Refunds – CA Final IDT Study Material

Refunds – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.

Refunds – CA Final IDT Study Material

Question 1.
State five cases where refunded amount shall be paid to the applicant, instead of being credited to consumer welfare fund under CGST Act, 2017. [May 2018, 5 Marks]
Answer:
In the following cases, instead of being credited to the Consumer Welfare Fund, the refundable amount shall be paid to the applicant (exception of unjust enrichment):
(a) Refund of Tax paid on export of Goods & services or both or on input Services used in making such exports. (Supply to SEZ will not be covered here)
(b) Refund of unutilized ITC in case of zero rated supplies or accumulated ITC on account of inverted duty structure.
(c) Refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued.
(d) Refund of Tax is pursuance of section 77 (i.e. Tax wrongly collected & paid to department).
(e) 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; or
(f) The tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.

Question 2.
Wye Ltd. provides the following details of September 2020 for computation of refund claim under rule 89(4) of the CGST Rules, 2017. Compute the eligible claim under the said rule assuming that other conditions are fulfilled.

Particulars Amount (₹)
Opening balance of ITC 5,00,000
ITC availed during the period, which includes the claim for refund made of ₹ 5,00,000 eligible under rule 89(4A)/89(4B)of the CGST Rules, 2007 25,00,000
Zero rated supply of goods made during the period without payment of tax under bond/ LUT, which include the supply of ₹ 1,00,00,000 for which refund claim is made under rule 89(4A)/89(4B) of the CGST Rules, 2017 6,00,00,000
Supply of goods other than zero rated supply 3,00,00,000

Answer:
Rule 89(4) of CGST Rule, 2017 stipulates that in the case of zero-rated supply of goods or services or both without payment of tax under bond/LUT in accordance with the provisions of section 16(3) of the IGST Act, 2017, refund of ITC shall be granted as per the following formula:
Refunds – CA Final IDT Study Material 1
Accordingly,

Turnover of zero rated supply of goods = ₹ 5,00,00,000 [₹ 6,00,00,000 – ₹ 1,00,00,000]
Net ITC = ₹ 20,00,000 [₹ 25,00,000 – ₹ 5,00,000]
Adjusted Total Turnover = ₹ 8,00,00,000 [₹ 6,00,00,000 + ₹ 3,00,00,000 – ₹ 1,00,00,000]
maximum refund amount under rule 89(4) = ₹ 20,00,000 × ₹ 5,00,00,000/₹ 8,00,00,000 = ₹ 12,50,000

Note: Adjusted turnover excludes the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.

Refunds – CA Final IDT Study Material

Question 3.
The following particulars are furnished by Delight Exporters, Karnataka, which is duly registered under the GST Act. The entity has also filed bond / LUT in order to export goods without payment of any taxes. You are required to calculate the refund amount in respect of input tax credit on inputs and Input services relating to goods exported in the relevant tax period.

Particulars of Supply Value of Supply in ₹
1. Turnover-excluding supply of services, but includes exempt supplies of ₹ 8,00,000 and inward supplies of ₹ 2,00,000 76,00,000
2. Zero-rated supply of goods under bond/LUT 12,00,000
3. Export services under bond/LUT 48,00,000
4. Non zero-rated supply of services 10,00,000
5. Payments received towards zero-rated supply, which includes ₹ 12,00,000 against which services are yet to be supplied. 48,00,000
6. Advance received in the past, against which zero-rated supplies have been made in the current tax period 14,00,000
7. Turnover on which suppliers have claimed refund under rule 89(4A) and rule 89(4B)
– Goods 6,00,000
– Services 6,00,000
8. ITC on inputs and input services during the tax period including those under rule 89(4A) and rule 89(4B) 12,00,000
9. ITC relating to rule 89(4A) and rule 89(4B) 2,40,000

Answer:
Rule 89(4) of CGST Rule, 2017 stipulates that in the case of zero-rated supply of goods or services or both without payment of tax under bond/LUT in accordance with the provisions of section 16(3) of the IGST Act, 2017, refund of ITC shall be granted as per the following formula:
Refunds – CA Final IDT Study Material 2
Refund Amount \(=\frac{9,60,000 \text { (W.N.4) }}{1,14,00,000 \text { (W.N.1) }}\) × 56,00,000 (W.N. 2 & 3) = 4,71,579 (Round Off)

