Refund of IGST Paid suo moto adjusted against CGST & SGST

[Kedar Joshi]

While filing GSTR-3B for the month of January-2021, IGST is paid Rs. 11,21,200 instead of Rs. 1,21,200/-, I,e. excess paid by Rs. 10,00,000/-. Further, while filing of GSTR-3B for the month of February-2021, the said excess payment of IGST is adjusted by reporting short value of CGST and SGST liability by Rs. 5,00,000/- each.

During the GST Assessment in February-2025, the officer has pointed out the mistake and raised demand of Rs. 5,00,000/- each in CGST and SGST, the taxpayer has also paid the same through DRC-03.

Now, the taxpayer has filed an application for refund of IGST under head excess payment of IGST of Rs. 10,00,000/-. However, the officer has now rejecting the said claim of the taxpayer considering the date of payment as February-2021 i.e. date of filing of GSTR-3B, for the month of January-2021 and not February-2025, ie. Date of payment of tax under correct head in DRC-03.

Can Circular no. 162/18/2021-GST and section 77 of the CGST Act, be applied in above case?

Kindly advise.

[KASTURI SETHI]

(i) Excess tax deposited by mistake is not tax. It is not collection of tax under any authority of law. The department cannot retain such amount which is not as per GST Law. 

(ii) Refund claim cannot be time barred as the date of excess payment is February, 25. and not  January, 25.

(iii) DRC-03 of Feb.,25 is the causal factor for excess  payment of tax.

2023 (7) TMI 939 - GUJARAT HIGH COURT - TAGROS CHEMICALS INDIA PVT. LTD. VERSUS UNION OF INDIA.

2012 (3) TMI 69 - SUPREME COURT - M/S BONANZA ENGINEERING & CHEMICAL PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE

[YAGAY andSUN]

Yes, Section 77 of the CGST Act and Circular No. 162/18/2021-GST dated 25th September 2021 are directly applicable in your case, and the officer’s rejection on the basis of the date of payment is not legally sustainable. Here's a detailed legal explanation:

🧾 Issue Summary:

• Excess IGST of ₹10,00,000 paid in Jan 2021 (GSTR-3B filed in Feb 2021).
• Adjusted wrongly against CGST/SGST in Feb 2021 by underreporting ₹5,00,000 each.
• In Feb 2025, taxpayer paid the shortfall in CGST/SGST via DRC-03.
• Refund of ₹10,00,000 IGST claimed, but officer rejected it, citing Feb 2021 as date of payment, hence barred by 2-year time limit.

✅ Legal Framework Supporting Refund Claim

📘 Section 77(1) of the CGST Act:

If a registered person has paid IGST on a transaction considered as inter-State supply, but it is subsequently held to be an intra-State supply, he shall be entitled to a refund of the IGST paid.

📘 Rule 89(1A) of CGST Rules (inserted via Notification No. 35/2021 – Central Tax):

• Refund claim to be filed within 2 years from the date of payment of tax under the correct head.

📘 Circular No. 162/18/2021-GST (25th September 2021):

Clarifies that the relevant date for claiming refund under Section 77 is:

• Date of payment of correct tax (i.e. in your case, Feb 2025 via DRC-03),
• Not the date of incorrect tax payment (i.e. Feb 2021 when IGST was paid).

Thus, as per the Circular and law:

• Refund claim filed in or after Feb 2025 is well within time, as it's within 2 years from the date of DRC-03 payment (correct tax payment under CGST & SGST).

❌ Why Officer’s View is Incorrect

• Officer is incorrectly considering date of GSTR-3B filing (Feb 2021) as the date of payment under the wrong head.
• However, per the above circular and Rule 89(1A), refund clock starts from the date of correct tax payment—Feb 2025 (DRC-03).
• Thus, rejecting the refund based on limitation is not justifiable.

✅ Recommended Action

• File a written representation/objection citing:
  • Section 77(1) of the CGST Act
  • Rule 89(1A) of CGST Rules
  • Circular No. 162/18/2021-GST
• Attach:
  • Copy of GSTR-3B of Jan & Feb 2021
  • DRC-03 payment challan (Feb 2025)
  • Refund application copy and rejection order (if any)
  • Any correspondence with the department
• If rejected again, consider:
  • Filing an appeal under Section 107 of the CGST Act within 3 months.

