CBIC clarification on Refund of Tax paid in the wrong head

The Central Board of Indirect Taxes and Customs (CBIC) has stated that any CGST, SGST, or IGST that has been incorrectly paid for intra-State or inter-State transactions will be returned within two years.

The Board has received submissions seeking clarification on matters relating to a refund of tax incorrectly paid under section 77(1) of the Central Goods and Services Tax Act, 2017 and section 19(1) of the Integrated Goods and Services Tax Act, 2017. The Board, in the exercise of its powers provided by section 168 (1) of the CGST Act, addressed the concerns in detail in order to promote uniformity in the implementation of the law provisions throughout field formations.

It has been clarified that the term “subsequently held” in section 77 of the CGST Act, 2017 or section 19 of the IGST Act, 2017 refers to situations in which a taxpayer’s inter-State or intra-State supply is either subsequently found by the taxpayer himself as intra-State or inter-State respectively, or where the taxpayer’s inter-State or intra-State supply is subsequently found/ hel As a result, the taxpayer can claim refunds under the abovementioned provisions in both of the aforementioned instances, as long as the taxpayer pays the required amount of tax in the relevant head.

Before the expiration of two years from the date of payment of tax under the correct head, i.e. integrated tax paid in respect of subsequently held inter-State supply, or central and state tax paid in respect of subsequently held intra-State supply, as the case may be, a refund under section 77 of the CGST Act/ Section 19 of the IGST Act, 2017 can be claimed. However, in cases where the taxpayer made the correct payment before the date of issuance of notification No.35/2021-Central Tax dated 24.09.2021, a refund application under section 77 of the CGST Act/section 19 of the IGST Act can be filed before the two-year period from the date of issuance of the said notification expires. i.e. from 24.09.2021.

Rule 89 (1A) of the CGST Rules would also apply to section 19 of the IGST Act, where the taxpayer paid IGST on a specific transaction that was later classified as an intra-State supply, and the taxpayer paid CGST and SGST on the transaction. It is further emphasised that any refund claims filed prior to the issuing of notification No.35/2021-Central Tax, dated 24.09.2021, will be handled with in compliance with rule 89 (1A) of the CGST Rules, 2017.

Where the taxpayer has made a tax adjustment through the issuing of a credit note under section 34 of the CGST Act in respect of the abovementioned transaction, a refund under section 77 of the CGST Act/section 19 of the IGST Act will not be available.