Taxpayer can claim a refund of GST wrongly paid even incase output liability is not available

A taxpayer wrongly pays GST under GSTR-1 and GSTR-3B in one month and thereafter issues a Credit Note for the excess duty paid. However, in the month of issuance of the credit note, there is no output tax liability and hence the GST excess paid cannot be adjusted. What does the taxpayer do in such circumstance – it files for a refund. The refund should be filed under the “excess payment of tax” category.

Sl. No. 3 of Circular No. 137/07/2020-GST dated 13.4.2020 also specifies the following -

Goods supplied by a supplier under cover of a tax invoice are returned by the recipient. Whether he can claim refund of tax paid or is he required to adjust his tax liability in his returns?

In such a case where the goods supplied by a supplier are returned by the recipient and where tax invoice had been issued, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim in such a case. However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.

However, in case the department denies such refund, then the taxpayer can rely upon the decision of the Hon’ble Gujarat HC in the case of TAGROS CHEMICALS INDIA PVT. LTD. VERSUS UNION OF INDIA - 2023 (7) TMI 939 - GUJARAT HIGH COURT. Even if an applicant does not claim benefit under a particular notification at the initial stage, he is not debarred, prohibited or estopped from claiming such benefit at a later stage. In the instant case a taxpayer had supplied goods under merchant export scheme [IGST N No 41/2017 IGST(R)]; However, he had made payment of full duty (under an error) of IGST at the rate of 18% instead of concessional rate of 0.1%. The final exporter exported goods within 90 days as required by the notification. Thereafter, the taxpayer found the mistake and issued credit note for the excess amount of tax to the buyer - however, the taxpayer could not reduce the turnover and GST liability as there were no outward supplies during the said month and subsequent month. Therefore, the taxpayer filed for refund of this excess duty paid and the High Court granted the refund for the same.

It may be further noted that The Hon’ble Apex Court in the case of M/S BONANZA ENGINEERING & CHEMICAL PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE - 2012 (3) TMI 69 - SUPREME COURT, also held that merely because the assessee, maybe, by mistake pays duty on the goods which are exempted from such payment, does not mean that the goods would become goods liable for duty under the Act.