GST Refund for Unregistered Persons: Who Can Claim?

Under GST law, whenever any excess tax is paid by the registered person, he can apply for refund of the same. Have you ever thought about the claim of refund by the person who is not even registered under GST. This article explores when and how an unregistered person can claim a refund under the GST regime.

Recommendation by the Council Meeting:
Earlier there was no procedure for claim of refund of tax borne by the unregistered buyers in cases where the contract/ agreement for supply of services, like construction of flat/house and long-term insurance policy, is cancelled and the time period of issuance of credit note by the concerned supplier is over. In the 48th GST Council meeting which was held on 17th December 2022, it was recommended to make an amendment in the CGST Rules, 2017 to prescribe the procedure for filing application of refund by the unregistered buyers in such cases.

Cases where an unregistered person may claim a refund under GST:
 Circular No.188/20/2022 was issued by CBIC for prescribing the manner of filing an application for refund by unregistered persons. In said circular the following two cases were discussed where unregistered buyers may claim a refund under GST:

1. Unregistered buyers of construction services
Where the 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. In a number of such cases, the period for issuance of credit note on account of such cancellation of service under the provisions of section 34 of the Central Goods and Service Tax Act, 2017 i.e., 30th November, may already have expired by that time. In such cases, the supplier may refund the amount to the buyer, after deducting the amount of tax collected by him from the buyer.

2. Unregistered buyers of long-term insurance policies
The second case, where unregistered buyers can file a refund application, applies where the premium for the entire period of a long-term insurance policy, along with the applicable GST, has been paid upfront, and the policy is subsequently required to be terminated prematurely due to any reason. Similar to the above situation, the time period for issuing credit notes may have already expired, and the insurance company may refund only the proportionate premium without the GST amount.

To ease the hardships of unregistered buyers in the above two cases, the government has now provided a facility where such persons may file a refund application under GST.

What if the time limit to issue credit note has not been expired:
Where the time period for issuance of credit note under section 34 of the CGST Act has not expired at the time of cancellation/termination of agreement/contract for supply of services, the concerned suppliers can issue credit note to the unregistered person. In such cases, the supplier would be in a position to also pay back the amount of tax collected by him from the unregistered person and therefore, there will be no need for filing refund claim by the unregistered persons in these cases.

Accordingly, the refund claim can be filed by the unregistered persons only in those cases where at the time of cancellation/termination of agreement/contract for supply of services, the time period for issuance of credit note under section 34 of the CGST Act has already expired.

What is the minimum amount for filing a refund application?
According to Section 54(14), no refund shall be paid if the amount is less than Rs.1,000. Hence, the minimum tax amount to be refunded in a refund application is Rs.1,000/-.

Required Documents:
Following documents are required while filing refund application:

(1) A statement containing the details of invoices viz. number, date, value, tax paid
(2) Details of payment, in respect of which refund is being claimed along with copy of such invoices, proof of making such payment to the supplier.
(3) The copy of agreement or registered agreement or contract, as applicable, entered with the supplier for supply of service
(4) The letter issued by the supplier for cancellation or termination of agreement or contract for supply of service
(5) Details of payment received from the supplier against cancellation or termination of such agreement along with proof thereof, in a case where the refund is claimed by an unregistered person where the agreement or contract for supply of service has been cancelled or terminated
(6) A certificate issued by the supplier to the effect that;

Online Procedure for Claiming Refund:
1. Obtain Temporary User ID

2. Login and File Refund Application

3. Choose the Relevant Refund Type

4. Upload Required Documents

5. Submit and Track Application with ARN (Application Reference Number) generated.

Time limit to claim refund:
Refund must be claimed within 2 years from the relevant date (e.g., cancellation date, excess payment date, court ruling).

Processing of Refund Application by the Proper Officer:
The proper officer shall process the refund claim filed by the unregistered person in a manner similar to other RFD-01 claims. The proper officer shall scrutinize the application with respect to completeness and eligibility of the refund claim to his satisfaction and issue the refund sanction order in FORM GST RFD-06 accordingly. The proper officer shall also upload a detailed speaking order along with the refund sanction order in FORM GST RFD-06.

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.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.