Transfer of input tax credit and its related 

issues
Input credit means at the time of paying tax on output, you can reduce the tax you have already
paid on inputs and pay the balance amount.

Here’s how:

When you buy a product/service from a registered dealer you pay taxes on the purchase. On
selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount of
output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has to
be paid to the government. This mechanism is called utilization of input tax credit.

For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs
450 b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 300,
and you only need to deposit Rs 150 in taxes.

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills ALL the conditions as
prescribed.

1. The dealer should be in possession of tax invoice

2. The said goods/services have been received
3. Returns have been filed.
4. The tax charged has been paid to the government by the supplier.
5. When goods are received in installments ITC can be claimed only when the last lot is
received.
6. No ITC will be allowed if depreciation has been claimed on tax component of a capital
good

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-
business (personal) purposes, or for making exempt supplies ITC cannot be claimed. Apart from
these, there are certain other situations where ITC will be reversed.

ITC will be reversed in the following cases:

1) Non-payment of invoices in 180 days: ITC will be reversed for invoices which were not paid
within 180 days of issue.

2) Credit note issued to ISD by seller: This is for ISD. If a credit note was issued by the seller
to the HO then the ITC subsequently reduced will be reversed.

3) Inputs partly for business purpose and partly for exempted supplies or for personal use:
This is for businesses which use inputs for both business and non-business (personal) purpose.
ITC used in the portion of input goods/services used for the personal purpose must be reversed
proportionately.

4) Capital goods partly for business and partly for exempted supplies or for personal use:
This is similar to above except that it concerns capital goods.

5) ITC reversed is less than required: This is calculated after the annual return is furnished. If
total ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed
during the year, then the difference amount will be added to output liability. Interest will be
applicable.

Reconciliation of ITC

ITC claimed by the person has to match with the details specified by his supplier in his GST
return. In case of any mismatch, the supplier and recipient would be communicated regarding
discrepancies after the filling of GSTR 3.  Please read our article on the detailed explanation of
the reasons for mismatch of ITC and procedure to be followed to apply for re-claim of ITC.

Documents Required for Claiming ITC

The following documents are required for claiming ITC: 1. Invoice issued by the supplier of
goods/services 2. The debit note issued by the supplier to the recipient (if any) 3. Bill of entry 4.
An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice
if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per
GST law. 5. An invoice or credit note issued by the Input Service Distributor(ISD) as per the
invoice rules under GST. 6. A bill of supply issued by the supplier of goods and services or both.

All these documents are to furnished at the time of filing form GSTR-2.

Special cases of ITC

A. ITC for Capital Goods

ITC is available for capital goods under GST.

However, ITC is not available for- i. Capital Goods used exclusively for making exempted goods
ii. Capital Goods used exclusively for non-business (personal) purposes.

Note: No ITC will be allowed if depreciation has been claimed on tax component of capital
goods.
 Eligible and ineligible Input tax credit
Eligible Input tax credit

“Input Tax” in relation to a taxable person, means the Goods and Services Tax charged on him
for any supply of goods and/or services to him, which are used or are intended to be used, for the
furtherance of his business. Input Tax Credit under GST Conditions to Claim ITC must be
fulfilled and forms one of the most critical activity for every business to settle its tax liability.

ITC is the backbone of GST and a major matter of concern for the registered persons. The
conditions for eligibility to ITC and eligible ITC have been prescribed which is more or less in
line with pre-GST regime. These rules are also quite particular and stringent in its approach.

Input Tax Credit under GST: Conditions to Claim

A registered person will be eligible to claim Input Tax Credit (ITC) on the fulfillment of the
following conditions:

1. Possession of a tax invoice or debit note or document evidencing payment

2. Receipt of goods and/or services
3. Goods delivered by supplier to other person on the direction of a registered person
against a document of transfer of title of goods
4. Furnishing of a return
5. Where goods are received in lots or installments ITC will be allowed to be availed when
the last lot or installment is received
6. Failure of the supplier towards supply of goods and/or services within 180 days from the
date of invoice, ITC already claimed by recipient will be added to output tax liability and
interest to paid on such tax involved. On payment to supplier, ITC will be again allowed
to be claimed
7. No ITC will be allowed if depreciation has been claimed on the tax component of a
capital good
8. Time limit to claim ITC against an Invoice or Debit Note is earlier of below dates:

The due date of filing GST Return for September of next financial year

OR

Date of filing the Annual Returns relevant for that financial year

For instance, XY Corp, a buyer has a Purchase Invoice was dated 8th July 2017(FY 2017-18),
wants to claim GST paid on that purchase. As per the criteria laid down to reckon the time limit:

The Due date of filing GST return for September 2018(belonging to FY 2018-19) is 20th
October 2018 and the Date of filing GST Annual Return for FY 2017-18 is 31st December 2018,
whichever is earlier will be the time period within which XY Corp has to claim ITC. Therefore,
the date is 20th October 2018 and XY Corp can claim this ITC in any of the months between
July 2017 to September 2018.

