope would be considered by the policy/rule-makers.

There are a lot of scenarios for GST refunds including such:

• Input Tax Credit collection on the basis of output tax exemption or zero-rated
• Year-end or volume-based incentives offered by the supplier via credit notes
• In case GST Refund of taxes for international tourists
• GST Refund of the pre-deposit for the filing of an appeal assimilating the refund due according to the order of the appeal authority
• Export (also deemed export) of goods/services within the framework of the refund claim or refund of the collected input duty/tax credit when goods/services are exported
• Payment of duty/tax during the inquiry, but no/less responsibility occurs in the event of completion of the investigation/adjudication.
• Refund of the tax charged on sales made by the Embassies or UN bodies
• The extra amount of GST tax accrued due to error or misinterpretation
• Finalization of the provisional assessment
• Input Tax Credit collection due to the inverted duty system i.e. the tax rate difference between production and inputs.

Forms for applying for a refund under the GST: the filing of returns & the application for a refund will be a complete online procedure under the GST. We will cover the form to be submitted for refund, acknowledgment and review under the GST.

An supplier or eligible person can claim refund provided that input tax credit is more of his GST outward liability. As per Section 54 deal with GST Refund.

Following are the Conditions for claiming GST refund

• GST Refund should be claimed before the expiry of two years from the relevant date
• GSTR Return u/s 39 should be filed for the relevant tax period
• Minimum amount to be GST Refunded is Rs. 1,000/-
• GST refund shall not  be available in case of
  • zero rated supplies made without payment of taxes
  • where the credit consists of rate of tax on inputs is higher than that of output supplies
• GST refund shall not be allowed on capital goods
• Outward supplies are not exempt or nil rated.

Forms of application for a refund under the GST

• In case Form RFD-01 GST
• Also Form RFD-02 GST
• Form RFD-03 GST

Forms of GST Refund

• GSTN has implemented a utility Table 6A in the GSTR-1 form used to demand refunds from exporters.
• This Table 6A of Form GSTR1 allows the assesseee to export-related data for the relevant time enabling the processing of the GST refund on the basis of the declaration made under Form GSTR 3B and Table 6A of GSTR-1.
• An exporter of or services or goods or both may demand the refund of the Integrated GST paid at the time of export by filling in the details of the tax paid on the GST invoice and the shipping invoice in the form GSTR1 for the month concerned.

RFD-01 Filing Time Limit and Frequency

Refund application must be submitted within two years of the applicable date in RFD-01/RFD-01A. The RFD-01A must be filed on a monthly basis in the following cases:

• Refund claims for zero-rated supplies
• Refund of claims for the Inverted Duty Framework
• A Refund claims for Considered Exports
• Refund of excess balance in the Electronic Cash Leather

Quarterly file

RFD 01A can be filed quarterly rather than monthly if the taxpayer has a turnover of less than Rs. 1.5 crore and has chosen to file quarterly returns.

GST Refund on Order Account

• In the situation of a GST refund request on the basis of any order or judgment of the appellate authority or court, the reference number of the order giving rise to the refund should be given along with related tax invoices.

Process for GST refund

• The request for a refund must be sent online in the form RFD 01 within 2 years of the date of the request. The claimant should submit a refund application certified by the Cost Accountant or the Chartered Accountant if the value of the refund exceeds Rs 2 lakhs.
• Request for a GST refund may then either undergo an inspection or an audit, as the case may be. Upon approval of the application for a refund, the taxpayer shall collect the balance of the GST refund on the recorded bank account.

Normally GST Refund Process are as under:

• An application form to demand a refund can be submitted via the GSTN portal.
• Acknowledgment number will be sent to the applicant via SMS or e-mail when the application is filed online.
• Changes will be made to the return and cash leger and to the automatic elimination of the “carry-forward input tax credit“

• The request for refund and the related documents submitted must be reviewed and enforced accordingly within 30 days of the request for refund.
• The problem of “unjust enrichment” would be analysed in order to secure a refund request. In the event of non-qualification, the refund will be transferred to CWF (consumer welfare fund)
• If the sum of the refund indicated crosses the predetermined amount of the refund, then the file will obtain the refund through the pre-audit method.
• The refund will be transferred online to the applicant’s account via ECS, RTGS or NEFT.
• Applications for refunds can be made after every quarter of the year
• An sum of less than 1000 is not available for refund

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