This post covers instances where GST refund can be withheld. The post, covering instances where tax and other dues can be adjusted from GST refund, is available at URL: http://vsrca.in/gst/can-gst-service-tax-vat-dues-be-deducted-from-refund-without-intimation/
DEFAULT IN FURNISHING RETURN / FAILURE TO PAY TAX, INTEREST OR PENALTY
GST refund can be withheld in either of the following situations:
- if the registered person defaults in furnishing GST return;
- No specific return has been specified in the said clause. Hence, default in furnishing any return under the GST law may trigger withholding of GST refund.
- if the registered person has not paid tax, interest or penalty under the GST law;
- Such tax, interest or penalty is not stayed by any Court, Tribunal or Appellate Authority till the last date for filing an appeal under the GST law.
The following points are noteworthy in this regard:
- Only refund of unutilised / accumulated input tax credit (arising from zero-rated supplies of goods / services or from inverted tax rate structure) can be so withheld.
- Proper Officer can withhold the refund until the return is furnished (or) until the tax, interest or penalty is paid.
Intimation by Proper Officer: In both the aforesaid situations, the Proper Officer should pass an order in Part-B of Form GST RFD-07, informing the reasons for withholding refund.
Neither the aforesaid section nor the rule requires prior intimation by the Proper Officer to the assessee. However, in a similar situation, the Hon’ble High Court of Karnataka, vide its Order dated February 11, 2020 in DPK Engineers Private Limited v. Union of India, observed that no case is made out for excluding an opportunity of hearing to the assessee before passing the impugned order.
MALFEASANCE / FRAUD
GST refund may be withheld if both the following conditions are satisfied:
- A refund order is the subject matter of appeal / further proceedings (or) any other proceedings under the GST law is pending against the taxable person.
- The Commissioner opines that grant of refund is likely to adversely affect the revenue in the said appeal / other proceedings on account of malfeasance / fraud on the part of assessee.
The following points should be noted in this regard:
- All types of refund can be withheld on grounds of malfeasance / fraud.
- The time-limit up to which refund may be withheld is at the Commissioner’s discretion.
- Such power to withhold refund is available only with the Commissioner, not with the Proper Officer.
- As a result of appeal / further proceedings, if the assessee becomes entitled to refund, he is also entitled to interest @ 6% per annum thereof.
Opportunity of hearing: The Commissioner should pass an order in Part-B of Form GST RFD-07, informing the reasons for withholding refund. However, the taxable person should be given an opportunity of hearing before passing such order.
