Refund Claims of Accumulated ITC

The taxpayers can claim the refund of accumulated ITC or input tax credit if certain conditions get satisfied. First, the applicant must file form RFD-01, with the supporting documents, within the time limit given under the Section 54 of the CGST Act read with Rule 89 of the CGST Rules.

Latest Updates on GST Refund

05th July 2022
Taxpayers can exclude the COVID pandemic period (1st March 2020 and 28th February 2022) while calculating the time limit for filing GST refund applications under Sections 54 or 55 of the CGST Act.

1st February 2022
Budget 2022 update-
1. Section 54 is amended to provide that refund claim of any balance in the electronic cash ledger can be made in a particular form and manner prescribed.
2. The time limit to claim refund by UN agencies is now two years from last day of quarter when supply was received instead of six months.
3. The restriction to refund taxpayers for tax defaults, that earlier applied to unutilised ITC refund, is now extended to other types of refunds.
4. The relevant date to file refund claim application for supplies to SEZ is clarified in new sub-clause (ba) of clause (2) of the explanation.

1st May 2021
Where the time limit to pass orders for rejecting any refund claim fully or partly falls between 15th April 2021 and 30th May 2021, it is extended. The extended time limit shall be later of two dates:
(1) 15 days after reply to notice OR
(2) 31st May 2021

Cases under which refund of accumulated ITC is allowed

The taxpayers can claim the refund of accumulated ITC in the following situations:

• When an inverted tax structure prevails in the business.
• With respect to the export of goods or services made without a tax payment by reporting the Letter of Undertaking (LUT) or bond.
• In case of supplies to Special Economic Zone (SEZ) units or developers without a tax payment.
• By foreign embassies and international organisations on their purchases of goods or services.

Cases, where refund of unutilised ITC is not allowed, is as follows:

• If goods exported out of India attract the excise duty, then the accumulated ITC left unutilised will not be available for GST refund. 
• If the supplier of goods has claimed the duty drawback on the excise duty paid or has claimed the refund of IGST paid on such supply.
• In the case of an inverted tax structure, the output is nil rated or exempt from GST.

Time limit and frequency for claiming refund of accumulated ITC

As per Section 54 of the CGST Act, any person claiming the refund of GST or the interest paid should make an application in form RFD-01 within two years from the relevant date for most types of refunds. The “relevant date” given here varies with the type of refund claimed, explained in our article “Important definitions in GST refund”. 

In case of unutilised ITC on account of exports or supplies to SEZ (zero-rated supplies), the applicant can file RFD-01 at the end of any tax period.

In case of refund claims by the embassies or international organisations, the application must be filed for the refund before the expiry of six months from the last day of the quarter in which such goods/service were received. The form used is RFD-10 in such cases after the furnishing of GSTR-11 return.

Calculation of the maximum refund amount of ITC unutilised

(1) Refund of accumulated ITC on account of zero-rated supplies without tax payment (exports and supplies to SEZ units or developers)

The formula for calculating eligible refund amount is as follows:

Amount of Refund = [ Net ITC x (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) ] ÷ Adjusted Total Turnover 

(2) Refund of accumulated ITC on account of inverted tax structure

The formula for calculating eligible refund amount is as follows:

Amount of Refund = {[ Net ITC x (Turnover of inverted rated supply of goods and services)] ÷ Adjusted Total Turnover} – Tax liability on inverted rated supply of goods and services

The terms used in the formulae are defined as follows:

• Net ITC for (1): The input tax credit claimed for the particular period on the goods and services purchased (inputs and input services). 
• Net ITC for (2): The input tax credit claimed for the specific period on the goods purchased (inputs). 
• Turnover of zero-rated supply of goods: It can be lower of the following two values:
  • Value of zero-rated sale of goods for the particular period under LUT or bond without tax payment.
  • Value calculated as [1.5 x value of like domestic goods or similar ones as declared by supplier].
• Turnover of zero-rated supply of services: Total of payments received during the particular period for zero-rated supply of services, advance towards the zero-rated supply of services finished for that specific period but received in any prior period excluding those advances received in the prior period of which service is not completed.
• Adjusted total turnover: Total sum of turnover in state or UT, excluding turnover from providing services and turnover of zero-rated and other than zero-rated supply of services. The value arrived is excluding the value of exempt supplies.

Net ITC, turnovers at both (1) and (2) exclude the ITC or sales turnover of supplies, as the case may be, taken under the benefit of the CGST Rules 89(4A) and 89(4B):

• CGST notification no. 48/2017 dated 18th October 2017 is taken on those purchases.
• CGST (Rate) notifications no. 40/2017 or 41/2017 dated 23rd October 2017 is taken on those purchases.
• Customs notifications no. 78/2017 or 79/2017 dated 13th October 2017 is taken on those purchases.

Steps to claim the refund of accumulated ITC and processing

The steps are briefly explained as given below:

The refund of these types can be claimed by filing RFD-01 on the GST portal for the particular period. In addition, one can file a refund for multiple tax periods in one application across the financial years.

Use the offline utility provided by the GST portal for filling up the details of sales invoices or invoices of outward supplies. It must be pertaining to the period of such refund claims for every type of refund. The statement or format varies with the type of refund, as explained in other sections.

Upon logging back to the portal, give details of the turnover of zero-rated or inverted rated supplies, as the case may be. Also, provide the adjusted total turnover for the particular period.

