1. DECODING GST- Common Mistakes in GST Refund CA Ashish Garg
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DECODING GST- Common Mistakes in
CA Ashish Garg
B. Com (H). FCA, LL.B.
In order to promote export of goods and services, every country grants certain benefit to
the exporters either by way of exemption from taxes or by way of refund of taxes paid. It is
the policy of the government to export the goods and not the taxes so it is necessary for the
government to formulate policies to negate the impact of taxes on inputs and input services
used by exporters for export of goods and services.
Exporter of goods and services procures various goods and services for their outward
supplies on which they pays GST to their vendors and since such export supplies are zero
rated, the same remains unadjusted. The GST paid on such export supplies adds up in the
final cost of the product or service which not only makes them costlier but also less
competitive in the foreign market.
Hence, in order to promote exports from the country, Government of India has allowed the
exemption to such exporters by way of refund of GST paid on inward supplies used for
export of goods and services.
However, it has been seen that due to one or other reasons, refund applications are either
rejected or processing of refund claim is delayed. The delay in processing of refund claims
causes inconvenience, disruption to business operations and increase in cost of doing
business. Since, the huge amount is stuck with the revenue authorities, one has to arrange
for alternate source of financing to meet their business requirements.
In this article, the author has made an attempt to cover all aspects which lead to rejection or
delay processing of refund application filed by exporter of goods and services, which if taken
care of and with proper measures can be avoided. We have tried to keep the language
simple so that even a layman can have an understanding of the topic.
1. Inadequate knowledge of legal provisions
In some cases the people taking care of refund claims are not aware of the complex
statutory provisions viz., eligible or ineligible input tax credit, reversal of credit, due date
for filing of refund claims, appropriate authority before which refund to be filed,
mandatory documents to be filed etc.
One of the major cause for rejection of refund claim is that people fail to determine the
place of supply of service in accordance with Section 13 of the IGST Act. It is not a
default rule that when the service provider is based in India and recipient is located
2. DECODING GST- Common Mistakes in GST Refund CA Ashish Garg
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outside India, then it shall always be termed as Export of service. In order to determine
whether the service is actually export or not, it is of paramount importance to first
determine the place of supply of service in accordance with the aforesaid provisions.
Any error in determining the place of supply of service will not only lead to rejection of
refund claim but will also have devastating effect on the company as they will be liable
to pay GST on such services along with interest and penalty.
Further another cause is failure to determine the difference between eligible and
ineligible input tax credit. Exporters fail to exclude the ineligible input tax credit while
filing the refund claims which causes undue delay in refund processing as department
gets extra cautious in such cases and takes its time to scrutinize the refund application
and all supporting documents.
Therefore, it is very important that the person who is entrusted with the preparation of
refund application is well versed with the legal provisions.
2. Improper knowledge of exporter’s operations
A refund application generally goes through a rigorous scrutiny by the department
official before being approved. One of the major cause for delay in processing of refund
claim is not having proper knowledge of the business of the exporter and the processes
involved in outward supplies.
Department officials want to have a full knowledge of operations of exporters in order
to determine the genuineness of refund claim and that the same is not a fictitious one.
Any delay in providing relevant information to the department officials and satisfying
about the genuineness of the operations of the exporter may leads to delay in
processing of refund claims and sometimes even rejection of the same.
3. Irregularities in periodical returns
This is one of the foremost cause for delay in processing of refund applications and
rejections. The taxation or accounts team of exporters do not take proper steps while
filing the periodical returns which lead to difference between the figures reported in
refund application and the periodical returns.
Many of the times, the value of exports or input tax credit differs substantially in refund
application and periodical return. Failure to provide proper justification and
reconciliation for the difference leads to undue delay in refund applications.
Therefore, every step must be taken to ensure that all relevant transactions are
disclosed in the periodical returns and the figures as per refund claims are in consonance
with periodical returns.
3. DECODING GST- Common Mistakes in GST Refund CA Ashish Garg
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4. Deficient paper work
GST Act and rules made there under provides for submission of various documents along
with refund claim for processing of application. Further various details were also
required to be submitted viz., Input Tax Credit register, Details of Export, computation of
refund claim along with the refund application.
Failure to submit the relevant documents leads to delay in processing/rejection of
refund claim as in the absence of the proper documents justifying the eligibility of the
exporter to claim the refund, the same is bound to get delayed or rejected.
It has also been seen that the inward supply invoices filed by the exporters does not
contain all the statutory particulars which are required to be mentioned on an invoice in
order to recover tax credit mentioned in such invoice. Therefore, it must be the
endeavour of the finance team to ensure that all the statutory particulars are mentioned
in the invoice before accepting the same from their vendors.
5. Incorrect computation of refund claim
Failure to accurately compute the eligible tax refund is also one of the reason which
leads to delay in processing of refund claim.
Many of the exporters are engaged in domestic supplies as well as export supplies and
also in some of the cases, exempted supplies and taxable supplies. In such cases, the
eligible refund amount has to be arrived on the basis of proper scrutiny and verification
of records, however generally these things go unnoticed and businesses tend to file
incorrect refund application.
6. Filing of refund claim of ineligible input tax credit
One of the major issue in refund application is claiming of refund claim of ineligible input
tax credit. Some of the cases of ineligible tax credit as under:
- Claiming refund of blocked credit;
- Claiming refund of taxes paid on inward supplies used in connection with exempted
- Claiming refund of taxes paid on inward supplies used in connection with domestic
- In case of failure by exporter to make payment to its vendor within 6 months from
the date of invoice and claiming the refund of tax paid on such invoice.
- Claiming refund in absence of proper duty paying document in the possession of
These are some of the instances which have caused undue delay in processing of
refund applications and in some cases rejection of the same.
4. DECODING GST- Common Mistakes in GST Refund CA Ashish Garg
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7. Follow up with the Department for refund processing
The Refund process right from preparing the application till the process is a very
rigorous task and involves a great amount of time in terms of follow up with the
department officials, replying to their queries, filing additional documents and
clarifications, filing point wise submission to the deficiency memos issued from time
It has been seen that while filing the refund applications all the relevant documents
were not either submitted with the department or not kept ready. When
department officials requisition some additional information, it takes great amount
of time to prepare the same and delay in submission thereof.
Furthermore, department officials are already burdened with so many tasks, it is
only with the regular follow up and visit to their office that the refund application is
processed in timely manner.
8. Reclaim credit of GST paid on capital goods in case of export.
GST Act read with rules made there under provides for refund of GST paid on input
and input services, however no refund is allowed of the GST paid on capital goods
purchased for making such export supplies.
In order to claim the refund of GST paid on such capital goods, an exporter has an
option to export the goods or service with payment of IGST and adjust the input tax
credit of GST paid on such capital goods against the IGST liability. In case of export
with payment of IGST, the exporter is entitle to claim the refund of IGST paid by it on
such exports which indirectly will allow it to get back the amount of GST paid on
For any clarification or discussion on this article, the author may be contacted at A2B/16A,
Ekta Apartments, Paschim Vihar, Delhi-110063, Phone: 011-45564490, 011-43464490, E-
Disclaimer: The views in this article are author's point of view. This article is not intended to
substitute the legal advice. No portion of this article may be copied, retransmitted, reposted,
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