Working Note 1. Calculation of Adjusted Turnover

Particulars Amount
Turnover of Goods in a state/UT (Nl) 74,00,000
Add. Zero Rated Supply of Services (WN3) 50,00,000
Add. Non-Zero Rated Supply of Services 10,00,000
Less. Value of Exempted Supply (DTA Supply) 8,00,000
Less. Turnover as per Rule 89(4A) 6,00,000
Less. Turnover as per Rule 89(4B) 6,00,000
Adjusted Turnover 1,14,00,000

It is important to note that the inward Supply ₹ 2,00,000 is not a part of Turnover
Working Note 2. Calculation of Turnover of Zero Rated Supply of Goods

Particular Amount
Total Turnover of Zero Rated Supply of Goods 12,00,000
(-) Turnover of Supplies of Goods in respect of which refund has been claimed under Rule 89(4A) 89(4B) 6,00,000
Total Turnover of Zero Rated Supply of Goods 6,00,000

Working Note 3. Calculation of Turnover of Zero Rated Supply of Service

Particular Amount
Aggregate Payment Received for Zero Rated Supply of Service 48,00,000
Less. Advance Received but Supply not Completed 12,00,000
Add. Advance Received in preceding relevant period 14,00,000
Turnover of Zero Rated Supply of Service 50,00,000

Refunds – CA Final IDT Study Material

Working Note 4. Calculation of Net ITC

Particular Amount
Total ITC 12,00,000
Less. ITC Availed for which refund is claimed under rule 89 (4A & 4B) (2,40,000)
Total 9,60,000

Question 4.
Kailash Global (P) Ltd. supplies various goods in domestic and international markets. It is engaged in both manufacturing and trading of goods. The company is registered under GST in the State of Karnataka. The company exports goods without payment of tax under letter of undertaking in accordance with the provisions of section 16(3)(a) of the IGST Act, 2017.
The company has made the following supplies during a tax period:

Particulars (₹)
(i) Export of product ‘A’ to UK for $ 10,000. Assessable value under customs in Indian rupees.
[Export duty is levied on product ‘A’ at the time of exports]
7,00,000
(ii) Domestic supplies of taxable product ‘B’* during the period [excluding tax @ 5%]
[Inputs used in manufacturing of such goods are taxable @18%]
*not notified as a product, in respect of which refund of unutilised ITC shall not be allowed under section 54(3)(ii) of the CGSTAct,2017
10,00,000
(iii) Supply of goods to Export Oriented Unit [excluding tax @ 18%] [ITC has been claimed by the recipient] 5,00,000
(iv) Export of exempt supplies of goods 6,00,000

The ITC available for the above tax period is as follows:

Particulars (₹)
(i) On inputs (including ₹ 50,000 on export of exempt supplies) 3,50,000
(ii) On capital goods 1,20,000
(iii) On input sendees (including ₹ 18,000 on outdoor catering) 2,00,000

Determine the maximum amount of refund admissible to Kailash Global (P) Ltd. for the given tax period. [RTP, May 2019]
Answer:
Computation of maximum amount of refund admissible to Kailash Global (P) Ltd.

Particulars (₹)
Exports of product ‘A’ to UK [Note 1] Nil
Domestic supplies of taxable product ‘B’ during the period [Note 2] 75,000
Supply of goods to Export Oriented Unit [Note 3] Nil
Export of exempt supplies [Note 4] 1,14,000
Total refund claim admissible 1,89,000

Working Notes:

No. Case Provision
1 Exports of product Export of goods is a zero rated supply in terms of section 16(1)(a) of the IGST Act, 2017. Further, Kailash Global (P) Ltd. exports goods without payment of tax under letter of undertaking in accordance with the provisions of section 16(3)(a) of the IGST Act, 2017. Therefore, as per clause (i) of first proviso to section 54(3) of the CGST Act, 2017, a registered person may claim refund, of any unutilised ITC in the case of zero rated supply at the end of any tax period. However, second proviso to section 54(3) lays down that refund of unutilized ITC is not allowed if the goods exported out of India are subjected to export duty.
2 Domestic supplies Rule INVERTED TAX STRUCTURE: Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies).
Amount of refund on account of inverted duty structure shall be determined as per rule 89(5) of the CGST Rules, 2017:♦ Rule 89(5) of the CGST Rules, 2017 stipulates that in the case of refund on account of inverted duty structure, refund of ITC shall be granted as per the following formula –Refunds – CA Final IDT Study Material 5Tax payable on inverted rated supply of goods = ₹ 10,00,000 × 5% = ₹ 50,000

Here, Net ITC = ₹ 3,50,000
Adjusted Total Turnover
= ₹ 28,00,000 [₹ 7,00,000 + ₹ 10,00,000 + ₹ 5,00,000 + ₹ 6,00,000]
Turnover of inverted rated supply of goods = ₹ 10,00,000 Thus, maximum refund amount under rule 89(5)
= (₹ 10,00,000 × ₹ 3,50,000)/₹ 28,00,000 – ₹ 50,000 = ₹ 75,000

