Government Customers or suppliers always try to have the upper hand in dealings with private players. Incase contracts are cancelled, there is always a question of how to adjust the GST paid earlier, especially if no outward tax liability is available. In this regard, Sl No 3 of Circular No. 137/07/2020-GST dated 13.4.2020 specifies the following -
1. An advance is received by a supplier for a Service contract which subsequently got cancelled. The supplier has issued the invoice before the supply of service and paid the GST thereon. Whether he can claim a refund of tax paid or is he required to adjust his tax liability in his returns?
In case GST is paid by the supplier on advances received for a future event which got cancelled subsequently and for which an invoice is issued before the supply of service, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. He shall declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim. However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.
2. An advance is received by a supplier for a Service contract which got cancelled subsequently. The supplier has issued a receipt voucher and paid the GST on such advance received. Whether he can claim a refund of tax paid in advance or he is required to adjust his tax liability in his returns?
In case GST is paid by the supplier on advances received for an event which got cancelled subsequently and for which no invoice has been issued in terms of section 31 (2) of the CGST Act, he is required to issue a “refund voucher” in terms of section 31 (3) (e) of the CGST Act read with rule 51 of the CGST Rules. The taxpayer can apply for a refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”.
Now the question is regarding the timing of the GST refund to the recipient. In this case where IRCTC received the value of supply with GST from the recipient (possibly in advance) and thereafter the contracts got cancelled, they held onto the GST potion taking the stand that they shall refund the GST component to the recipient subject to a complementary refund by the GST authorities to the IRCTC. This was even after the recipient had already filed an affidavit indicating that it has not availed the input credit of GST.
The High Court at Calcutta in the instant case of GRIHAM FOOD AND HOTEL PVT LTD Vs UNION OF INDIA [2023-VIL-452-CAL] held that As such, there cannot be any further impediment in the GST component being refunded to the petitioner. Entitlement of the IRCTC to get a complementary refund from the GST authorities could not also be mandated in a blanket fashion by Court direction, simply because the IRCTC has failed to justify its delay in sitting tight over the application of the petitioner for a refund of GST component, which was made by the petitioner in due time. A complimentary refund to the IRCTC would be considered by the GST authorities in accordance with the law. However, there cannot be any doubt that the petitioner is entitled to a refund of the GST component from IRCTC and thus the IRCTC was directed to refund the GST component to the petitioner expeditiously.
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