Note: For Debit Notes, above condition must be considered with respect to Original Invoice
Date.

9. Common credit of ITC used commonly for

 Effecting exempt and taxable supplies

 Business and non-business activity

10. Since 9 October 2019, a regular taxpayer can claim provisional ITC in GSTR-3B only to
the extent of 20% of the ITC available in GSTR-2A. It means the amount of ITC reported
in GSTR-3B from 9 October 2019 will be a total of Actual ITC in GSTR-2A and
provisional ITC being 20% of actual ITC in GSTR-2A. Hence, matching purchase
register or expense ledger with GSTR-2A becomes crucial.

Ineligible Input tax credit

Cases when ITC is not available under GST

1. Motor vehicles & conveyances

ITC is not available for Motor vehicles used to transport persons, having a seating capacity of
less than or equal to 13 persons (including the driver).

Further, ITC is not available on vessels and aircraft.

For example, XYZ & Co. buys a car for their business. They cannot claim ITC on the same.

Exceptions to ITC on motor vehicles/vessels/aircrafts

ITC will be available when the vehicle is used for making taxable supplies by the following.

a) Supply of other vehicles or conveyances, vessels or aircrafts.

If you are in the business of supplying cars, then ITC will be available.

For example, a car dealer purchases a car for Rs.50 lakh plus 14 lakh GST (ignoring cess
calculations). The same car was later sold for 70 lakhs along with Rs.19.60 lakh GST. Since he is
a dealer, he can claim ITC of 14 lakhs and pay only Rs.5.60 lakh (19.60 – 14).

b) Transportation of passengers

If you are providing transportation of passengers, then ITC will be allowed on the vehicle
purchased.
For example, Happy Tours purchased a bus for inter-city transport of passengers. ITC is
available.

c) Imparting training on driving, flying, navigating such vehicle or conveyances or vessels or

aircrafts, respectively.

A driving school purchases a car to give training to students. The school can claim ITC on the
GST paid on the car.

d) Transportation of goods

ITC will be allowed on motor vehicles (and other conveyances) used to transport goods from one
place to another. However, this is concerning other transporters and not goods transport agencies
(GTA).

2. Food, beverages, club memberships and others

ITC is not for the supply of following goods or services or both:

Food and beverages

Outdoor catering

Beauty treatment

Health services

Cosmetic and plastic surgery

However, ITC will be available if the category of inward and outward supply is same or the
component belongs to a mixed or composite supply under GST.

3. Services of general insurance, servicing, repair and maintenance

No ITC is allowed on services of general insurance, servicing, repair and maintenance in so far
as they relate to motor vehicles, vessels or aircraft referred to in (1).

Exceptions to ITC on insurance, repair or maintenance

Same as expectations mentioned for motor vehicles/vessels/aircrafts where received by a taxable

person engaged:

(I) In the manufacture of such motor vehicles, vessels or aircraft

(II) In the supply of general insurance services in respect of such motor vehicles, vessels or
aircraft insured by him
 4. Sale of membership in a club, health, fitness centre

No ITC will be allowed on any membership fees for gyms, clubs etc.

Example:

X, a Managing Director has taken membership of a club and the company pays the membership
fees.  ITC will not be available to the company or Mr. X.

5. Rent-a-cab, life insurance, health insurance

ITC is not available for rent-a-cab, health insurance and life insurance.

However, the following are exceptions, i.e., ITC is available for:

Any services which are made obligatory for an employer to provide its employee by the Indian
Government under any current law in force

For example, assuming the government passes a rule for all employers to provide mandatory cab
services to female staff in night shifts. ABC Ltd. hires a rent-a-cab to provide to transportation to
its female staff on night shifts. Then ITC will be available to ABC Ltd. on the GST paid to the
rent-a-cab service.

