Refund issue

[Sudipta Dey]

Sir,

some taxpayer violates the provision of section 49 of CGST Act'17 read with rule 86B of CGST rules by way of paying full tax liability by ITC and then Audit team catches the issue and ask the taxpayer to pay the liability of GST by cash along with interest and penalty. Will the taxpayer be eligible for refund of the ITC that has been previously used to discharge his tax liability because double payment of tax happening here? What is the process of applying for such refund?

[KASTURI SETHI]

In such scenario, refund is allowed under the category of "Excess Payment". Normal procedure is to be followed. Apply in Form GST RFD-01 on Common Portal System and also submit physical copy in the jurisdictional CGST Division Office. Section 54 (8) (e) is relevant.

[Shilpi Jain]

Rule 86B is held to be ultra vires in the case of AM Enterprises - 2024 (9) TMI 1485 - HIMACHAL PRADESH HIGH COURT

[KASTURI SETHI]

Relevant Extract of the judgement of H.P. High Court Shimla in the case of A.M. ENTERPRISES Versus STATE OF HIMACHAL PRADESH- 2024 (9) TMI 1485 - HIMACHAL PRADESH HIGH COURT

"25. We do find force in the petitioner’s contention that Rule 86B of the Act has no statutory backing and appears to be ultra vires the provisions of the HPGST Act, 2017.

26. But we need not base our decision on the said issue."

[Shilpi Jain]

In spite of the Court not having passed the order on the basis that the said rule in ultra vires, that does not negate the fact that the Court has held it is ultra vires.

This can be taken up in case of litigation (if you wish to litigate if the amount is sizable and considering your risk appetite)

In case you do not wish to litigate, make an intimation to the department that you are taking back the credit and paying the liability in cash. Make suitable disclosures in the returns.

Refund again could get litigated by the department.

[Sudipta Dey]

Madam, Payment of tax by ITC was done in 2022-23 and now the case of violation of rule 86B has arrived. Now how is it possible to take back the ITC and pay the tax by cash? What is the actual procedure? 

[KASTURI SETHI]

Tax has to be paid in cash and seek refund of ITC paid wrongly. Any rule will remain in force until it is omitted.  Rule 86 B is in force. It has to be followed.

[Ganeshan Kalyani]

The liability paid through Cash now would mean the ITC which was adjusted previously got reversed  Once availed and reversed later the re-availment of said ITC has not timeline. So, you may take back the ITC so reversed in current month GSTR-3B.

[KASTURI SETHI]

It is a fact that there is no time limit for re-credit. In this scenario, re-credit cannot be taken on ones own. Application for refund claim has to be filed and  Adjudication Order has to be passed by the Proper Officer. See Para No.4 (4.1, 4.2, 4.3.1 & 4.3.2 )  of  C.B.I. & C. Circular No. 135/05/2020-GST, dated 31-3-2020 as amended.. Relevant Rules are mentioned therein.

AI Summary

Input tax credit recovery: pay outstanding tax in cash and pursue refund via excess payment procedure under refund law.
Where ITC was used to discharge tax but enforcement requires cash payment, the taxpayer must pay tax in cash and claim refund of the ITC as an Excess Payment. File Form RFD-01 on the portal and submit a physical copy; refund claims are subject to adjudication. Judicial commentary has questioned the vires of the operative rule but does not automatically suspend it; taxpayers may litigate or make departmental disclosures. Recrediting reversed ITC has no statutory time limit but cannot be self-initiated without adjudication and applicable procedural compliance.