Mechanism of re-credit upon repayment of the refunded amount on violation of CGST rule 96(10)

The amount so refunded can be repaid back to the Government but simultaneously the Government should also re-credit the amount so paid in our electronic credit ledger. In this regard, reliance can be placed in the case of M/s. I-Tech Plast India Pvt LTD vs. State of Gujarat, decided on 07.04.2022, in R/Special Civil Application No. 3653 of 2021 in an identical case of the assessee has held that if the authorities have accepted that there was an error and resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored.

‘The Petitioner is importing raw-material under the advance license without payment of the import duty. The finished goods produced using the raw-material so imported have been exported by the Petitioner. The Petitioner opted for payment of IGST on exports, and thereafter claimed refund of such IGST on exports. However, inadvertently, the Petitioner utilized the ITC for payment of the IGST on exports (instead of paying the IGST separately) which, in turn, was automatically refunded. In view of Rule 96(10) of the CGST Rules, 2017 the Petitioner could not have utilized the ITC for payment of the IGST on exports. Upon realizing the aforesaid mistake, the Petitioner separately paid the requisite IGST (which was refunded in past) along with the interest thereon and informed concerned authorities. Subsequently, the Petitioner requested the authorities to re-credit/restore the ITC in the electronic credit ledger which was, inadvertently, utilized for payment of the IGST. The Petitioner, thereafter made several attempts with authorities for restoration of the above ITC. Despite these repeated attempts, when the ITC was not restored as requested, the Petitioner preferred the present petition.

The Petitioner argued that since the Petitioner has voluntarily paid the IGST on exports with interest, the corresponding ITC (which was initially utilized for payment of such IGST on exports) must be recredited/restored in the electronic credit ledger with interest. Despite the repeated oral as well as written representations by the Petitioner, the ITC is not being re-credited/ restored on the count that there is no such mechanism whereby the ITC can be recredited/restored upon voluntary payment of the IGST. As per the Petitioner, an honest taxpayer like the Petitioner must not suffer owing to lack of appropriate mechanism. Accordingly, the Petitioner argued that the action of the department in not recrediting/restoring the ITC in question is also not in consonance with Article 265 as well as Article 300-A of the Constitution of India, 1950.

The department argued that Petition is not maintainable as the Petitioner is not at all entitled to claim the refund on the count that once an amount in question is paid in the Form-DRC-03 voluntarily, the same cannot be refunded.

The Hon’ble High Court observed that in so far as the erroneous grant of refund and return of such refund amount together with interest by the Petitioner is concerned, the same is undisputed. Accordingly, the Hon’ble High Court held that the first part of the transaction is nullified inasmuch as the amount erroneously refunded has already been repaid by the Petitioner along with interest. The Hon’ble High Court further held that if the authorities have accepted that there was an error and resultantly, accepted repayment of the erroneous refund, as a corollary, the credit of the ITC must be restored. The Hon’ble High Court observed that it cannot be that for the purpose of repayment, there was an error, and for the purpose of restoration of the ITC, there was no error. There is no question of any refund of the ITC at all. The Hon’ble High Court observed that the question is one of restoration of the ITC in the electronic credit ledger and not a refund thereof. Hence, any reference to sub-rule (10) of rule 96 of the CGST Rules is completely misconceived and not tenable. Accordingly, the Hon’ble High Court directed the respondent authorities to re-credit/restore the ITC to the tune of Rs.1,39,49,810/- in the electronic tax ledger of the Petitioner.’

Infact, the discussion regarding the same formed part of 47th GST Council Meeting wherein it has been decided to re-credit of amount in electronic credit ledger in those cases where erroneous refund amount sanctioned to a taxpayer on account of accumulated ITC or on account of IGST paid on zero rated supply of goods or services, in contravention of rule 96(10) of the CGST Rules, is deposited by him along with interest and penalty, wherever applicable. A new FORM GST PMT-03A is introduced for the same. This will enable the taxpayers to get re-credit of the amount of erroneous refund, paid back by them, in their electronic credit ledger.

In order to give effect to the same, Notification No. 14/2022 - Central Tax dated 5-7-2022 has been issued wherein rule (4B) has been inserted to rule 89 which stipulates that:

Where a registered person deposits the amount of erroneous refund sanctioned to him, —

(a) under sub-section (3) of section 54 of the Act, or

(b) under sub-rule (3) of rule 96, in contravention of sub-rule (10) of rule 96,

along with interest and penalty, wherever applicable, through FORM GST DRC-03, by debiting the electronic cash ledger, on his own or on being pointed out, an amount equivalent to the amount of erroneous refund deposited by the registered person shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03A

Further, a clarification in regard to the procedural aspect has been issued vide Circular No. 174/06/2022-GST dated 6-7-2022 wherein it has been stipulated that:

The taxpayer shall deposit the amount of erroneous refund along with applicable interest and penalty, wherever applicable, through FORM GST DRC-03 by debit of amount from electronic cash ledger. While making the payment through FORM GST DRC-03, the taxpayer shall clearly mention the reason for making payment in the text box as the deposit of erroneous refund of unutilised ITC, or the deposit of erroneous refund of IGST obtained in contravention of sub-rule (10) of rule 96 of the CGST Rules.

Till the time an automated functionality for handling such cases is developed on the portal, the taxpayer shall make a written request, in format enclosed as Annexure-A, to jurisdictional proper officer to re-credit the amount equivalent to the amount of refund thus paid back through FORM GST DRC-03, to electronic credit ledger.

The proper officer, on being satisfied that the full amount of erroneous refund along with applicable interest, as per the provisions of section 50 of the CGST Act, and penalty, wherever applicable, has been paid by the said registered person in FORM GST DRC-03 by way of debit in electronic cash ledger, he shall re-credit an amount in electronic credit ledger, equivalent to the amount of erroneous refund so deposited by the registered person, by passing an order in FORM GST PMT-03A, preferably within a period of 30 days from the date of receipt of request for re-credit of erroneous refund amount so deposited or from the date of payment of full amount of erroneous refund along with applicable interest, and penalty, wherever applicable, whichever is later.