If the category is same for the inward supply and outward supply or it is a part of the mixed or
composite supply

For example, ABC Travels lends out a car to XYZ Travels. Then XYZ Travels can claim ITC on
the same.

leasing, renting or hiring of motor vehicles, vessels or aircraft with exceptions same as those
mentioned for (1).

6. Travel

ITC is not available in the case of travel, benefits extended to employees on vacation such as
leave or home travel concession.

7. Works contract

ITC shall not be available for any work contract services. ITC for the construction of an
immovable property cannot be availed, except where the input service is used for further work
contract services.

For example, XYZ Contractors are constructing an immovable property. They cannot claim any
ITC on the works contract. However, XYZ hires ABC Contractors for a portion of the works
contract. XYZ can claim ITC on the GST charged by ABC Contractors.
8. Composition Scheme

No ITC would be available to the person who has made the payment of tax under composition
scheme in GST law.

10. No ITC for Non-residents

ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only
available on any goods imported by him.

11. No ITC for personal use

No ITC will be available for the goods/ services used for personal purposed and not for business
purposes.

12. Free samples and destroyed goods

No ITC is available for goods lost, stolen, destroyed, written off or given off as gift or free
samples.

13. No ITC in fraud cases

 ITC will not be available for any tax paid due to fraud cases which has resulted into:

 Non or short tax payment

 Excessive refund
 ITC utilized

Fraud cases include fraud or willful misstatements or suppression of facts or confiscation and
seizure of goods.

14. No ITC on restaurants

As per Notification No. 46/2017-Central Tax (Rate), dated 14th November 2017, standalone
restaurants will charge only 5% GST but cannot enjoy any ITC on the inputs.

However, restaurants as part of hotels with room tariffs exceeding Rs. 7,500 still continue pay
18% GST and enjoy ITC.

Credit and Debit Notes

When goods supplied are returned or when there is a revision in the invoice value due to goods
(or services) not being up to the mark or extra goods being issued a Debit Note or Credit Note is
issued by the supplier and receiver of goods and services.
A debit notes or a Credit Note can be issued in 2 situations:

1. When the amount payable by buyer to seller decreases –There can be a change in the
value of goods after the goods are delivered and invoice is issued by the seller. This can
be due to a return of goods or due to the bad quality of the goods delivered, etc. In this
case, the value of goods decreases due to which a Debit Note is issued by the purchaser to
the seller. The Debit Note provides details of the amount of money debited from the
sellers’ account and states the reason for the same. The reason behind this – In the
purchaser’s books of account the seller will have a credit balance. When a debit note is
issued the credit balance of the Sellers account decreases, thus reducing the seller’s
balance. It means that that lesser amount is required to be paid by the buyer to the seller
to settle his liability. Thus, debit note reduces the liability for the buyer. The seller issues
a Credit Note as a response or acknowledgment to the Debit Note
2. When the amount payable by buyer to seller increases-When the value of invoice
increases due to extra goods being delivered or the goods already delivered have been
charged at an incorrect value a Debit Note is required to be issued. The Debit Note, in
this case, is issued by the seller to the buyer. And the buyer as an acknowledgment to the
receipt of Debit Note issues a Credit Note. The reason behind this – In the seller’s books
of account the buyer will have a debit balance. When a debit note is issued the debit
balance of the buyer’s account increases. It means that more amount is required to be
paid by the buyer to the seller to settle his liability. Thus, credit note increases the
liability for the buyer.

Debit Note under GST

Cases when Debit note is to be issued by supplier:

 Cases Where Debit note has to be issued by the Supplier
Original tax invoice has been issued and taxable value in the invoice is less than actual
A.
taxable value.
Original tax invoice has been issued and tax charged in the invoice is less than actual tax
B.
to be paid.
Note Debit note will include a supplementary invoice.

Credit Note under GST

Cases when Credit note is to be issued by supplier:

Cases Where Credit note has to be issued by the Supplier

Original tax invoice has been issued and taxable value in the invoice exceeds actual
A
taxable value.
Original tax invoice has been issued and tax charged in the invoice exceeds actual tax
B
to be paid.
C Recipient returns the goods to the supplier
D Services are found to be deficient
Note: Credit note will include a supplementary invoice

Transfer of input tax credit and its related issues

Input credit means at the time of paying tax on output, you can reduce the tax you have already
paid on inputs and pay the balance amount.

Here’s how:

When you buy a product/service from a registered dealer you pay taxes on the purchase. On
selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount of
output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has to
be paid to the government. This mechanism is called utilization of input tax credit.

