Process of filing application for GST Refund by unregistered persons

Background:

The CBIC issued Circular No. 188/20/2022- GST dated 27^th December 2022 clarifying the manner in which refund application under GST could be filed by any unregistered buyer. This circular is very important from the point of view of unregistered buyers, especially those who had entered into an agreement with builders for flats/ buildings etc. and had to get the said contract/ agreement cancelled subsequently due to non-completion or delay in construction activity in time or any other reasons.

In a number of such cases, the builders (supplier of services) refunded the buyers the booking amount after deducting the amount of tax collected by them from the buyer. This might be due to the fact that the time limit for issuance of credit notes on account of cancellation of service as per section 34 of the CGST Act might have already expired by that time.

A similar situation has been seen in cases of long-term insurance policies where the premium for the entire period of the policy term is paid upfront along with applicable GST and the policy is subsequently terminated prematurely due to some reasons. However, the time period for issuing credit notes u/s 34 of the CGST Act gets expired by that time and the insurance companies could refund only the premium amount excluding GST.

The aforesaid circular prescribes the process of claiming a GST refund by unregistered buyers in such cases. Accordingly, a new functionality has been made available on the common portal (GST portal) which allows unregistered persons to take a temporary registration and apply for a refund under the category ‘Refund for Unregistered Person’. Further, Statement-8 has been inserted in FORM GST RFD-01 to provide for the documents required to be furnished along with the refund application by the unregistered persons.

Conditions for claiming refund of GST already paid

To deal with such cases, section 54(1) of the CGST Act prescribes that any person can claim a refund of any tax and interest, if any, paid on such tax or any other amount paid by him,

• By making an application
•  Before the expiry of 2 years from the relevant date
•  In such form and manner as may be prescribed
• Further, the unregistered person has borne the incidence of tax & not passed on the same to any other person

How to get temporary registration by unregistered persons?

• The unregistered person who wants to file an application for a refund under section 54(1) of the CGST Act shall obtain a temporary registration on the common portal using his PAN.
• While doing so, the unregistered person shall select the same state/UT where his/her supplier, in respect of whose invoice refund is to be claimed, is registered.
• Then the unregistered person would be required to undergo Aadhar authentication and also enter the bank account details (in his name) in which he wants to get a GST refund.

In simple words, the following details are required for temporary registration:

• PAN
• Aadhar Authentication (registration shall be obtained in the state in which the supplier is located)
• Bank Account Details

Process of filing refund application by unregistered buyers after temporary registration

• After successful registration, the refund application shall be filed in FORM GST RFD-01 on the common portal (GST portal) under the category ‘Refund for unregistered person’. The applicant shall upload Statement-8 (in PDF Format) and all the required documents as per the provisions of sub-rule (2) of Rule 89 of the CGST Rules.

• The refund amount claimed shall not exceed the total amount of tax declared on the invoices in respect of which the refund is being claimed. Further, the applicant shall also upload a certificate issued by the supplier in terms of clause (kb) of sub-rule (2) of Rule 89 of the CGST Rules.

• The applicant shall also upload any other document(s) to support his claim that he has paid and borne the incidence of tax and that the said amount is refundable to him.

Documents required for filing refund application by unregistered buyers

The following documents are required for filing refund application by unregistered buyers:

• Details of Invoice and GST paid
• Details of the amount Received after cancellation
• Copy of Agreement Letter with Builder
• Letter of Cancellation of agreement from the builder
• Proof of payment received from the builder against cancellation
• Certificate from the builder stating that GST collected has been paid to Government and he has not adjusted it by way of issuance of the credit note.
• Further, a certificate from the builder that he has not claimed nor will claim any refund of the GST involved in the invoices issued in respect of the cancelled agreement.

Filing of Application in FORM GST RFD-01

The following points should be kept in mind while filing a refund application in FORM GST RFD-01:

• Separate applications for refund have to be filed in respect of invoices issued by different suppliers. Suppose, you have entered into an agreement for the purchase of a flat with 2 builders and both agreements are cancelled. In these cases, you need to file 2 refund applications after obtaining temporary registration.

• Where the suppliers, in respect of whose invoices refund is to be claimed are registered in different states/ UTs, you need to obtain temporary registration in each of the concerned states/ UTs where the said supplier is registered.

For example, X entered into an agreement to purchase a flat in Jaipur (Builder-Y) & another flat in Bhopal (Builder-Z). Both agreements for the purchase of a flat got cancelled and X wants to file an application for a refund in respect of both agreements. In this case, X needs to get temporary registration both in the state of Rajasthan & Madhya Pradesh and file refund applications in the two states separately.

Situations for claiming GST refund by an unregistered person

Situation-1: Where the time period for issuance of credit notes u/s 34 of the CGST Act has not expired

Where the time period for issuance of credit notes u/s 34 of the CGST Act has not expired at the time of cancellation of the agreement:

• The concerned supplier (Builder) can issue a credit note to the unregistered person (buyer)
• In such cases, the supplier would be in a position to also pay back the amount of GST collected by him from the unregistered person and therefore, there will be no need for filing a refund claim by the unregistered persons in these cases.

Situation-2: Where the time period for issuance of credit notes u/s 34 of the CGST Act has already expired

In such a case, you need to follow the procedure prescribed in the Circular and file a refund application after obtaining temporary registration.

Relevant date for filing refund claim by an unregistered person

• As per section 54 of the CGST Act, the time period of two years from the relevant date has been specified for filing an application for a refund.
• In such type of cases, the date of issuance of the letter of cancellation of the contract/ agreement for supply by the supplier shall be considered as the relevant date.
• Suppose, the agreement for the purchase of the flat is cancelled on 31^st January 2023, you are eligible to make a refund application till 31^st January 2025.

Minimum Refund claim by an unregistered person

No refund shall be paid to an applicant if the amount is less than INR 1,000. Therefore, no refund application could be filed where the amount is less than Rs. 1,000.

Sanction of Refund in GST RFD-06

• The proper officer shall process the refund claim filed by the unregistered person. If the application is complete and eligible for the claim to his satisfaction, he shall issue the refund sanction order.
• He is required to upload a detailed speaking order along with the refund sanction order in FORM GST RFD-06.
• In cases where the amount paid back by the supplier to the unregistered person on cancellation/ termination of the agreement is less than the amount paid by such unregistered person to the supplier, only the proportionate amount of tax involved in such amount paid back shall be refunded to the unregistered person.

For example, X paid Rs. 2 Lakhs + 5% GST to the builder. The total amount paid is Rs. 2,10,000. Later the builder refunded Rs. 1 Lakh to X on cancellation of the agreement. In this case, X will be eligible for 50% refund claim as the builder has refunded only 50% of the total proceeds. Therefore, X can file a claim for a refund of GST to the extent of Rs. 5,000 only.

About Author: The article has been contributed by Mr. Naveen Goyal who is a Chartered Accountant and has experience of more than 15 years in direct & indirect taxes including GST. He has a passion for writing and is contributing articles on various legal issues relating to taxation.

Disclaimer: The information contained in this article is meant only for educational purposes and thus has no persuasive value. Rers are, therefore, requested to act diligently and under consultation with any professional before relying upon the information contained in this article.