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Refund Claims of Accumulated ITC

Updated on:  

08 min read

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

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

27th June 2020
A full or part of the amount applied for refund may have been rejected via a notice issued by the authority. After completing the due proceedings, a final order must be issued within 60 days from the date of receipt of the refund application.

In case this time limit is expiring between 20th March to 30th August 2020, the last date to issue order shall be extended to the later of following dates:
1. 15 days from the date of receiving a reply from the applicant towards the notice, or
2. 31st August 2020

3rd April 2020
The time limit for completion or compliance has been extended to 30th June 2020, where the time limit/time limit/ date of expiry falls between the period from 20th March 2020 to 29th June 2020. It includes cases where the time limit to apply for GST refund in RFD-01 expires between 20th March 2020 and 29th June 2020.


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

refund of accumulated ITC
refund of accumulated ITC

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

refund of accumulated ITC
refund of accumulated ITC

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]
12345

Statement 1A

Edit
Sl. no.Details of documents of inward supplies received on inputs receivedTax paid on inward suppliesDetails of documents of outward supplies issuedTax paid on outward supplies
Type of inward suppliesGSTIN of Supplies/Self GSTINType of documentNo./B/EPort codeDateTaxable valueIntegrated taxCentral taxState/UT taxType of Outward SupplyType of DocumentNo.DateTaxable valueIntegrated taxCentral taxState/UT tax
12345678910111213141516171819
B2B/B2C

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

Statement 3

Edit
Sl.no.Documents DetailsGoods/ Services (G/ S)Shipping bill/ Bill of exportEGM DetailsBRC/FIRC
Type
of
Document
No.DateValuePort codeNo.DateRef. no.DateNo.DateValue
1234567891011121314

Statement 3A


Turnover of zero-rated supply of goods and services

Net input tax credit

Adjusted total turnover

Refund amount (1×2÷3)
1234

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

Edit
Sl. no.Document DetailsGoods/Services (G/S)Shipping bill/Bill of
export/Endorsed
invoice no.
Type of DocumentNo.DateValue
12345678

Statement 5A


Turnover of zero-rated supply of goods and services

Net input tax credit

Adjusted total turnover

Refund amount (1×2÷3)
1234

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.

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