Processing of final refund under the GST.
22T of 2018 Dated:- 1-9-2018 Maharashtra SGST
GST – States
Office of the
Commissioner of State Tax,
(GST), 8th floor, GST Bhavan,
Mazgaon, Mumbai-400010.
TRADE CIRCULAR
To,
…………………………
…………………………
No. JC/HQ-I/GST/Refund/Trade Circular/01/2017-18 Mumbai, Date: 01/09/2018
Trade Cir. No. 22 T of 2018
To,
…………………..
–
Subject : Processing of final refund under the GST.
Ref. (1) Trade Circular No. 49 of 2017 dated 28th Nov. 2017.
(2) Internal Circular No. 24A of 2017 dated 11th Dec. 2017.
(3) Internal Circular No. 27A of 2017 dated 30th Dec. 2017.
(4) Trade Circular 1T of 2018 dated 1st Jan. 2018.
(5) Trade Circular No. 8T of 2018 dated 21st Feb. 2018.
(6) Trade Circular No. 17T of 2018 dated 2nd June 2018.
(7) Internal Circular No. 19A of 2018 dated 18 July 2018
Sir/Gentlemen/Madam,
1. Background:
1.1. Your attention is invited to
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erefore, under such circumstances, the Nodal Officers have rejected the refund so claimed.
1.3. On this background, refund claimed or granted erroneously necessitates the initiation of proceedings for Demand and Recovery under appropriate provisions of GST law.
1.4. For aforesaid reasons an Internal Circular 19A of 2018 dated the 18th July 2018 was issued and certain instructions/guidelines were given so as to examine the availment and utilization of Input Tax Credit by the taxable person who has filed refund application.
1.5. In continuation of the said Internal Circular, it has, now, become imperative to issue certain instructions with regards to the procedure to be followed for verification of availment of input tax credit, rejection of refund, re-credit of rejected refund, initiation of Audit proceedings and subsequent actions for raising demands and recovery of the same.
1.6. As explained above, the Internal Circular 19A of 2018 dated the 18th July 2018 had outlined the proced
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pects covered
1.
PART-A
Legal aspects about the admissibility or inadmissibility of ITC under MGST Act and rules made thereunder
2.
PART-B
Quantification of eligible and in-eligible refund amount, and further process in this behalf.
PART-A
Legal aspects about the admissibility or in-admissibility of ITC under MGST Act and rules made thereunder:
1. Verification of refund claim and related documents:
1.1. It may be worth to note that the Refund application in FORM-GST RFD-1A, debit entry in the Electronic Credit Ledger/Cash Ledger (wherever required), GSTR-3B, GSTR-1, tax invoices and autodrafted invoice level inward supplies details in FROM-GSTR-2A are vital and primary documents that facilitates determination of the eligible amount of refund under SGST Act/CGST Act/IGST Act/Cess Act.
1.2. Among aforesaid documents, the applicant is required to submit along with refund application in FORM-GST-RFD-01A with requisite declarations and undertakings, the tax invoices, Statement in
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ency into account and submit the GSTR-2A or inward supply invoices details to the concerned Nodal Officer.
1.5. It may be noted that the GSTR-2A has been made available on the SAP portal. For accessing said GSTR-2A and more details please refer USER MANUAL available on the SAP portal.
1.6. On this backdrop, to determine the refund amount correctly, the Nodal Officer shall adhere to the procedure given in earlier Circulars and verify the documents and GSTR-1, GSTR-2A, GSTR-3B and FORM-GST-RFD-1A and all the documents mentioned in those Circulars, carefully and collate all the information contained therein and apply the appropriate provisions contained under section 16 to section 21 as also the formula given in rule 89(4) or 89 (5) of the MGST Rules. On careful examination of aforesaid, the Nodal Officer shall determine ITC that is:
(1) Admissible
(2) In-admissible or in-eligible
(3) Un-match or mis-match
2. Legal provisions relating to availment of Input Tax Credit:
2.1. In or
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furnished the return in FORM-GSTR-3B and FORM-GSTR-1.
(5) in case the goods are received in the lots then the recipient shall be entitled to take ITC upon receipt of last lot or instalment.
(6) in case the tax payer has failed to pay to the supplier of goods or services both (except the supplies where tax is payable on reverse charge basis), the amount towards the value pf supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier then such input tax credit may be taken once said outstanding payment is made to the supplier.