3 Supply to EOU Supplies to EOU is notified as deemed export under section 147 vide Notification No. 48/2017 CTdated 18.10.2017. In respect of supplies regarded as deemed exports, the application of refund can be filed by the supplier of deemed export supplies only in cases where the recipient does not avail of ITC on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund. Therefore, since in the given case, the recipient is claiming ITC, Kailash Global (P) Ltd. (supplier of deemed exports) cannot claim refund of ITC.
4 Export of exempt supplies Section 16(2) of the IGST Act, 2017 stipulates that subject to the provisions of section 17(5) of the CGST Act, ITC may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. Section 54(3) of the CGST Act, 2017 allows refund of ITC in the case of zero rated supply made without payment of tax.

Rule 89(4) of CGST Rule, 2017 stipulates that in the case of zero-rated supply of goods or] services or both without payment of tax under bond/LUT in accordance with the provisions of section 16(3) of the IGST Act, 2017, refund of ITC shall be granted as per the following formula:

Refunds – CA Final IDT Study Material 3

Note: Adjusted turnover excludes the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.

Turnover of zero rated supply of goods = ₹ 6,00,000
Net ITC = ₹ 5,32,000 (ITC on outdoor catering disallowed as per section 17(5))
Adjusted Total Turnover = ₹ 28,00,000 (as computed in point 2 above)
maximum refund amount under rule 89(4) = ₹ 6,00,000 × ₹ 5,32,000/₹ 28,00,000 = ₹ 1,14,000

Refunds – CA Final IDT Study Material

Question 5.
Super Engineering Works, a registered supplier In Haryana, is engaged in supply of taxable goods within the State. Given below are the details of the turnover and applicable GST rates of the final products manufactured by Super Engineering Works as also the input tax credit (ITC) availed on inputs used in manufacture of each of the final products and GST rates applicable on the same, during a tax period:

Products Turnover* (₹) Output GST Rates ITC availed (₹) Input GST Rates
A 500,000 5% 54,000 18%
B 350,000 5% 54,000 18%
C 100,000 18% 10,000 18%

*Excluding GST
Determine the maximum amount of refund of the unutilized input tax credit that Super Engineering Works Is eligible to claim under section 54(3)(ii) of the CGST Act, 2017 provided that Product B is notified as a product, in respect of which no refund of unutilised input tax credit shall be allowed under said section. [RTP, Nov. 18/MTP May 2019, 5 Marks]
Answer:
Statutory provision:
INVERTED TAX STRUCTURE: Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies).
Amount of refund on account of inverted duty structure shall be determined as per rule 89(5) of the CGST Rules, 2017:

Rule 89(5) of the CGST Rules, 2017 stipulates that In the case of refund on account of inverted duty structure, refund of ITC shall be granted as per the following formula –
Refunds – CA Final IDT Study Material 4

In the given case:
In accordance with the aforesaid provisions, the maximum refund amount which Super Engineering Works is eligible to claim shall be computed as follows:

Tax payable on inverted rated supply of Product A = ₹ 5,00,000 × 5% = ₹ 25,000
Net ITC = ₹ 1,18,000 (₹ 54,000 + ₹ 54,000 + ₹ 10,000) [Net ITC availed during the relevant period needs to be considered irrespective of whether the ITC pertains to inputs eligible for refund of inverted rated supply of goods or not]
Adjusted Total Turnover = ₹ 9,50,000 (₹ 5,00,000 + ₹ 3,50,000 + ₹ 1,00,000)
Turnover of inverted rated supply of Product A = ₹ 5,00,000
Maximum refund amount = [(₹ 5,00,000 × ₹ 1,18,000)/₹ 9,50,000] – ₹ 25,000
= ₹ 37,105 (rounded off)

Question 6.
Explain “relevant date” for the purpose of refund under CGST?
Answer:
Meaning of ‘Relevant Date’

