GST Refund can now be Claimed for 2 Financial Years

The Paragraph 8 of Circular No. 125/44/2019-GST notified on 18th November, 2019 has been stayed by the High Court of Delhi. This circular stated that the period of GST Refund cannot be spread across two consecutive financial years and a taxpayer has to file the same in proper chronological order. Here in this article we are presenting the case and facts related to it that made the GST Refund Service to be claimed for 2 years in a row by the taxpayers.

GST Refund Service for taxpayer

Facts of the case:

  • Pitambara Books, the petitioner deals in manufacturing and trading business of books. They have a registration under GST.
  • The business procures raw material and goods for manufacturing the products from domestic market. The final products are manufactured through the in-house facility of the petitioner and is exported to various parts of the world including Ethiopia, Russia, Sudan, Africa et.
  • The export related activity of the petitioner has been categorized as zero-rated supplies as per the Section 161(1)(a) of the Integrated Goods and Services (IGST) Act, 2017.
  • The petitioner procured the raw material and goods after paing the GST on them for manufacturing the final products from the month of November, 2017 to June, 2018. The products made during this time period were exported only in June, 2018 and before that.
  • This mplies that the Input Ta Credit availed by the petitioner is spread throughtout these two financial years which are 2017-18 and 2018-19. Also, it is to be noted that the exports for the produced goods were made only in the fiscal year 2018-19 and not befoe that for the purchased material and items used in the manufacturing process.
  • The petitioner has claimed that the terms in Rule 89(4) of the act for his eligibility for GST Refund Service for the said period above which is for eight months will be for Rs. 2.80 Crore. This amount is in accordance with the information that is available in the Returns filed in Form GSTR-3B by the petitioner.
  • The petioner is eligible for the above stated amount for unutilized ITC on the exported goods as per Section 16(1), Section 16(3) and Section 54(3) of the Central Goods and Services Tax (CGST) Act, 2017.
  • But as per the Circular No. 125/44/2013/GST that was notified on 18th November, 2019, the petitioner is not allowed to claim the GST Refund Service for two separate financial years successive in a row. The petitioner or even the taxpayers have been denied of the option to select the tax period due to the mentioned provision and circular.
  • The petitioner in this case has been trying to file an application for GST Refund Service for claiming the unutilized Input Tax Credit for all the months of production, respectively.
  • The provided circular, however have denied the statutory right of the petitioner to claim the same.
  • The formula for calculating the input tax for has been provided in Rule 89(4) of the CGST Rules, 2017. But it restricts the computation of the actual amount of refund to be claimed on the basis of the ITC availed during the said relevant period only on monthly basis.
  • Rule 89(4)(F) defines the relevant period as the time period for which the petitioner has filed the claim for GST Refund.
  • The respondent in this case stated that under the new GST Regime, the said tax period is on monthly basis and not yearly basis.
  • They also argued that the government has provided an option to the taxpayers to club the quarters and months for claiming the GST Refund Service, but it is also fact that under any circumstances the refund claims cannot be spread over from one financial year to another financial year.
  • The respondent also submitted that as per Section 2(106) of the CGST Act, 2017, the tax period has been defined as a period in which the returns are required to be filed by the taxpayer. The returns are to filed monthly or quaterly. This means that the petitioner has no right to utilize the GST Refund Service to claim the unutilized ITC for one fiscal year in the other year.

Observation made in the case:

The division bench that comprised of Justice Vipin Sanghi and Justice Justice Sanjeev Narula observed the following in the GST Refund Service case-

  • The case matter definitely required a proper consideration. They have already called upon all the respondents for filing a detailed affidavit that is detailed for meeting the petitioner’s contentions.
  • The respondent has recognized that the exporters facing difficulty in claiming GST Refunds, because of the impugned circulars and notifications. To sort this the government has allowed the taxpayers to club the tax period to file the GST Refund claims for one or more months and quarters, but still this cannot be spread across in two financial years.
  • The bench noted that this cannot be justified as to why the time constraintis there. As in this case the exports were not made in the same year as the year of production but in the next financial year. This cannot restrict a taxpayer from cliaming the unutilized ITC through the GST Refund Service just on the basis of the notified circulars. This will deny their rights to avail the refund.
  • Moreover, any business requirs funds in the long run for its survival and GST refunds are a way of cah flow for the businesses. The circulars and rules and regulations of the executive authority cannot help the businesses to survive or run profitably. But these refunds surely will help them over the time.
  • The bench also stated that the exporters cannot be told as to when they have to export the products oe as to when they can sell the items for the sake of availing the GST Refund Service.
  • It was also noted that merely, on the basis of some circulars that impugned and restrictive of the rights of the taxpayer, cannot be used to deny the taxpayers fair share to claim the refunds.
  • Therefore the honorale court has ordered the respondent to process the claims of the petiotioner and let them avail the GST Refund Service for the unutilized ITC spread over the period of two financial years.
Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or