Net ITC details get automatically populated from the system. The values of CGST or SGST or IGST or cess can be edited downwards compared to the values reported in the GST returns of the respective tax periods. It would exclude ITC on capital goods, transition, and refund as provided under CGST Rules 89(4A) and 89(4B).

Thereafter, the system automatically computes the eligible refund amount as per the respective formulae for zero-rated and inverted rated supplies.

Give bank account details and upload supporting documents applicable for the particular type of refund (zero-rated, without the tax payment or inverted tax structure).

The refund application will be allocated to the Jurisdictional Refund Processing Officer for processing after the Application Reference Number (ARN) is generated. Refund applicants can use the portal’s “Track Application Status” feature to track the status of their refund applications.

For detailed steps, check out our article “GST refund Process”.

There are certain points to note while filing a refund application for accumulated ITC:

• The amount of refund of accumulated ITC eligible for claim under each head such as CGST, SGST and IGST cannot be more than the amounts in electronic credit ledgers of the respective heads.
• Statements or declarations must be provided in Annexure 1. 
• Note that a certificate in Annexure 2 by CA/CMA is not required for refund claims pertaining to unutilised ITC.
• When the application is for a refund of the input tax credit, the applicant’s electronic credit ledger is debited by an amount equivalent to the refund sought.
• If you have submitted Form GSTR-1 and GSTR-3B reports for the applicable tax period, you can seek a refund of IGST, CGST, or SGST on account of ITC accumulated due to an Inverted Tax Structure.
• The applicant must be attentive when filling out Form RFD-01 because no changes to the application can be made after it has been submitted. 
• He should have provided the products or services for which he is requesting an ITC refund. In the case of a supply of goods, the taxpayer must give the Shipping Bill/Bill of Export/Endorsed Invoice No and the relevant date information. In addition, they should have secured a FIRC/BRC from the competent bank for receiving foreign exchange if they were exporting services.

Declarations and annexures to be submitted for refund application

Declaration to be given for all types of refund related to unutilised ITC claims

Declaration with respect to refund on account of supplies to SEZ units and SEZ developers

Annexure-1

Refund on account of inverted tax structure (Statement 1 and statement 1A):

Statement 1

Turnover of inverted rated supply of goods and services	Tax payable on such inverted rated supply of goods and services	Adjusted total turnover	Net input tax credit	Maximum refund amount to be claimed [(1×4÷3)-2]
1	2	3	4	5

Statement 1A

Sl. no.	Details of documents of inward supplies received on inputs received							Tax paid on inward supplies			Details of documents of outward supplies issued					Tax paid on outward supplies
	Type of inward supplies	GSTIN of Supplies/Self GSTIN	Type of document	No./B/E	Port code	Date	Taxable value	Integrated tax	Central tax	State/UT tax	Type of Outward Supply	Type of Document	No.	Date	Taxable value	Integrated tax	Central tax	State/UT tax
1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19
											B2B/B2C

Refund of unutilised ITC on account of export of goods or services without tax payment (Statement 3 and statement 3A):

Statement 3

Sl.no.	Documents Details				Goods/ Services (G/ S)	Shipping bill/ Bill of export			EGM Details		BRC/FIRC
	Type of Document	No.	Date	Value		Port code	No.	Date	Ref. no.	Date	No.	Date	Value
1	2	3	4	5	6	7	8	9	10	11	12	13	14

Statement 3A

Turnover of zero-rated supply of goods and services	Net input tax credit	Adjusted total turnover	Refund amount (1×2÷3)
1	2	3	4

Refund of unutilised ITC on account of supplies made to SEZ unit or SEZ developer without tax payment (Statement 5 and statement 5A):

Statement 5

Sl. no.	Document Details				Goods/Services (G/S)	Shipping bill/Bill of export/Endorsed invoice no.
	Type of Document	No.	Date	Value
1	2	3	4	5	6	7	8

Statement 5A

Turnover of zero-rated supply of goods and services	Net input tax credit	Adjusted total turnover	Refund amount (1×2÷3)
1	2	3	4

Annexure 2 is not applicable to be submitted for claiming the refund of unutilised ITC by any taxpayer.

Cases when provisional refund is allowed and conditions

Section 54(6) read with CGST Rule 91 deals with the grant of provisional refund. In the following cases about a refund of unutilised ITC, a refund can be granted on a provisional basis in form RFD-04 to the extent of 90% of the claims made:

• Refund of unutilised ITC on account of export of goods or services without the tax payment.
• Refund of unutilised ITC on account of supplies to SEZ units or developers without the tax payment.

The provisional refund granted shall exclude ITC that is provisionally accepted (for instance, on the CGST Rule 36(4)). The order for provisional refund is issued within seven days from the date of issuing acknowledgement in RFD-02. This may not be revalidated by the GST refund processing officer while verifying the application for final settlement and order in RFD-06.

Situations for payment of refund to the applicant

Suppose the refund amount claimed by the applicant is relatable to the following types, including unutilised ITC. In that case, it can be paid to the applicant directly rather than crediting it to the Consumer Welfare Fund: 

• Refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies.
• Refund of unutilised ITC in the case of the tax rate on the input being higher than the tax rate on the output.
• Refund of tax paid on the supply of goods/services provided wholly or partially and invoice was not issued.
• Refund of tax paid in excess due to confusion in the transaction being an interstate or intrastate.
• The tax and interest, if any, or any other amount paid by the applicant if he had not passed on the incidence of such tax and interest to any other person.
• The tax or interest borne by such other class of applicants as the government may, on the recommendations of the Council, by notification, specify.