Case Relevant Date
1. In case of goods exported out of India where a refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods and
(i) Goods are exported by sea or air Date on which the ship or the aircraft in which such goods are loaded, leaves India
(ii) Goods are exported by land Date on which such goods pass the frontier
(iii) Goods are exported by post Date of dispatch of goods by the Post Office concerned to a place outside India
2. In case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods Date on which the return relating to such deemed exports is furnished
3. In case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, and
(i) the supply of services had been completed prior to the receipt of such payment Date of receipt of payment in convertible foreign exchange in Indian rupees wherever permitted by the Reverse Bank of India
(ii) payment for the services had been received in advance prior to the date of issue of the invoice Date of issue of Invoice
4. Where tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court Date of communication of such judgment, decree, order or direction
5a. In case of refund of unutilised ITC in case of zero rated supplies End of the Financial Year in which such claim for refund arises
5b. In case of refund of unutilised ITC in case of accumulated ITC on account of inverted duty structure Due Date for furnishing of return under section 39 for the period in which such claim for refund arises This amendment has been made to correct an inherent contradiction of the relevant date in case of refund of unutilized ITC under section 54(3) since as per Explanation (2)(e) to section 54, the relevant date means the end of the financial year in which such claim for refund arises while section 54(3) states that a registered person may claim refund of any unutilized ITC at the end of any tax period.
6. In the case where tax is paid provisionally under this Act or the rules made thereunder Date of adjustment of tax after the final assessment thereof
7. In the case of a person, other than the supplier Date of receipt of goods or services or both by such person
8. Any other case Date of payment of tax

Refunds – CA Final IDT Study Material

Question 7.
Short note on Provisional Refund?
Answer:
Grant of Provisional Refund [Section 54(6) read with Rule 91]
The proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons (other than such category of registered persons as may be notified by the Government on the recommendations of the Council)

  • refund on a provisional basis, 90% of the total amount so claimed, excluding the amount of ITC provisionally accepted.
  • in such manner and subject to such conditions, limitations and safeguards as may be prescribed and
  • thereafter make an order u/s 56(5) for final settlement of the refund claim after due verification of documents furnished by the applicant.
  • conditions, limitations and safeguards –

Where the amount of tax evaded does not exceeds ₹ 2.5 crores, the person claiming refund has, not been prosecuted during any period of 5 years immediately preceding the tax period to which the claim for refund relates.

The proper officer, after scrutiny of the claim and the evidence and on being prima facie satisfied, shall make an order in prescribed form, sanctioning the amount of refund due to the said applicant on a provisional basis within a period not exceeding 7 days from the date of the acknowledgement.

Question 8.
Who is entitled to refund u/s 55?
Answer:
Power of Government:
Government may, on the recommendations of the Council, by notification, specify:

  1. any specialised agency of the United Nations Organisation; or
  2. any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947; or
  3. Consulate or Embassy of foreign countries; and
  4. any other person or class of persons as may be specified in this behalf.

who shall, subject to such conditions and restrictions as may be prescribed, be entitled to claim a refund of taxes paid on the notified inward supplies of goods or services or both received by them.

Notified persons:
In exercise of above power, following persons have been notified, subject to fulfilment of specified conditions:

  1. United Nations or a specified international organization**; and
  2. Foreign diplomatic mission or consular post in India, or diplomatic agents or career consular officers posted therein

** Specified international organisation means an international organisation declared by the Central Government in pursuance of section 3 of the United Nations (Privileges and Immunities Act) 1947, to which the provisions of the Schedule to the said Act apply. Further, in exercise of said power, Canteen Stores Department (CSD), under the Ministry of Defence, has been notified as a person who shall be entitled to claim a refund of 50% of the applicable CGST/IGST paid by it on all inward supplies of goods received by it for the purposes of subsequent supply of such goods to the Unit Run Canteens of the CSD or to the authorized customers of the CSD.

Question 9.
Explain the provisions of refund allowed to retail outlets established in the departure area of an international airport.
Answer:
Supply of goods by a retail outlet established in the departure area of an international airport, beyond the immigration counters, to an outgoing international tourist, is exempted from IGST.

These retail outlets making tax free supply of indigenous goods to an outgoing international tourist [also referred as eligible passenger] are entitled to claim refund of applicable CGST+SGST/UTGST or IGST paid on inward supply of such goods. Therefore, retail outlets will supply such indigenous goods without collecting any taxes from the eligible passenger and may apply for refund.

The refund shall be subject to the following conditions, as specified in newly inserted rule 95A of the CGST Rules:

Who is eligible for refund?

Retail outlet, registered under GST and holding a valid GSTIN, established in departure area of an international airport, beyond the immigration counters, supplying indigenous goods to an outgoing international tourist who is leaving India shall be eligible to claim refund of tax paid by it on inward supply of such goods.

Application for refund

In prescribed form on a monthly/quarterly basis along with self-certified compiled information of invoices issued for the supply made during the month or the quarter, as the case may be, along with concerned purchase invoice.

