Refund of tax under RCM wrongly paid

[Atul Mehrotra]

Dear experts. Need your help with the following query-

A company having aggregate turnover less than ₹ 20 lakhs in the previous year availed some service from a govt. department (exempt vide S. No. 7 of Notification no. 12/2017 CT-R).

The company being unaware of this provision, deposited RCM on such supply in the relevant GSTR-3B and has no other taxable outward supplies (being an electricity distribution company). Is it possible to claim refund in this case?

[KASTURI SETHI]

Yes. You can claim refund. See Section 54 (8)(e) of CGST ACT.

[Shilpi Jain]

Ensure that it is within the 2 years time limit. Else you could have dispute from the department since the department would treat this time barred.

[Atul Mehrotra]

Thank you for the replies.

The department officials have 'informally' told the client that since tax was paid under RCM, refund is not admissible. Can you please suggest some legal precedent or provisions to help the case?

[KASTURI SETHI]

Govt. has no right to retain the amount of tax which has been paid wrongly. It is an amount and not TAX. It is just deposit with Govt.Such retention is out of authority of law. It is out of ambit of tax. Such deposit cannot be called 'tax' or 'duty'.Hence no time limitation is applicable. See Karnataka High Court judgement in the case of WAY TO WEALTH BROKERS PVT.LTD Vs. CST Bangaluru reported as 2021 (10) TMI-488-Karnataka High Court decided on 16.9.21.Although this case law pertains to pre-GST era, yet it is applicable to your refund claim. You have paid due to oversight.

Section (54) (8) (c) & (e)

(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person;

Your issue is covered in both (c) & (e) above.

Has the company got a written notice or is it verbal ? If the company has got a written notice, post major contents of the letter/notice here..

[Atul Mehrotra]

The registered person had filed a refund application which was rejected without providing a genuine reason in writing. Now an appeal has been filed against the same.

The company obtained voluntary registration in F.Y 19-20 and the amount in question pertains to F.Y 20-21. Aggregate turnover in F.Y 19-20 was NIL. Can the department contend that since the company obtained voluntary registration, it is not entitled to the benefit of S. No. 7 of Notification no. 12/2017 CT-R because the exemption is only applicable to unregistered persons?

[KASTURI SETHI]

Dear Sir,

You have not disclosed full facts at the first instance. What is the nature of services received by the company from Central Govt., State Govt. etc. Also mention the name of the Govt. Department.

[CA Hemanth Kumar]

Dear Sir,

You can refer the following case which is similar to your facts.

1. CCE & C, GUNTUR VERSUS KANAKA DURGA AGRO OIL PRODUCTS PVT. LTD. & ANR. 2009 (3) TMI 130 - CESTAT, BANGALORE

Refund of service tax paid on GTA Service by truck owners –conditions to be fulfilled – Held that - The learned departmental representative stated that the respondents themselves paid the Service Tax and the department only demanded the differential duty as they would not be entitled for the benefit of the Notification No.32/2004-ST dt.3.12.2004 by which the respondents paid only 25% of the amount. From the definition of the GTA and also the clarification given by the Finance Minister in the budget speech, we are of the view that the tax has been paid wrongly and the respondents are not liable to pay any Service Tax. In these circumstances, we uphold the impugned orders and reject revenue’s appeals.

2. W.r.t time limit, there is a little hurdle of SC judgement in case of Mafatlal Industries - 1996 (12) TMI 50 - SUPREME COURT. Still the same can be contested stating that

a. No tax can be collected unless by an authority of Law Article 265

b. No person shall be deprived of his property save by authority of law Article 300

c. Once there is no levy, what we paid is only a deposit and not the tax thereby the time limit of 2 years will not apply.

[Amit Agrawal]

Relevant portion of 'Description of Service' at S. No. 7 of Notification no. 12/2017 CT reads as follows:

Services provided by the Central Government, State Government, Union territory or local authority to a business entity with an aggregate turnover of up to twenty lakh rupees (ten lakh rupees in case of a special category state) in the preceding financial year ........."

Hence, this exemption is available even for a registered person with an aggregate turnover of up to twenty lakh rupees (ten lakh rupees in case of a special category state) in the preceding financial year.

Furthermore, this exemption-entry is unconditional. What this really means is that tax-rate of such services is NIL. And tax-payer was NOT having option NOT to claim such exemption while deciding to pay taxes under RCM.

As subject amount related to FY 20-21, even normal time limit of 2 years to claim refund is not yet lapsed.

Hence and without going into larger question about applicability of time-restrictions to claim refund, I suggest to file refund on above grounds.

All above are strictly personal views of mine and same should not be treated as professional advice / suggestion.

[Amit Agrawal]

One correction: Post at serial no. 5 states that "The registered person had filed a refund application which was rejected without providing a genuine reason in writing. Now an appeal has been filed against the same.''.

As refund is already rejected, grounds of appeal should counter whatever reasons given by Dept. while rejecting the refund-claim.

[Shilpi Jain]

Also as per Article 265 of the Constitution, Taxes not to be imposed save by authority of law i.e. No tax shall be levied or collected except by authority of law.

Once it is not liable, it has to be returned to the person who has borne the tax.

[Atul Mehrotra]

Dear experts, thank you for your valuable advice.

AI Summary

Refund of wrongly paid reverse charge tax where incidence not passed on may be claimed under GST provisions A registered person who paid tax under the reverse charge on a supply that was exempt for small business recipients may claim refund where the tax was not lawfully leviable and the incidence was not passed on. Relevant refund heads include payments on supplies not taxable and amounts not borne by any other person. Arguments invoked include exemption wording tied to recipient turnover, constitutional limits on taxation, potential inapplicability of ordinary time bar where the payment was a deposit, and the need to contest any written refusal by directly addressing departmental reasons.