Instance When GST Refund Cannot Be Claimed

The idea behind the introduction of GST is to have a smooth flow of transactions and funds till the end. This is because the earlier tax structure is very cumbersome and time consuming.

In the new GST regime, the government has promised to make the GST refund procedure smooth and less cumbersome for the businessmen as compared to earlier regime, however, in practical still lot of difficulties are being faced by the supplier.

GST refund is very important for all the businessmen especially for exporters since lot of credit remains blocked in the electronic or cash ledger which also affects its working capital flow.

Having said that, inspite of various difficulties, government has managed to provide GST refund in huge amount to lot of businessmen in phased manner. This is a welcome move and it  comes as a relief for supplier of goods and services especially manufacturers, exporters,100% EOU or Special Economic Zone, whose working capital used to get tied up in earlier regime.

There are lot of situations in which GST refund can be claimed and are actually available to the supplier of goods and services, however, there is one situation in which GST refund are not available. GST refunds are not available in case where refund arises due to excess amount lying in electronic credit ledger but not due to inverted duty structure.

Thus leaving aside aforesaid situation, in almost all the situation supplier of goods or services may apply for refund by filing online application and submission of requisite documents with the GST department.

Meaning of Inverted Duty Structure

It means when GST rate on final product or finished goods is low as compare to GST rate on inputs or raw materials which is used for manufacture of finished goods. Most of the GST refunds which arises is due to inverted duty structure.

As per GST Act and Rules, in case any refund is not arising due to inverted duty structure, same may not be allowed to be claimed. For example

  • Supplier purchases some goods and paid input tax on same, however He could not sell those goods in the market i.e no supplies have been made. In this situation, although He has input tax credit lying in his account but same cannot be set off against output tax liability because no sale of goods has been made. In this case, supplier cannot claim refund of excess amount lying in electronic credit leger because under GST regime there is still no mechanism for same.
  • Supplier purchases some goods and paid input tax, however later on business got closed without making any sale. Here, He cannot claim any refund. Even if He put sale on such goods and sell at price lower than cost price, He cannot claim any refund.

Therefore, outward supply or sales of goods are essential in order to claim refund of input tax credit, otherwise in all the situations, one can apply for refund and get the same from GST department subject to availability of required documents..

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