Section 54 of CGST Act: Refund of Tax Under GST

Section 54 of the Central Goods and Services Tax (CGST) Act, 2017, contains the provisions relating to the refund of tax paid under GST. It lays down the various conditions and procedures for claiming a refund, including the relevant date for determining the time limit for claiming a refund, the types of taxes eligible for a refund, and the documents required to be furnished with the refund application.

Latest Updates

23rd July 2024
In the Union Budget 2024, the Finance Minister proposed an amendment to Section 54 of CGST Act to prohibit refund of unutilized input tax credit or integrated tax on zero-rated supply of goods, which are subjected to export duty.

*This will come into force once notified by the CBIC.

Continue reading to know more about Section 54 of the CGST Act, refund clauses, and the documents required to claim a refund.

What Is Section 54 Of The CGST Act? 

Section 54 of the CGST Act 2017 applies to persons who have paid a tax or any other amount, such as interest on tax, etc. and wish to claim a refund under the GST law. They can claim the refund in case of exports of goods or services or both, zero-rated supplies, deemed exports, and refund of unutilised input tax credit (ITC).

A refund of tax paid on exports aims to promote exports and make Indian goods and services competitive in the global market. Similarly, the refund of tax paid on zero-rated supplies is aimed at making supplies to Special Economic Zones (SEZs), developers, or units more attractive. The refund of unutilised ITC provides relief to taxpayers who have paid more tax on inputs than the tax payable on their output supplies.

However, Section 54 also lays down certain conditions and restrictions for claiming refunds, such as the requirement of submitting documentary evidence, the time limit for claiming refunds, and the conditions for verifying and sanctioning refunds. Taxpayers must comply with these conditions and restrictions to claim a refund under this section.

Here is a more detailed clause-by-clause explanation of Section 54 of the CGST Act:

Section 54(1) Of The CGST Act

A person can apply for a refund of taxes, interest, or any other amount paid, within two years from the relevant date in the prescribed form (GST RFD-01) and manner. 

The relevant dates for some of the cases are listed below: 

Registered persons claiming a refund of any balance in the electronic cash ledger can claim such refund in the prescribed form and manner under Section 49(6).

Section 54(2) Of The CGST Act

Specialised agencies of the United Nations, multilateral financial institutions, foreign consulates, and notified persons can apply for a refund of tax paid on inward supplies within two years from the last day of the quarter in which the supply was received. 

Section 54(3) Of The CGST Act

You can claim a refund of an unutilised ITC at the end of a tax period only for zero-rated supplies made without paying GST or when ITC accumulates due to higher tax rates on input supplies as compared to output supplies (other than Nil-rated or exempt supplies). Further, a refund is not allowed for exported goods subject to export duty or if the supplier avails of a drawback or claims a refund of the IGST paid on such supplies.

Section 54(4) Of The CGST Act

To claim a tax refund, an applicant must provide prescribed documentary evidence to prove that they are eligible for the refund. They must also provide evidence that the incidence of tax or interest paid by them in relation to such refund has not been not passed on to another person. However, if the refund amount is less than Rs.2 lakh, a declaration certifying that the incidence of tax and interest paid was not passed on is sufficient based on other available evidence.

Section 54(5) Of The CGST Act

Upon receiving the refund application, if the proper officer verifies and approves that a refund is due, they will make an order for the refund and credit the amount to the Fund mentioned in section 57, i.e. the Consumer Welfare Fund.

Section 54(6) Of The CGST Act

For refund claims on account of zero-rated supplies of goods or services, the proper officer can refund 90% of the amount claimed on a provisional basis, subject to prescribed conditions. Thereafter, the proper officer can pass an order for the final settlement of the refund claim after due verification of the documents.

Section 54(7) Of The CGST Act

The officer must issue the refund order within 60 days of receiving a complete refund application.

Section 54(8) Of The CGST Act

Refundable amounts, under certain circumstances, can be paid to the applicant instead of being credited to the Consumer Welfare Fund. This includes- 

• Refunds for tax paid on exports or inputs used in making such exports, 
• Refund of unutilised input tax credit under sub-section (3), 
• Refund of tax paid on supplies not provided or invoiced, or where a refund voucher has been issued,
• Refund of tax paid incorrectly as detailed under section 77 (Section 77 of the CGST Act, 2017 deals with the refund of tax that has been wrongly collected and paid to the Central or State Government), 
• Tax or interest borne by the applicant, 
• Tax or interest borne other specified classes of applicants. 

Section 54(8A) Of The CGST Act

The government may disburse state tax refunds as prescribed.

Section 54(9) Of The CGST Act

You can only apply for a refund according to the provisions in subsection (8), regardless of any conflicting court judgments or orders.

Section 54(10) Of The CGST Act

If the applicant has not filed their returns or not paid any tax, interest or penalty that has not been stayed by any court, tribunal or appellate authority by the specified date, the proper officer can withhold payment of the refund until the taxpayer has filed their returns or paid the outstanding tax dues, as the case may be.

