Filing of a Refund Application Under GST by an Unregistered Person

In the 48th GST Council meeting, one of the decisions taken by the Council was for the government to lay down the rules for unregistered persons to file a refund application under GST. This decision was taken due to several instances taking place where an unregistered buyer had entered into a construction agreement or contract with a builder, but the said contract had been subsequently cancelled. Another situation could arise where long-term insurance policies are cancelled where the entire premium had been paid upfront.

On 27th December 2022, the CBIC released a circular prescribing the manner in which an unregistered person can file a refund application. In this article, we explain the process by which an unregistered buyer can file a refund application under GST law.

Cases where an unregistered person may claim a refund under GST

Circular No.188/20/2022-GST lists the procedure for two cases where unregistered buyers may claim a refund under GST.

1. Unregistered buyers of construction services

In this case, unregistered persons have entered into an agreement with a builder for the supply of construction services for apartments/buildings, etc. The buyer has further paid the amount towards consideration for such services, fully or partially, along with the applicable taxes. However, the said contract or agreement has thereafter been cancelled due to reasons such as non-completion of the project or delay in construction activity, or any other reason.

Here, the period for issuance of a credit note as per Section 34 of the Central Goods and Service Tax (CGST) Act may have already expired by this time, i.e. earlier of 30th November of the following financial year in which the supply was made, or date of filing the annual return. Hence, while the supplier may refund an amount to the buyer in the case of cancelled contracts, this amount would be after deducting the GST portion as it would have already been paid to the government.

2. Unregistered buyers of long-term insurance policies 

The second case, where unregistered buyers can file a refund application, applies where the premium for the entire period of a long-term insurance policy, along with the applicable GST, has been paid upfront, and the policy is subsequently required to be terminated prematurely due to any reason. Similar to the above situation, the time period for issuing credit notes may  have already expired, and the insurance company may refund only the proportionate premium without the GST amount.

To ease the hardships of unregistered buyers in the above two cases, the government has now provided a facility where such persons may file a refund application under GST. 

Provisions in the GST law on refunds for unregistered persons

As per Section 54(1) of the CGST Act, any person can claim a refund of tax and interest paid by filing an application within two years from the relevant date, explained in the later section of this article. 

Further, Section 54(8)(e) of the CGST Act says that where unregistered persons have borne the incidence of tax and not passed on the same to any other person, then the said refund should be paid to the unregistered person and not credited to the Consumer Welfare Fund (CWF). 

Further, the government has amended Rule 89(2) of the CGST Rules and inserted Statement 8 in Form GST RFD-01 vide Notification No.26/2022-Central Tax dated 26th December 2022. This change provides for the required documents to be furnished/uploaded along with the refund application.

Hence, while the law already provides for such refunds, the government is now providing a new functionality on the GST portal. This will allow unregistered persons to take a temporary registration to apply for a refund under the category ‘Refund for unregistered person’.

Filing of a refund application by an unregistered person

The following is the procedure for an unregistered person to file a refund application under GST:

Step 1: Obtain a temporary GST registration 

• The unregistered person whose construction or insurance contract has been terminated is required to obtain a temporary registration on the GST portal using their PAN.
• At the time of registration, the unregistered person should select the same state/Union Territory where their supplier, in respect of whose invoices the refund is to be claimed, is registered.
• The applicant is then required to undergo Aadhaar authentication as laid down under Rule 10B of the CGST Rules.
• They also need to provide their bank account details in which they would prefer to receive the refund amount. (Note here that the applicant is supposed to provide the bank account details, which is in their name and has been obtained on their PAN.)

Step 2: File a refund application in GST RFD-01 with supporting documents

• The applicant should file the refund application using Form GST RFD-01 on the GST portal under the category ‘Refund for unregistered person’.
• Further, they should upload Statement 8 (in PDF format) along with all the requisite documents as per Rule 89(2) of the CGST Rules. (Note that the refund amount claimed should not exceed the total tax value of the invoices in respect of which the refund is being claimed.)
• The applicant must also upload the certificate issued by the supplier as per the terms of Rule 89(2)(kb) of the CGST Rules while filing the refund application. 

According to Section 89(2)(kb), a certificate is to be issued by the supplier to the effect that they have paid the tax in respect of the said invoices on which the refund is being claimed by the applicant. Further, the supplier should state that they have not adjusted the tax amount involved in these invoices against their tax liability by issuing a credit note. It should also state that the supplier has not claimed and will not claim a refund of the amount of tax involved in respect of these invoices.

If there exists any other document which proves that the applicant has paid and borne the incidence of tax and that the said amount is refundable to him, then the same must also be uploaded. For example, the invoices and receipts for making payment to the developer/builder. 

Prerequisites for filing a refund claim

1. For every refund claim with regard to a particular supplier, a separate application must be made on the GST portal. This also holds good if the same supplier is registered in different states or Union Territories, as a separate registration will need to be obtained in that state/UT.
2. Refund claims are only to be filed where the time period for issuance of a credit note has already expired. When the time period hasn’t yet expired, the supplier is still in a position to issue the credit note and refund the GST amount, and hence there is no need to file applications for a refund in such cases.

Relevant date for filing a refund application

As per Section 54(1) of the CGST Act, unregistered persons can file a refund application within two years from the relevant date. The relevant date in cases of refund by a person other than the supplier will be the date of receipt of goods or services or both as per clause (g) of the second explanation given to Section 54 of the CGST Act.

However, if a long-term contract has been cancelled between a supplier and unregistered buyer where the payments are made in advance or in instalments, there may be no date of receipt of service to the extent the supply has not been made/rendered. In such cases, for the purpose of determining the relevant date, the date of issuance of the letter of cancellation of the agreement or contract for supply by the supplier will be the date of receipt of services by the buyer.

What happens post-filing of a refund application?

Once a refund application has been filed, the proper officer shall process the claim in a manner similar to other RFD-01 claims. 

• First, the proper officer will scrutinise the application to ensure the completeness and eligibility of the refund claim.
• Next, they will issue the refund sanction order in Form GST RFD-06. 
• Finally, the proper officer will upload a detailed speaking order along with the refund sanction order within 60 days from the date of receipt of the completed application.

If the amount paid back by the supplier to an unregistered buyer on the termination or cancellation of a contract is less than the amount paid by the unregistered buyer to the supplier, then only a proportionate amount of tax in such amount paid back will be refunded to the unregistered person. For example, an unregistered buyer paid a premium of Rs.1,000 for an insurance policy that later got cancelled. The supplier refunded Rs.500. Hence, a proportional amount of GST amounting to Rs.90 only will be refunded and not the total GST amount of Rs.180.

What is the minimum amount for filing a refund application?

According to Section 54(14), no refund shall be paid if the amount is less than Rs.1,000. Hence, the minimum tax amount to be refunded in a refund application is Rs.1,000.