E-Flier has been released by GST Council explaining provisions of Refund of unutilised Input Tax Credit (ITC) breifly:

Refund of unutilised Input Tax Credit (ITC)

Accumulation of Input Tax Credit happens when thetax paid on inputs is more than the output tax liability.Such accumulation will have to be carried over to thenext financial year till such time as it can be utilisedby the registered person for payment of output taxliability. However, the GST Law permits refund ofunutilised ITC in two scenarios, namely if such creditaccumulation is on account of zero rated suppliesor on account of inverted duty structure, subject tocertain exceptions.
As per Section 54(3) of the CGST Act, 2017, a registeredperson may claim refund of unutilised input tax creditat the end of any tax period. A tax period is theperiod for which return is required to be furnished.Thus, a taxpayer can claim refund of unutilised ITC onmonthly basis.
Refund of unutilised input tax credit is allowed only infollowing two cases

a) Zero rated supplies made without payment oftax : As per Section 16(3) of the IGST Act, 2017,a registered person making zero rated supplyis eligible to claim refund under either of thefollowing options, namely:

• Supply of goods or services or both under bond orLetter of Undertaking, subject to such conditions,safeguards and procedure as may be prescribed,without payment of integrated tax and claimrefund of unutilized input tax credit; or
• Supply of goods or services or both, subject tosuch conditions, safeguards and procedure as maybe prescribed, on payment of integrated tax andclaim refund of such tax paid on goods or servicesor both supplied.
• The first category pertains to refund of unutilisedITC for which the registered person has to supplyunder Bond/LUT (as prescribed in Rule 96A of CGSTRules)and in the second category supply has beenmade after payment of Tax (IGST). In both thecases, refund can be applied under Section 54 ofthe CGST Act, 2017 read with Rule 89 or Rule 96 , as the case may be, of the CGST Rules, 2017.

b) Inverted duty structure : Where the credit hasaccumulated on account of rate of tax on inputsbeing higher than the rate of tax on outputsupplies (other than nil rated or fully exemptsupplies), except supplies of goods or services orboth as may be notified by the Government on therecommendations of the Council.In such cases also, refund can be applied under Section54 of the CGST Act, 2017 read with Rule 89 of the CGSTRules, 2017.

It should be noted that no refund of unutilised inputtax credit is allowed in cases where the goods exportedout of India are subjected to export duty. Further, norefund of input tax credit is allowed, if the supplier ofgoods or services or both avails of drawback in respectof central tax or claims refund of the integrated taxpaid on such supplies.

Refund of ITC on account of zero-rated supplies

The application filed for refund of unutilized ITC onaccount of zero-rated supplies (with payment of taxor without payment of tax under Bond/LUT) has tobe accompanied by documentary evidence as maybe prescribed to establish that a refunds due to theapplicant; and such documentary or other evidence(including the documents referred to in section 33 ofthe CGST Act, 2017) as the applicant may furnish toestablish that the amount of tax and interest, if any,paid on such tax or any other amount paid in relationto which such refund is claimed was collected from, orpaid by, him and the incidence of such tax and interesthad not been passed on to any other person.
Rule 89(2) of the CGST Rules, 2017, specifies documentsto be attached with the refund application in case ofdifferent types of Refund applicants.
However, it has been provided under section 54(4) ofthe CGST Act, 2017, that where the amount claimedas refund is less than two lakh rupees, it shall not benecessary for the applicant to furnish any documentaryand other evidences but he may file a declaration,based on the documentary or other evidences availablewith him, certifying that the incidence of such tax andinterest had not been passed on to any other person.
It has also been provided under section 54(6) of theCGST Act, 2017, that in cases where the claim for refundon account of zero-rated supply of goods or servicesor both made by registered persons, other than suchcategory of registered persons as maybe notifiedby the Government on the recommendations of theCouncil, refund on a provisional basis, ninety per cent.of the total amount so claimed, excluding the amountof input tax credit provisionally accepted; and the finalorder shall be issued within sixty days from the date of
receipt of application complete in all respects (section54(7) of the CGST Act, 2017 refers).
Rule 91 of CGST Rules, 2017 provide that the provisionalrefund is to be granted within 7 days from the date ofacknowledgement of the refund claim. An order forprovisional refund is to be issued in Form GST RFD 04along with payment advice in the name of the claimantin Form GST RFD 05. The amount will be electronicallycredited to the claimants bank account. The rules alsoprescribe the provisional refund will not be granted toif the person claiming refund has, during any periodof five years immediately preceding the tax period towhich the claim for refund relates, been prosecuted forany offence under the Act or under an earlier law wherethe amount of tax evaded exceeds two hundred and
fifty lakh rupees;
It may also be noted that by default, the refund is to becredited to the Consumer Welfare Fund, except in thecases below:-

(a) Refund of tax paid on zero-rated supplies of goodsor services or both or on inputs or input servicesused in making such zero-rated supplies;

(b) Refund of unutilised input tax credit under section54(3) of the CGST Act, 2017;

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

(d) Refund of tax in pursuance of section 77;

(e) The tax and interest, if any, or any other amountpaid by the applicant, if he had not passed on theincidence of such tax and interest to any otherperson; or

(f) The tax or interest borne by such other classof applicants as the Government may, on therecommendations of the Council, by notification,specify.