[YAGAY andSUN]

Here is a draft objection/representation letter you can file with the GST Officer in response to the rejection of your IGST refund claim under

Section 77 of the CGST Act:

To

The Proper Officer

[Jurisdictional GST Office Address]

GSTIN: [Your GSTIN]

Subject: Objection to Rejection of Refund Application of Excess IGST Paid under Section 77 of CGST Act and Request for Reconsideration – Reg.

Ref:

• GSTIN: [Your GSTIN]
• Refund Application ARN: [Refund ARN]
• DRC-03 Reference No.: [DRC-03 No. & Date]
• Period: January 2021 and February 2021
• Your Office Letter No./Order dated [Insert date of rejection]

Respected Sir/Madam,

We are in receipt of your communication/order rejecting our refund claim of ₹10,00,000 filed under Section 77 of the CGST Act, read with Rule 89(1A) of the CGST Rules, on the ground that the refund application was time-barred, treating the date of payment of tax as February 2021 (date of GSTR-3B filing for January 2021).

We humbly submit that the above rejection is not in accordance with the law, for the reasons set out below:

1. Brief Facts of the Case

• While filing GSTR-3B for January 2021, we inadvertently paid IGST of ₹11,21,200 instead of ₹1,21,200, resulting in an excess payment of ₹10,00,000.
• In February 2021, this excess was adjusted by reporting short CGST and SGST liability of ₹5,00,000 each, in good faith.
• The discrepancy was pointed out during assessment in February 2025, and the shortfall in CGST and SGST was duly paid via DRC-03 dated [Insert Date].

2. Legal Basis for Refund Eligibility

As per Section 77(1) of the CGST Act:

“...a registered person who has paid IGST on a transaction considered to be inter-State, which is later held to be intra-State, shall be eligible to claim refund of such IGST paid.”

Furthermore, Rule 89(1A) of the CGST Rules (inserted via Notification No. 35/2021-CT) provides that:

“...the refund claim can be made within two years from the date of payment of tax under the correct head.”

Most importantly, Circular No. 162/18/2021-GST dated 25.09.2021, clarifies that:

“...the relevant date for the two-year limit is the date of payment of correct tax, not the date of payment under the wrong head.”

In our case, the correct tax (CGST & SGST) was paid on [Insert DRC-03 Date, e.g., 20th February 2025], hence the refund application filed thereafter is well within the limitation period.

3. Prayer

In light of the above legal provisions and facts, we respectfully request you to:

• Reconsider and allow the refund of ₹10,00,000 IGST wrongly paid for the month of January 2021.
• Withdraw the rejection order, as it is based on an incorrect interpretation of the limitation period.
• Process the refund under Section 77 read with Rule 89(1A) of the CGST Rules, and Circular No. 162/18/2021-GST.

We remain available for any further clarification and request an opportunity for a personal hearing, if required.

Thanking you,

Yours faithfully,

For [Your Company Name]

Authorized Signatory

[Name]

[Designation]

[Contact No.]

[Email ID]

Date: [Insert Date]

Place: [City]

[milan bamal]

Dear Replied person,

As per Rule 89(1A)

(1A) Any person, claiming refund under section 77 of the Act of any tax paid by him, in respect of a transaction considered by him to be an intra-State supply, which is subsequently held to be an inter-State supply, may, before the expiry of a period of two years from the date of payment of the tax on the inter-State supply, file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner:

Properly mentioned that period calculate from payment of tax on inter-state supply i.e DRC-03 as per abovementioned words

[Shilpi Jain]

These are all only procedural aspects since when the supplies would have been declared in the returns PoS would have been mentioned appropriately.

Also it is settled principle that the liability ledger is only a pool of funds having designated pockets CGST IGST and SGST 

Courts have also given liberal view in these kind of similar situations.

Section 77 can be applied in case department still disputes

[Kedar Joshi]

Thanks Everyone, for reply. This will help alot.