Conditions for claiming refund

The refund of tax paid by the said retail outlet shall be available if –

  • the inward supplies of goods were received by the said retail outlet from a registered person against a tax invoice
  • the said goods were supplied by the said retail outlet to an outgoing international tourist against foreign exchange without charging any tax;
  • name and GSTIN of the retail outlet is mentioned in the tax in voice for the inward supply; and
  • such other restrictions or conditions, as may be specified, are satisfied.

Refunds – CA Final IDT Study Material

Question 10.
Y Ltd. exported service valued at US $ 1,00,000. Supply of service was completed on 15th November 2019. Payment for this service was received on 30th December 2019. Refund claim was filed by Y Ltd. in respect of tax paid on inputs and inputs services for 6,00,000 on 31st January, 2020. The refund claim was sanctioned on 30th April, 2020. What is the amount of refund Y Ltd. will get in accordance with law? What is the relevant date and rate of interest as per GST law? [Nov. 2018, Old, 4 Marks]
Answer:

As per clause (i) of first proviso to section 54(3) of the CGST Act, 2017. The refund claim admissible to Y Ltd. on account of export of services being a zero-rated supply, is the unutilized ITC of ₹ 6,00,000.
As per Explanation to section 54 of the CGST Act, 2017, where the supply of services had been completed prior to the receipt of payment, relevant date is the date of receipt of payment in convertible foreign exchange. 30th December, 2019.
As per section 56 of the CGST Act, 2017:-
Where any tax ordered to be refunded to any applicant is not refunded within 60 days from the date of receipt of application, interest shall be payable @6% p.a. from the date immediately after the expiry of 60 days from the date of receipt of application till the date of refund of such tax.
Since in the given case, tax ordered to be refunded is not refunded within 60 days from the date of receipt of application, viz., 31st January, 2020, interest @ 6% p.a. is payable.

Question 11.
Discuss three supplies which have been notified as deemed exports under section 147 of CGST Act, 2017. [Nov. 2018 Old, 3 Marks]
Answer:
The following supplies have been notified as deemed exports under section 147 of the CGST Act, 2017:

  1. Supply of goods by a registered person against Advance Authorisation.
  2. Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation.
  3. Supply of goods by a registered person to Export Oriented Unit.
  4. Supply of gold by a notified bank/Public Sector Undertaking against Advance Authorisation. Note: Any three points may be mentioned.

Question 12.
Define Export of Goods and Export of Services?
Answer:
Solution.
(I) Export of Goods

Physical Exports
Export of goods requires taking the goods from India to a place outside India. India is defined as extending to the limits of its maritime zone, which is 200 nautical miles from the coastal baseline. This is far beyond the normal definition of India, which only includes its territorial waters, which in turn extend 12 miles from the baseline. Given the extended meaning of India, export would require that the goods must travel beyond 200 miles from the baseline in order to qualify as having been exported.

It may be noted that unlike in case of export of services, in case of export of goods there is no condition of receiving the payment in convertible foreign exchange

Deemed Exports

Deemed exports refers to supplies of goods manufactured in India (and not services) which are notified as deemed exports under section 147 of the CGST Act. Such supplies do not leave India and the payment for the same is received either in Indian rupees or in convertible foreign exchange.

Following categories of supply of goods have been notified as deemed exports by the Government videNotihcation No.48/2017 CT dated 18.10.2017:
(a) Supply of goods by a registered person against Advance Authorisation.
(b) Supply of capital goods b a registered person against Export Promotion Capital Goods Authorisat ion.
(c) Supply of goods by a registered person to Export Oriented Unit.
(d) Supply of gold b a bank or Public sector Undertaking specified in Notification No. 50/2017 Cus. dated 30.06.2017 (as amended)against Advance Authorisation.

(II) Export of Services

Supply of service qualifies to be an ‘export of service’ if it fulfils the following conditions:
(a) the service is supplied from India to a place outside India,
(b) the place of supply of the service is outside India, and
(c) the consideration for the service is received in freely convertible foreign exchange*,
(d) the transaction is between separate entities, i.e. not merely between two establishments of an entity

Important to note:

1. Branch and Head Office of one taxable person are not treated as two separate entities for this purpose. In other words, provision of outbound services inter se Branch and Head Office is not construed as export of service. However, Notification No. 9/2017 IT(R) dated 28.06.2017 exempts the services provided by an Indian establishment to its foreign establishment from IGST if the place of supply is outside India.

2. ‘Payment for export of service can be received in Indian rupees, if permitted by the RBI. In case of exports to Nepal and Bhutan, the payment is received in Indian rupees as per RBI regulations.

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