For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs
450 b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 300
and you only need to deposit Rs 150 in taxes.

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills ALL the conditions as
prescribed.

1. The dealer should be in possession of tax invoice

 2. The said goods/services have been received
3. Returns have been filed.
4. The tax charged has been paid to the government by the supplier.
5. When goods are received in installments ITC can be claimed only when the last lot is
received.
6. No ITC will be allowed if depreciation has been claimed on tax component of a capital
good

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-
business (personal) purposes, or for making exempt supplies ITC cannot be claimed. Apart from
these, there are certain other situations where ITC will be reversed.

ITC will be reversed in the following cases:

1) Non-payment of invoices in 180 days: ITC will be reversed for invoices which were not paid
within 180 days of issue.

2) Credit note issued to ISD by seller: This is for ISD. If a credit note was issued by the seller
to the HO then the ITC subsequently reduced will be reversed.

3) Inputs partly for business purpose and partly for exempted supplies or for personal use:
This is for businesses which use inputs for both business and non-business (personal) purpose.
ITC used in the portion of input goods/services used for the personal purpose must be reversed
proportionately.

4) Capital goods partly for business and partly for exempted supplies or for personal use:
This is similar to above except that it concerns capital goods.

5) ITC reversed is less than required: This is calculated after the annual return is furnished. If
total ITC on inputs of exempted/non-business purpose is more than the ITC actually reversed
during the year then the difference amount will be added to output liability. Interest will be
applicable.

Reconciliation of ITC

ITC claimed by the person has to match with the details specified by his supplier in his GST
return. In case of any mismatch, the supplier and recipient would be communicated regarding
discrepancies after the filling of GSTR 3.  Please read our article on the detailed explanation of
the reasons for mismatch of ITC and procedure to be followed to apply for re-claim of ITC.

Documents Required for Claiming ITC

The following documents are required for claiming ITC: 1. Invoice issued by the supplier of
goods/services 2. The debit note issued by the supplier to the recipient (if any) 3. Bill of entry 4.
An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice
if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per
GST law. 5. An invoice or credit note issued by the Input Service Distributor(ISD) as per the
invoice rules under GST. 6. A bill of supply issued by the supplier of goods and services or both.

All these documents are to furnished at the time of filing form GSTR-2.

Special cases of ITC

A. ITC for Capital Goods

ITC is available for capital goods under GST.

However, ITC is not available for- i. Capital Goods used exclusively for making exempted goods
ii. Capital Goods used exclusively for non-business (personal) purposes.

Note: No ITC will be allowed if depreciation has been claimed on tax component of capital
goods.

Demands and Recovery

The Goods and Service Tax is payable on a self-assessment basis. If the assessee pays the tax
on self-assessment correctly then there will not be any problem. If there is any short payment or
wrong utilization of input credit, then the GST authorities will initiate demand and recovery
provisions against the assessee.

Provisions of demand under GST Act and the consequent recovery provisions are similar to the
provisions of Service Tax and Central Excise Act. 

Time Limit

The proper officer is required to issue the show cause notice 3 months before the time limit. The
maximum time limit for the order of payment is 3 years from the due date for filing of annual
return for the year to which the amount relates.

For Other Tax Periods

Once the above notice has been issued, the proper officer can serve a statement, with details of
any unpaid tax/wrong refund etc. for other periods not covered in the notice. A separate notice
does not have to be issued for each tax period.

Voluntary Tax Payment

A person can pay tax along with interest, based on his own calculations (or the officer’s
calculations), before the notice/statement is issued and inform the officer in writing of the
same. The officer will not issue any notice in this case.
However, if the officer finds that there is short payment, they can issue a notice for the
balance amount.

No Penalty

If the taxpayer pays all their dues within 30 days from date of notice, then the penalty will not
be applicable.

Penalty in Other Cases

The tax officer will consider the taxpayer’s representation and then calculate interest and penalty.
Penalty will be 10% of tax subject to a minimum of Rs. 10,000. The tax officer will issue an
order within three years from the due date for filing of relevant annual return.

Notice when there is Fraud for tax shortfall (Section 74)

This section applies to cases of tax evasion involving:

 Fraud
 Wilful misstatement
 Suppression of facts

This results in:

 Unpaid/short paid tax or,

 Wrong refunds or,
 Wrongly availed/utilized input tax credit

In such cases, the proper officer will serve a show cause notice to the taxpayer. They will be
required to pay the amount due along with interest and penalty.

