Adjustment of Liability against GST paid on advance

[Ashiesh Prremji]

Dear Sir,

If GST on advance has been paid & later such advance refunded (a Refund Voucher also issued) as deal not finalized due to some reason. My issue is if we issue an Invoice to such Party for another deal, whether we can use that GST which had been paid previously on advance 'or' we have only option to go for Refund ??

Thanks,

[KASTURI SETHI]

Yes. You can.

[DR.MARIAPPAN GOVINDARAJAN]

In my view, no.

[Venkataprasad Pasupuleti]

As per GST provisions, claiming a refund is only the option. Please refer to Para 2 of Circular No. 137/07/2020-GST 13th April 2020.

Though completely not supported by the legal provisions, the adjustment also can be done as there is no revenue loss to the Government.

[Ashiesh Prremji]

Thanks for reply to all of you!

Sir, please clear one more thing if we have paid GST on advance by using ITC / liability reduction due to credit notes issued in that month, will it make any difference to claim refund that whole GST on advance is not paid in cash ?

Although there is no need to pay GST on advance in cash under GST provision, but when we go for Refund, whether above situation may lead to 'Unjust Enrichment'?

[Venkataprasad Pasupuleti]

Dear sir,

Refund is still eligible though you pay it using ITC. There is latest amendment specifying that refund would be given by way of recredit into credit ledger. Unjust enrichment would not apply once you have returned the GST component to the recipient.

[Ganeshan Kalyani]

There is no revenue loss to the Govt. The taxpayer should be able to adjust the tax paid on advance against the tax liability on next deal.

[KASTURI SETHI]

Advance/deposit is not a consideration as per definition of 'consideration' under Section 2(31) of CGST Act. Advance/deposit becomes consideration when goods or services are supplied. Advance/deposit is always subject to final adjustment.

Section 2(31) of CGST Act “consideration” in relation to the supply of goods or services or both includes - 

any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; 

(a) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government : 

(b) Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply;

Thus until or unless supply is made against this advance, it is not Govt.’s money. It is your option either to apply for refund or adjust the advance against the same party for another transaction/deal.

Regarding unjust enrichment and making payment through Electronic Credit Ledger legal position is as under :-

Tax-paid character is same whether paid in cash or through Electronic Credit Ledger. Your purchase invoices (tax paid) are equal to cheques. Credit lying in your ECL is your money subject to eligibility for usage.

Unjust enrichment is not involved.

I agree with replies of Sh.Venkatprasad Ji and Sh.Ganeshan Kalyani Ji at serial no.5 and 6 respectively. Circular no. mentioned by Sh.Venkatprasad ji gives different scenarios and is helpful to the querist.

[Sandeep Garg]

Dear Ashiesh Ji,

As per Circular No. Circular No. 137/07/2020-GST dated April 13, 2020, in case GST is paid by the supplier on advances received for an event which got cancelled subsequently and for which no invoice has been issued in terms of section 31 (2) of the CGST Act, 2017, he is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act, 2017, read with Rule 51 of the CGST Rules, 2017. The taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”.

Hence, in my view, as CBIC has already issued circular on the matter in discussion, then it is advised to follow this circular and go for the option of refund, in order to prevent receipt of any SCN or else in future.

[Ganeshan Kalyani]

The tax paid under IGST instead of CGST+SGST was to be claimed as refund and tax to be paid under CGST+SGST. Thereafter Govt. allowed to transfer the cash balance from IGST to CGST+SGST and vice-versa.

Similarly, here in this current issue also the Govt. should allow the taxpayer to adjust the tax paid on advance against the tax payable on other supplies in a situation where service order for which advance received gets canceled subsequently.

[Ashiesh Prremji]

Thank you to everyone for giving their views on this matter. Thanks Kasturi Sir for the way you explained my query is quite satisfactory.

Would like to opt 'Refund' option but its tedious work to convince Assessing Officer, as it took 3 months plus to get refund of excess Balance lying in IGST cash ledger for which now PMT09 is there to transfer in other cash ledger.

Got more clarity on some GST provisions through all your opinion, once again Thank you so much to all of you Experts.

AI Summary

Debate on Adjusting GST on Refunded Advances: Refund vs. Invoice Adjustment; Consensus Favors Official Circular Guidance A discussion on a forum addresses the issue of adjusting GST paid on advances when a deal is not finalized, and the advance is refunded. Participants debate whether the GST paid can be adjusted against a new invoice for another deal or if a refund is the only option. Opinions vary, with some citing GST provisions and circulars that suggest a refund is necessary, while others argue for adjustment due to no revenue loss to the government. Clarifications are provided on unjust enrichment and the use of the Electronic Credit Ledger. The consensus leans towards following the official circular and opting for a refund.