Paragraph 2.3 of Circular No.59/33/2018-GST dated September 4, 2018 allows refund of unutilised Input Tax Credit (ITC) in respect of invoices not available in GSTR-2A. This is permitted to alleviate difficulty on the part of recipient to obtain refund, where filing of GSTR-1 by the supplier is either delayed or not done.
The intent of this post is to assesses: (a) whether the GSTN portal allows the recipient to apply refund of such ITC? and (b) even if the recipient obtains such refund, is it free from trouble? For clarity, the arguments in this post are relevant only in the context of eligible ITC under forward charge.
GSTN portal at cross-roads with Circular
Two types of refund of unutilised ITC are permitted, viz., on zero-rated supplies (without payment of GST) and inverted tax structure. As we are aware, Form GST RFD-01 should be filed for claiming refund of such ITC. Specifically, for refund of unutilised ITC on zero-rated supplies, Statements-3 or 5 of Annexure-1 to the said Form should be filled with invoice-wise details of outward supplies (viz., exports or supplies to SEZ, as the case may be). However, the invoice-wise details of inward supplies relating to such zero-rated supplies need not be filled either in the GSTN portal directly or in the offline utility associated with Form GST RFD-01. Rather, it should be submitted merely as an attachment to the online application (in the portable document format specified under Annexure-A to the said Circular).
On the other hand, for refund of ITC related to inverted tax structure, Statement-1A of Annexure-1 to the said Form should be filled with invoice-wise details of both inward and outward supplies. The said Statement-1A is in the form of an offline utility (which should be downloaded, filled and uploaded to the GSTN portal while filing the refund application). Interestingly, Statement-1A ibid allows entry of only the following types of invoices relating to inward supplies: (i) Import of goods / Supplies from SEZ to DTA; (ii) Import of services / Supplies from SEZ to DTA; (iii) Inward supplies liable to reverse charge; (iv) Inward supply from registered person; and (v) Inward supplies from ISD. Further, once the said Statement is uploaded, the GSTN portal verifies all the entries (related to inward supply from registered person) with the latter’s GSTR-1.
Thus, the offline utility (which is Statement 1A of Annexure-1 to Form GST RFD-01) does not permit entry of invoices received from suppliers under forward charge (which do not appear in GSTR-2A), although the said Circular permits refund of such ITC. Needless to say, the notified Form GST RFD-01 does not get into specifics (of the types of invoices which can be entered) like the offline utility.
Given that the ‘Net ITC’ figure (to be filled in Statement-1 of Annexure-1 to the said Form) is capped with ITC claimed as per GSTR-3B in the relevant tax period, the claimant is forced to directly aggregate the value of ITC (for invoices not appearing in GSTR-2A) therein. Consequently, in such cases, the amount of ‘Net ITC’ as per Statements-1 and 1A of Annexure-1 to Form GST RFD-01 would not match.
Seemingly innocuous undertaking in Form GST RFD-01 – Recipients' beware
Recipients would be elated that they can avail refund of ITC (even if it does not appear in GSTR-2A), which is not uncommon. But, little do they read the innocuous undertaking (appearing as a mere tick-box) in Form GSTR RFD-01 in a zeal to file the said Form, which reads that: “I hereby undertake to pay back to the Government the amount of refund sanctioned along with interest in case it is found subsequently that the requirements of clause (c) of sub-section (2) of section 16 read with sub-section (2) of section 42 of the CGST/SGST Act have not been complied with in respect of the amount refunded.”
A plain reading of Section 16(2)(c) ibid indicates GST charged on a supply should have been paid to the Government by the supplier, as a condition for the recipient to claim ITC. As we are aware, a supplier should file both GSTR-1 (so that the invoice details are populated in recipients’ GSTR-2A) and GSTR-3B (so that GST is paid to the exchequer) periodically. If the supplier files GSTR-1 (merely to please the customers) but not GSTR-3B (owing to funding issues), Section 16(2)(c) ibid remains non-compliant but the recipient would unfortunately remain in the dark.
The modus operandi under Section 42(2) of the Central Goods and Services Tax (CGST) Act, 2017, viz., Form GST MIS-1 under Rule 70 of CGST Rules, is not operational. Yet, going by the spate of notices issued for unreconciled ITC, the Proper Officer may enforce that refund of such ITC obtained be paid back with interest (that is, if it remains unreconciled beyond the maximum period for filing GSTR-1 by the supplier).