The officer can also deduct any outstanding tax, interest, penalty, fee, or other amount owed from the refund due to the applicant. 

The specified date refers to the last date for filing an appeal under the Act.

Section 54(11) Of The CGST Act

If there is an appeal or any other proceeding going on relating to the refund order, and if the commissioner feels that granting the refund can lead to revenue loss due to fraud or malfeasance, then they can withhold the refund. Although, this will be after giving the taxpayer an opportunity of being heard.

Section 54(12) Of The CGST Act

The government has a right to withhold your refund as per the condition mentioned in subsection (11). However, if the taxpayer is found to be entitled to the refund later on, they shall also be entitled to receive interest at a rate not exceeding 6%.

Section 54(13) Of The CGST Act

This section states that a casual or non-resident taxable person who has deposited advance tax cannot claim a refund of that tax unless they have filed all the required returns under section 39 for the entire period during which their registration certificate was valid. 

Section 54(14) Of The CGST Act

No refund will be issued under subsections (5) and (6) if the refund claim amount is less than Rs.1000. 

What are the refund types included and excluded in this section?

Section 54 of the CGST Act, 2017 provides for the refund of tax paid on the supply of goods or services under certain circumstances. The refund types included and excluded in this section are as follows:

Refund types included:

• Export of goods or services
• Supply of goods or services to an SEZ developer or an SEZ unit or for the authorised operations of an offshore banking unit
• Deemed exports
• Refund of unutilised ITC
• Refund of tax or interest borne by other classes of applicants as notified by the Government.
• Refund of tax, interest, or other amounts paid by the applicant and not passed on to others.
• Refund of tax paid in error under Section 77.
• Refund of tax paid on a supply that was not provided or invoiced or where a refund voucher has been issued.

Refund types excluded:

• Tax paid on supplies that are not covered under the CGST Act, such as alcohol for human consumption.
• If excise duty is applicable on goods exported from India, the unutilised ITC cannot be claimed for a refund.
• If the supplier of goods has claimed duty drawback or IGST refund on the supply, a GST refund is not available.

Note that the refund claim under this section must comply with the prescribed conditions and restrictions. 

Documents required for claiming a tax refund 

The documents required for a tax refund under Section 54 of the CGST Act, 2017 may vary depending on the nature of the refund claim; some common documents are as follows:

• GST refund application form (GST RFD-01) 
• Tax invoices
• Shipping bills and export invoices
• Bill of entry
• Bank statement
• Authorisation letter
• Any other document as may be required by the proper officer

You can find the detailed list of documents required for filing a refund application here.

Conditions For Granting Of Refund

Here are some conditions for granting a refund under Section 54 of the CGST Act, 2017:

Application

You must file a refund application electronically on the common GST portal in Form GST RFD-01. The application can be made for a refund of tax paid on zero-rated supplies, accumulation of ITC due to an inverted tax structure, or any other grounds specified by the government. 

Time Limit

As per Section 54 of the CGST Act, 2017, the proper officer shall issue an order for the refund within sixty days from the date of receipt of a complete refund application. If the refund is not issued within the said period, you are entitled to an additional interest at the rate notified by the government.

Verification

The conditions for granting a refund under Section 54 of the CGST Act, 2017 require a proper officer to verify the refund application and the documents submitted with it. The officer may scrutinise the refund application and ask you for clarification or additional documents. They may also verify the documents furnished along with the refund application to ensure authenticity and relatability to the claim being made.

General Conditions 

Section 54 of the CGST Act, 2017 also lays down some general conditions as follows:

1.  You must be a registered person under GST law.
2. You must have paid the tax or the amount claimed as a refund.
3. The amount of refund claimed must be more than Rs. 1,000.
4. You must claim the refund within the time limit specified in Section 54(1), i.e., within two years from the relevant date.
5. You must furnish all the relevant documents, such as invoices, payment receipts, etc., to support the claim for a refund.
6. You must not have committed any offence under the GST Act or any other law for the time being in force.
7. The goods or services for which the refund is claimed must not have been used for personal consumption.
8. You should not have availed an ITC on the inward supply of goods or services or both, for which the refund has been claimed.
9. The refund shall be available only to the extent of the tax paid on the supplies received for export out of India.
10. The refund claim must be verified in the prescribed manner.

Conclusion

Section 54 of the CGST Act provides provisions for claiming refunds of excess GST paid by a registered person. It sets out various conditions and time limits for claiming such refunds, along with the relevant dates for determining the eligibility for refunds. 

Taxpayers can claim refunds of taxes paid on inputs, input services, and capital goods that are used for business purposes, as well as for exports and zero-rated supplies. Although, you must comply with the conditions and procedures set out in Section 54 to claim refunds smoothly and avoid any penalties or legal issues.