Time Limit
For cases of fraud, the proper officer is required to issue the notice 6 months before the time
limit. The maximum time limit is 5 years from the due date for filing of annual return for the
year to which the amount relates.

For Other Tax Periods

Once the above notice has been issued, the proper officer can serve a statement, with details of
any unpaid tax/wrong refund etc. for other periods not covered in the notice. A separate notice
does not have to be issued for each tax period.

Voluntary Tax Payment

If the person pays tax along with interest and a 15% penalty based on their own calculations (or
the officer’s calculations) before the notice/statement is issued and informs the officer in writing,
then the officer will not issue any notice.

However, if the officer finds that there is short payment, they can issue a notice for the
balance amount.

If the taxpayer pays all their dues and a penalty of 25% within 30 days from the date of
the notice, then all proceedings (excluding proceedings u/s 132,i.e., prosecution)regarding the
notice will be closed.

Issue of Order

The tax officer will consider the taxpayer’s representation and then calculate interest and penalty
and issue an order.

The order must be issued within five years from the due date for filing of the relevant annual
return. [For wrong refunds the order must be issued within five years from the date of the wrong
refund].

If the taxpayer pays all their dues and a penalty of 50% within 30 days from the date of order,
then all proceedings (including prosecution) regarding the notice will be closed.

How to file refund under GST

GST is all about a smooth flow of funds and compliances till the end. To facilitate such a smooth
flow, it is imperative for the Government to provide for a hassle-free refund process. The current
tax structure is cumbersome, and it takes months and sometimes years to get refunds from the
Government’s kitty.

GST provides for a clearer and efficient invoice based tracking system, verifying the transactions
on an individual basis, thus, allowing systematic checking of the same. It comes as a huge relief
for manufacturers or exporters, especially those in a 100% EOU or Special Economic Zone,
whose working capital gets tied up in this cumbersome refund process.

In this article, we’ve covered the GST refund process in detail to make your life easy.

There are certain events where refund arises. Let us check out the transactions in details.

 In case of exports (including deemed exports), where there is a cumulative balance of

input credit arising out of such exports or under a claim of rebate.
 Where there is an excessive payment of tax due to an inadvertent mistake.
 When there is an accumulation of credit resulting due to the output tax being nil or
exempted from tax.
 A refund may arise after a provisional assessment.
 Where an appeal is for a respondent, then the amount made as a deposit towards
holding such appeal shall be refunded to the appellant
 Refund after investigation or findings by an adjudicating officer.
 Refund can be provided to foreign embassies or bodies of United Nations when the
purchases are made by them.
 When there is an accumulation of credit resulting due to the output tax being of a lesser
rate than the input.
 Suppliers receiving discounts or credits through the issuance of credit notes.
 GST paid by foreign or international tourists are subjected to refund.

The Government will not just give away the pending amount as a refund. The taxpayers have to
make an application and follow the correct procedure for fetching the refund amounts in their
bank accounts.

Refund Application Process Under GST

The refund application has to be made in Form RFD-01 (to be certified by a Chartered
Accountant)within a period of 2 years from the

“relevant date.” This relevant date is different for different scenarios.

1. When the goods are exported through air or sea, then relevant date shall be the date on
which such ship or aircraft leaves India.
2. When the goods are carried by a land vehicle, then relevant date shall be the date when
the goods cross the land frontier of the country
 3. When goods are sent through post, then relevant date shall be the date of despatch of
goods from the Post Office.
4. When the supply includes services, and when the same is completed before receipt of
payment, then relevant date shall be the payment receipt date.
5. Similarly, when the services are performed after receipt of an advance, then relevant
date shall be the invoice date.
6. Where refund claim is made for excess input tax credit left unutilised, then relevant date
shall be the end of the financial year for which such refund claim is being made.
7. Where the goods are supplied for deemed exports, i.e. supply to SEZ or 100% EOU, the
relevant date shall be the return filing date related to such deemed exports was filed.
8. Where refund arises due to an order passed in favour of the appellant, then relevant
date shall be the date of such order.
9. Where tax was paid following a provisional assessment and refund now arises, then
relevant date shall be date at which such tax was adjusted.

 When the person claiming refund is not the supplier, then relevant date shall be the
date at which the goods are received by such person.
 For all other cases, relevant date shall be the date of payment of tax.

It is mandatory to keep in mind these relevant dates as failure to file refund applications within
mentioned time can lead to blockage of credit.