(7) In case, the registered person has claimed depreciation in respect of the tax component of the cost of the capital goods and plant and machinery, as per the Income Tax Act, 1961, then the ITC in respect of said component of tax shall not be allowed. So as to ascertain this, the Nodal Officer need to raise specific query to the tax payer and ask for the explanation in this behalf. The ITC claimed under
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the extent as is attributable to the purpose of the business or the taxable supply.
(b) In other words, the taxable person shall not be entitled to take the input tax credit in respect of the goods or services or both that are used for other than the business purposes or are used for making the exempt supplies.
(c) On this basis, admissibility or in-admissibility of the input tax credit shall be determined proportionately. For this purpose, please visit the provisions given in rule 42 and 43 of the MGST Rules.
(2) Banking company or a financial institution including a nonbanking financial company:
(a) Banking company or a financial institution including a nonbanking financial company (for short “Banking Company”) that is engaged in supplying services by way of accepting deposits, extending loans or advances. As the majority of the supply of Banking Company relates to accepting deposits, extending loans or advances, which is exempted from the GST (Notification No. 12/2017-Entry-2
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supply to State Bank of India, Delhi branch or one business vertical of SBI is making tax paid supply to another business vertical of SBI provided they are having the same PAN. The aforesaid restriction of 50% ITC is not applicable.
(3) In addition to the aforesaid aspects, it may be noted that the registered taxable person shall not take credit of input tax in respect of the contingencies given in clause (A) to (I) below: –
(A) motor vehicles and other conveyances except when they are used for making the following taxable supplies, –
* of such vehicles or conveyances; or
* of transportation of passengers; or
* for imparting training on driving, flying, navigating such vehicles or conveyances;
(B) motor vehicles and other conveyances for transportation of goods;
(C) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or
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t service;
(E) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
• the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;
(F) tax paid in respect of supplies received from the tax payer who opts to pay an amount in lieu of tax under composition as per section 10 of the MGST Act
(G) goods or services or both received by a non-resident taxable person except on goods imported by him;
(H) goods or services or both used for personal consumption;
(I) goods that are lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
2.4. The availability of credit is also dependent on the conditions and restrictions given in section 18, the important provis
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der section 10.
[Section 18(1)(c)]
in respect of inputs held,-
(i) in stock and
(ii) inputs contained in semi-finished or finished goods held in stock and on capital goods
* on the day immediately preceding the date from which he becomes liable to pay tax at normal rate.
* input tax credit shall be available as determined under rule 44 of MGST Rules.
(4)
Where an exempt supply of goods or services or both by a registered person becomes a taxable supply.
Section 18(1)(d)]
in respect of inputs held, –
(i) in stock and
(ii) inputs contained in semi-finished or finished goods held in stock and on capital goods exclusively used for such exempt supply.
* on the day immediately preceding the date from which such supply becomes taxable
* the set-off on the Capital Goods is to be reduced as provided in rule 40(1(iv).
(5)
A registered person in respect of supply of goods or services or both to him after the expiry of ONE year from the date issuance of tax invoice relating
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Rules].
(2)
Any registered person who has availed of the credit, –
(a) but subsequently opt to pay tax under Composition Scheme, or
(b) where the goods or services or both supplied by him become wholly exempt.
[Section 18(4)]
* shall pay an amount through debiting the electronic credit ledger equivalent to the credit of input tax held, –
* in stock and
* inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately before the day on which option is exercised.
* the credit in respect of capital goods shall be reduced as given in rule 44(3) of the MGST Rules.
* it may be noted that any balance remaining in the electronic credit ledger after payment as aforesaid shall lapse.
(3)
(a) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken,
(b) where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap,
[Section 18(6)]
* shall pay on transaction value as d
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of the MGST Act. These aspects are explained in Internal Circular 1A of 2018 1st January 2018. It may be noted that the refund of Transitional Credit is not available when the goods or services are exported or are supplied to Developer of Special Economic Zone or SEZ Unit without payment of tax. This aspect has also been explained vide Trade Circular 17 T of 2018 issued on 2nd June 2018. Therefore, when the applicant files application for refund of accumulated ITC then the Nodal Officer shall not allow the refund on account of Transitional ITC taken into Electronic Credit Ledger under the GST.
PART-B
Quantification of eligible and in-eligible refund amount, and further process in this behalf.
