The government has always been under the lens of the taxpayers for seamlessly granting the refund. Currently, the taxpayers are facing delays in the grant of refunds due to stringent rules and regulations for processing refunds. The majority of the taxpayers are not aware of the frequent changes that are made in the rules relating to the grant of refund.
Concerning refund-related issues, the Government had issued Circular No.135/05/2020 – GST dated 31st March 2020 clarifying certain issues being faced by taxpayers. The reduction on bouncing of refund claims over financial years was accepted away with, new need to mention HSN/SAC codes in the statement of invoices connecting to inward supply, restricting the refund of accumulated ITC to those invoices the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant, etc.
Furthermore, taxpayers applying for a refund of tax paid fall in the following categories:
- Refund of excess payment of tax;
- Refund of tax paid on an intra-State supply which is subsequently held to be inter-State supply and vice versa;
- Refund on account of assessment/provisional assessment/appeal/any other order;
- Refund on account of “any other” ground or reason.
i.e. refund claims on supplies other than zero-rated supplies, no separate debit of ITC from electronic credit ledger was required to be made by the applicant at the time of filing refund claim, being a claim of tax already paid. However, the total tax would have been normally paid by the applicant by debiting the tax amount from both Electronic Credit Ledger (ECL) and electronic cash ledger. At present, in these cases, the amount of admissible refund was being paid in cash even when such payment of tax or any part thereof, has been made through ITC.
This practice could lead to allowing unintended encashment of credit balances and hence this issue was examined by Government. Accordingly, vide Notification No. 16/2020 – Central Tax dated 23rd March 2020, the Government had inserted sub-rule (4A) in rule 86 of CGST Rules, 2017.
The said sub-rule read with Para 4 of the Circular No.135/05/2020 – GST, a taxpayer is entitled to refund of tax wrongly paid or paid in excess (other than zero-rated supplies), in the same mode by which the tax liability was discharged, i.e., if the tax was paid partially by debiting the credit ledger and partially by debiting the cash ledger, the refund shall be granted in the same proportion. The cash portion must be sanctioned and credited to the bank account of the taxpayer by issuing RFD-05 and the credit portion should be re-credited to the electronic credit ledger of the taxpayer through PMT-03.
In this regard, the CBIC has issued Advisory No. 8 /2021- Refunds dated April 20, 2021, for implementation of improved functionality of GST PMT-03 to re-credit the ITC sanctioned as a refund.
Currently, Form GST PMT-03 could be used only for re-crediting of the rejected amount of refund that has been debited at the time of filing of refunds. Now, to facilitate the re-crediting of ITC sanctioned as refund towards tax paid extra or wrongly by debiting the credit ledger a new improved PMT-03 functionality has been placed on the GST portal.
This improved functionality of GST PMT-03 applies only to the four types of refunds as mentioned supra in the blog.
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CA Tarun Kapoor
AKGVG & Associates