Refund of CGST/SGST paid in place of IGST or vice versa: hardship in earlier provisions

The provisions for refund in the revised draft of Model GST Law have been modified.Earlier provisions have a hardship on taxpayer that first they will have to pay taxes.After payment of  taxes they will apply for refund which will be subject to principal of unjust enrichment. Taxpayer had to prove that he has not pass on the burden of tax to other person. In case of indirect taxes supplier charge the tax on invoice and recover that from buyer.Technically it was very difficult to get refund in earlier provisions. Section 58 of earlier provisions contained these provisions which read as under;

“Section 53 of earlier draft of GST : Tax wrongfully collected and deposited with the Central or a State Government

(1) A taxable person who has paid CGST/SGST (in SGST Act) on a transaction considered by him to be an intra-state supply, but which is subsequently held to be an inter-state supply, shall, upon payment of IGST, be allowed to take the amount of CGST /SGST (in SGST Act) so paid as refund subject to the provisions of section 38 and subject to such other conditions as may be prescribed.”

Refund of CGST/SGST wrongly paid in place of IGST

These provisions are now replaced with Section 70 of the CGST/SGST law. It provide for the refund of CGST/SGST wrongly paid. Section read as

Section 70 of CGST/SGST Act: Tax wrongfully collected and deposited with the Central or a State Government

“(1) A taxable person who has paid CGST/SGST (in SGST Act) on a transaction considered by him to be an intra-state supply, but which is subsequently held to be an inter-state supply shall be granted refund of the amount of CGST /SGST (in SGST Act) so paid in such manner and subject to such conditions as may be prescribed.

(2) A taxable person who has paid IGST on a transaction considered by him to be an inter-state supply, but which is subsequently held to be an intra-state supply, shall not be required to pay any interest on the amount of CGST/SGST payable.”

Refund of IGST paid in place of CGST/SGST

Section 19 of IGST Act also contains the similar provisions for IGST.

Section 19 of IGST Act: Tax wrongfully collected and deposited with the Central or a State Government

“(1) A taxable person who has paid IGST on a supply considered by him to be an inter-state supply, but which is subsequently found to be an intra-State supply, shall, be granted refund of the amount of IGST so paid in such manner and subject to such conditions as may be prescribed.

(2) A taxable person who has paid CGST / SGST on a transaction considered by him to be an intra-State supply, but which is subsequently found to be an inter-State supply, shall not be required to pay any interest on the amount of IGST payable”

Refund of tax wrongly paid is allowed but no interest on tax to be paid

• This has came as a huge relief for the taxpayer that the refund of taxed wrongly paid is allowed without making it subject to principal of unjust enrichment.But there will be no interest on taxes to be paid correctly.
• Time period to apply for refund will be 2 years.
• This provision (Section 70 of CGST/SGST Act) covers the situation where CGST/SGST is paid considering a transaction as intra state supply. But later on it is held to be an inter-state supply. Then that person can claim the refund of CGST/SGST wrongly paid by him.
• Further the section provide that in case where the taxpayer has paid IGST but CGST/SGST was payable. He is not required to pay any interest on the amount of CGST/SGST payable.
• Section 19 of the IGST Act also contains the similar provisions in respect of IGST.
• Section 19 provides that when the taxpayer has wrongly paid the IGST instead of CGST/SGST he may claim the refund the tax wrongly paid.
• It further provide that where the taxpayer has paid the CGST/SGST in place of IGST he is not required to pay interest on the amount of IGST payable.

Provision of section 48(8) allow to pay refund to taxpayer instead of crediting to fund

Further sub section 8 of section 48 provide for the instances when the refund will be paid to taxpayer instead of crediting to the fund. The text of the section is reproduced here.

“Section 48 (8) Notwithstanding anything contained in sub-section (5) or sub section (6), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to

(a) refund of tax on goods and/or services exported out of India or on inputs or input services used in the goods and/or services which are exported out of India;

(b) refund of unutilized input tax credit under sub-section (3);

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

(d) refund of tax in pursuance of section 70 ;

(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; or

(f) the tax or interest borne by such other class of applicants as the Central or a State Government may, on the recommendation of the Council, by notification, specify.”

These provisions also cover the refund of tax under section 70. These provisions have made it easy to claim refund of taxes wrongly paid by a taxpayer. Provisions in the earlier draft were harsh for the taxpayer.They provided that first taxpayer will have to pay taxes and then claim the refund.

Also the refund was made subject to principal of unjust enrichment which made it hard to justify refund. In the current provisions interest is waived of on the tax not paid because the other tax was paid wrongly.