1. The documents or information related to input tax credit that need to be verified and kept on record: For quantification of eligible or in-eligible refund the Nodal Officer shall verify the following documents or information:
1.1. Physical copies of the inward supply tax invoices submitted
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ncluding the GSTR-2A, the amendments made by the supplier in respect of the supplies made to refund applicant qua month for which the refund application is filed.
1.4. The return filing frequency of the supplier as also the amendments made to the subsequent months GSTR-1 and addition of missing invoices by the supplier shall also be taken into account while determining the match, un-match or mis-match in the input credit availed by the refund applicant and that is passed on by the supplier.
Example:
(a) Recipient M/s ABC has filed the refund application for ₹ 1,00,000/- for the month of December-2017 having monthly periodicity of filing GSTR-1.
(b) M/s ABC has received the inward supply from the supplier, –
* M/s XYZ whose frequency of filing return is monthly. He has supplied the goods through 4 invoices. However, while filing GSTR-1 he has missed one invoice and for one invoice ITC passed on is wrongly stated i.e. instead of say Rs, 500 of SGST and CGST credit each it has
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tes. This data will give overall picture about the ITC as per GSTR-3B and passed on by the supplier. [This is the additional facility provided by the EIU].
1.6. In addition to the auto-drafted GSTR-2A, the tax payer may be asked to submit the details of inward supplies in the Proforma appended to the Internal Circular 19A of 2018 dated the 18th July 2018.
1.7. Further, in case the input tax credit claim pertains to the IGST on account of import of goods then the tax payer may be asked to produce the information in following format with the copies of the Bill of Entries filed while clearing the goods for home consumption:
Sr. No.
B.E. No.
Date of B. E.
C.I.F. Value
Basic Custom Duty paid
Integrated tax paid
1.8. In case the input tax credit claim pertains to the IGST on account of import of services then the tax payer may be asked to produce the information in following format:
Sr. No.
Country of Import
Invoice No.
Invoice Date
Tax rate (%)
Total Invoice Value
Total Taxa
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bout the suppliers filing of GSTR-3B and GSTR-1 shall be confirmed. This may be done on the basis of the data provided by the EIU.
(4) In case, the supplier has failed to file return in FORM-GSTR-3B or GSTR-1 or both, then this may be brought to the notice of the tax payer. After giving reasonable compliance window, if the default is not made good then the input tax credit in relation to these non-filers shall not be allowed.
(5) In case of refund is on account of availment of IGST credit from the supplier who is located in other State and who has not filed the GSTR-3B or GSTR-1 or both, then recipient may be asked to pursue the supplier to make this default good.
(6) The Nodal Officer shall ensure that the tax invoices submitted by the tax payer meets all the requirements given in rule 46 and rule 48 of the MGST Rules. Verification of inward supply tax invoices shall be carried out properly,
(7) The verification of the outward supplies including confirmation of export from ICEGATE
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isions of MGST Act which are explained in the preceding Para's. Once the admissible or in-admissible ITC claim is determined then the exercise of matching of ITC shall be carried out.
3.2. Determination of eligible refund amount:
(1) The supply on account of exports of goods without payment of IGST need to be verified from the ICEGATE portal. Whereas, exports of services with or without payment of IGST need to be verified and confirmed on the basis of the export/supply related documents including the Foreign inward remittance Certificate/Bank
Reconciliation Certificate etc. The aspects of verification of outward supply i.e. the deemed exports, supplies having inverted tax structure including supplies made to merchant exporters with 0.05% SGST/CGST or 0.1% IGST had been elaborately explained in the Circular(s) issued from time to time, in this behalf.
(2) In short, this Circular refers to the outward supply in the limited context of determination of the output liability or, as the c
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justed Total Turnover} – tax payable on such inverted rated supply of goods.
• Adjusted TO means total Turn-over less Nil rated and Exempted but including Zero rated supplies.
• ITC was having the same meaning given in rule 89(4) of the MGST Rules.
(b) However, vide notification No. 21/2018 State tax dated the 18th April, 2018 formula in the sub-rule (5) of rule 89 was amended. The effect of 1st July 2017 to the said subrule was given vide notification No. 26/2018 State Tax dated 21-06-21018.
(c) The new formula made applicable retrospectively with effect from 1st July 2017, is as under:
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services.
• “Net ITC” shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or
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e Nodal Officer shall also verify the match, mis-match or un-match of ITC with the claim made by the refund applicant and that is passed on by the supplier.
