How can the unregistered persons claim GST refund and under what circumstances?
In general, registered business charges for the supply of goods/services and GST on it from their customers. The businesses pay the GST to government which is collected from the customers by availing input tax credit.
If the customers return the goods due to defective or any other reason / cancels the service contract according to the terms and conditions, then business raises a credit note and refunds back the amount attributable to the returned goods/cancelled service inclusive of GST. The issued credit notes also reduce their liability.
Sec. 34 of The CGST Act provides for the time period within which credit note can be issued. There are instances where the contracts between the unregistered persons and registered persons getting cancelled after such time period and the suppliers are refunding the amount after deducting GST, which is a loss to the customers.
For example: i) Unregistered buyers, who had entered into an agreement/ contract with a builder for supply of services of construction of flats/ building, etc. and had paid the amount towards consideration for such service, either fully or partially, along with applicable tax, had to get the said contract/ agreement cancelled subsequently due to non-completion or delay in construction activity in time or any other reasons.
ii) long-term insurance policies where premium for the entire period of term of policy is paid upfront along with applicable GST and the policy is subsequently required to be terminated prematurely due to some reasons.
Procedure to claim refund by unregistered persons:
- Obtain temporary registration at GST portal (Home -> Services -> User Services -> Generate User ID for Unregistered Applicant) and select the supplier registered state in the field of "State in which you want to apply refund."
- The applicant shall undergo Aadhaar authentication and provide the details of bank account which is in their name and obtained on their PAN.
- The refund application shall be filed in Form GST RFD-01 on the GST portal under the category ‘Refund for unregistered person’ and upload statment-8 in pdf format along with other documents to support his claim that he has paid and borne the tax and the amount is refundable to him.
- A certificate issued by the supplier shall also be submitted to the effect that he has paid tax in respect of the invoices on which refund is being claimed by the applicant; that he has not adjusted the tax amount involved in these invoices against his tax liability by issuing credit note; and also, that he has not claimed and will not claim refund of the amount of tax involved in respect of these invoices.
- The refund amount claimed shall not exceed the total amount of tax declared on the invoices in respect of which refund is being claimed.
- Separate applications for refund have to be filed in respect of invoices issued by different suppliers.
- If the suppliers, in respect of whose invoices refund is to be claimed, are registered in different States/UTs, the applicant shall obtain temporary registration in the each of the concerned States/UTs where the said supplier are registered.
- The refund claim will only be valid if the time period for issuance of credit note has already expired at the time of cancellation of contract.
- Time limit within which the refund application can be filed is 2 years from the date of issuance of letter of cancellation of the contract/ agreement for supply by the supplier.
- No refund will be paid if the claimed amount is less than one thousand rupees.
- In cases where the amount paid back by the supplier to the unregistered person on cancellation/termination of agreement/contract for supply of services is less than 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.
- The proper officer will process this refund application similar to other RFD-01 claims on scrutinizing the application through the refund sanction order in FORM GST RFD-06.
Time limit for issuing credit note:
As per Sec. 34(2) of The CGST Act, 2017 - Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than [the thirtieth day of November] following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:
which implies that the credit note in respect of a supply made during a financial year shall be issued before the 30th November of next financial year or the date of furnishing the annual return for the financial year whichever is earlier.
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