Formula for grant of refund in cases where the refundof accumulated Input Tax Credit is on account of zerorated supply is based on the following:

Refund Amount = (turnover of zero rated supply ofgoods + turnover of zero rated supply of services) x NetITC /Adjusted total turnover

Where: –

(A) Refund amount means the maximum refundthat is admissible;

(B) Net ITC means input tax credit availed on inputsand input services during the relevant period;

(C) Turnover of zero-rated supply of goods meansthe value of zero-rated supply of goods madeduring the relevant period without payment oftax under bond or letter of undertaking;

(D) Turnover of zero-rated supply of servicesmeans the value of zero-rated supply of servicesmade without payment of tax under bond orletter of undertaking, calculated in the followingmanner, namely: –

Zero-rated supply of services is the aggregateof the payments received during the relevantperiod for zero-rated supply of services and zero ratedsupply of services where supply has beencompleted for which payment had been receivedin advance in any period prior to the relevantperiod reduced by advances received for zero ratedsupply of services for which the supplyof services has not been completed during therelevant period;

(E) Adjusted Total turnover means the turnover ina State or a Union territory, as defined under subsection(112) of section 2, excluding the value ofexempt supplies other than zero-rated supplies,during the relevant period;

(F) Relevant period means the period for whichthe claim has been filed.

Refund of ITC on account of inverted duty structure.

As per Section 54(3), refund of accumulated ITC will be granted where the credit accumulation has taken place on account of inverted duty structure. However, the Government also has the power to notify supplies where refund of ITC will not be admissible even if such credit accumulation is on account of an inverted duty structure. In exercise of the powers conferred by this section, the government has issued Notification no.15/2017-Central Tax (Rate) dated 28th June 2017 wherein it has been notified that no refund of unutilised input tax credit shall be allowed under sub-section (3) of section 54 of the said Central Goods and Services Tax Act, in case of supply of services specified in sub-item (b) of item 5 of Schedule II of the Central Goods and Services Tax Act. The supplies specified under item 5(b) of Schedule II are construction services. In respect of goods, the central government has issued Notification no.5/2017- Central Tax (Rate) dated 28th June 2017. The government has notified the following goods in respect of which unutilized ITC will not be admissible as refund: –

Further, Rule 89(2)(h) of CGST Rules, 2017 stipulatethat refund claim on account of accumulated ITC(where such accumulation is on account of invertedduty structure) has to be accompanied by a statementcontaining the number and date of invoices receivedand issued during a tax period. Rule 89(3) of CGSTRules, 2017 also provide that where the applicationrelates to refund of input tax credit, the electroniccredit ledger shall be debited by the applicant in anamount equal to the refund so claimed.
Provisions similar for refund of accumulated ITC forboth types of Refund Applicants (suppliers makingzero-rated / inverted duty supplies)
Where the application relates to refund of input taxcredit, the electronic credit ledger shall be debitedby the applicant by an amount equal to the refund soclaimed as per Rule 89(3) of CGST Rules, 2017.
Also, interest will be paid for any delay in sanctioning ofRefund beyond the mandated period of 60 days (as perRule 94 of CGST Rules, 2017).
The refund and/or interest sanctioned, if any, will bedirectly credited to the bank account of the applicant.

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Refund of unutilised Input Tax Credit (ITC)

Conclusion

The GST Law provides for multiple options to thezero rated suppliers to claim refund of taxes paid onthe input side. One of the options is export underbond or LUT and claim refund of unutilised ITC. Thelaw also provides for refund of unutilised ITC wherecredit accumulation is on account of inverted dutystructure, subject to certain riders. Time lines havebeen set for processing of refund claims and claimsnot settled within 60 days will be paid with interest@6%. Moreover, 90% of the claim would be paidwithin 7 days of acknowledgement of claim onprovisional basis. Claims are to be filed with minimumdocumentation and the refund amount will becredited directly to the claimants bank account. Theprocess is online and hassle free and with minimuminterface with tax authorities.