(3) In case the ITC claim is prima-facie found to be in-admissible or there is mis-match or un-match, then in all such cases the balance refund of 10% or such percentage of refund out of balance 10% found un-match or mis-match need to be rejected. For this showcause in FORM-GST-RFD-08 need to issued. On receipt of reply in FORM-GST-RFD-09 which in case, in the opinion of the Nodal Officer is deficient in compliance, then such balance refund shall be rejected and refund rejection order in FORM-GST-RFD-06 shall be issued.
(4) However, in the cases where the refund relating to the inverted duty structure, on account of supplies made to SEZ developer or unit or refund on account of deemed export is pending as on the date of issuance of this Trade Circular then is all such cases the refund shall be granted only after undertaking the A
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r.
(2) The monetary limit for initiation of Audit under section 65 of the MGST Act, in the cases falling in category (a) above and where the cumulative refund granted qua tax payer (refund applicant) exceeds ₹ 1,00,000/-.
(3) The limit of ₹ 1,00,000/- shall be computed considering the cumulative total of the refund claimed under SGST/CGST/IGST/Cess of all the application for refund so received.
4.2. Initiation of Audit proceedings:
(1) The section 65 of the MGST Act empowers the tax authorities to undertake the Audit. In order to conduct the Audit under this section the Commissioner of State tax, Maharashtra State, is empowered to provide the criteria for selection of the cases for Audit under section 65 of the MVAT Act.
(2) For initiation of Audit proceedings, the Nodal Officer shall issue a notice in FOR-GST-ADT-01. The Nodal Officer, depending upon the record to be verified may decide as to whether the Audit to be carried out at the business premises of the tax paye
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t proceedings shall be communicated to the said tax payer.
4.6. However, in the cases where the tax payer disputes the Audit findings and refuses to make the default good or fails to pay the amount as determined then is all such cases, as provided under section 65(7) of the MGST Act, the proceedings for demand and recovery shall be initiated as per the provisions of the section 73 or 74 of the MGST Act.
5. The issues that need to be considered while issuing the Show-cause Notice for Demand and recovery of the refund granted erroneously or ITC availed/utilized wrongly etc. :
5.1. Legal provisions: Section 73 of MGST Act, provides for determination of tax not paid or short paid or erroneously refunded, input tax credit wrongly availed or utilized for any reason other than fraud or any willful mis-statement or suppression of facts.
5.2. Whereas, the section 74 provides for determination of tax not paid or short paid or erroneously refunded input tax credit wrongly availed or utilized
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Authority on the charges alleged in the SCN. The issuance of show cause notice is a mandatory requirement according to the principles of natural justice as also the provisions of section 73(1) or 74(1) of the MGST Act.
5.5. Structure of SCN:
(1) A SCN should ideally comprise of the following parts, though it may vary from case to case:
(a) Introduction of the case
(b) Legal frame work
(c) Factual statement and appreciation of evidences
(d) Discussion, facts and legal frame work relating thereto
(e) Discussion on Limitation period
(f) Calculation of additional tax and other amounts due such as interest, penalty etc.
(g) Statement of charges-exact nature of violation of law, rules or safeguards etc.
(h) Service of Show Cause Notice and documents and evidences relied upon.
(i) Filing of Written submissions by the Tax payer and evidences supported.
(j) Personal hearing
(k) Record of personal hearing:
(l) Analysis of issues:
(m) Body of the order:
(n) Quantification of dema
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e 30 days from the service of the notice, the said tax payer shall intimate the proper officer of such payment in FORM-GST-DRC-03 and the proper officer shall issue an order in FORM-GST-DRC-05. On payment of the tax and interest (73(8) or as the case may be, the tax, interest and penalty (74(8), then the proceeding shall be deemed to be concluded in respect of the said notice.
(6) If the taxpayer or person chargeable with tax does not agree with the additional tax liability during the course of verification or thereafter, the taxpayer shall reply to the show cause notice in FORM-GST-DRC-06. [Please see per rule 142 (4)].
(7) The Nodal Officer/Proper Officer, after considering the representation made by the taxpayer, shall upload electronically the order in FORM-GST-DRC-07 [as given in rule 142 (5)], specifying the amount of tax, interest and penalty payable so that liability ledger of the taxpayer gets updated accordingly.
(8) The proper officer may for the purposes given in section
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