Once the application made, an acknowledgement in Form RFD-02 will be auto-generated for

future references and sent across through an email and an SMS. In case the system finds some
deficiencies in the refund application, then Form RFD-03 shall be sent to the taxpayer to correct
his application.

Moreover, there are certain documents that must be enclosed along with the electronic refund
application. Where the refund application is below Rs. 5 lakhs, then a declaration shall be made
by the taxpayer indicating that the amount of refund has not been utilised by or transferred to any
other person. Where such application exceeds Rs. 5 lakhs, then apart from the declaration above,
a document evidencing that the amount was paid by the taxpayer shall also be attached.

When the person filing refund claim is a United Nations’ body, Consulate or a foreign embassy,
then the application for refund has to be filed within 90 days from the end of the quarter for
which the goods or services were procured. The application should be made in Form RFD-10.

Note: There shall be no refunds where the amount of refund is less than Rs. 1,000/

Scrutiny of the refund application

As per norms, it would take about 30 days to process a refund application. Where the refund
claim exceeds a prescribed amount, then the same shall be subjected to an audit process. If the
same qualifies for a refund, then an order shall be passed to that extent, or if it meets the criterion
for being “unjustly enriching” the taxpayer, then the amount shall be transferred to the Consumer
Welfare Fund. The above declaration may be required to be certified by a Chartered Accountant.

Refund Order

When the taxpayer claims refund of monies arising out of exports of goods or services, then an
authorised officer can issue a provisional refund order in Form RFD-04 of an amount of 90% of
the refund claim. Such a provisional refund can be made when the taxpayer:

 Has not been prosecuted for evading taxes for an amount exceeding Rs. 250 lakhs over a
period of 5 years.
 Has a GST compliance rating of more than 5 out of 10.
 Has no appeal or review pending with respect to refunds.

Where the authorised officer feels that documents are in consonance with law, then he may pass
a final order to that effect.

The Government shall maintain a cash ledger for the taxpayer. It will be constantly updated with
the figures as mentioned or declared in the returns. The credit must match with the ledger or else
the credit cannot be availed. It is similar in lines of Form 26AS in case of Income Tax, where the
amount of TDS and TCS matches with the Form.

In all other cases, the refund application shall be processed within 60 days from the application
date. Once the authorised officer adjudges the refund to be true, then he will issue a final order in
Form RFD-05within a period of 60 days from the application date. If the officer fails to pass an
order within the said 60 days, then the taxpayer shall receive an interest @ 6% p.a. for the period
exceeding the expiry of 60 days until the receipt of refund.

When the refund has to be adjusted against the taxable amount, then Form RFD-06 shall be
passed.

Other forms that are important for refund claims:

 RFD-07: this is a show cause notice for complete rejection of a refund application
 RFD-08: Payment advice
 RFD-09: In case of delayed payments, this is an order for interest on late payments.

Refund of Input Tax Credit

There are 3 cases against which a refund claim can be made with respect to input tax credit. All
the above scenarios covered refund emanating from certain specified transactions.

1. Input tax credit left unutilized when the goods or services being supplied are zero rated
or exempted from GST.
 2. When input goods or services have a higher rate of tax and the same goods or services
have a lesser output tax, then the accumulated input tax credit can be claimed as
refund.
3. In case of a partial reverse charge, where the input tax credit cannot be used completely
against the output tax.

Furthermore, no refund against unutilized input tax credit can be given when:

 Input arises out of GST paid against goods exported out of India, that were taxable to
excise duty
 The supplier has already availed the benefit of duty drawback paid with respect to
excise duty.

The process is very thorough in itself and once followed properly, then availing refund can
become very smooth and hassle free. It will change the face of the long drawn refund process
and give a boost to the manufacturing or export industry. Those refunds, which usually took
years to pass can now be taken in just 60 days. The strong IT system and forward thinking of the
GSTN have enabled this initiative.

TDS, TCS in GST

People are responsible for deducting tax:

(a) A department or establishment of the Central or State Government

(b) Local authority

(c) Governmental agencies

(d) Such persons or category of persons as may be notified, by the Central or a State Government
on the recommendations of the Council.

For example: If the Finance department, Government of India, enters into a contract with
Reliance then the department would be liable to deduct TDS.

 The max rate of TDS is 2% under GST, to be notified by CBIC.

 If the total value of supply under a contract exceeds Rs 2.5 lakhs then the person/entity
would be liable to deduct TDS.
 The deductor would be liable to make the payment of TDS by the 10th day of the next
month.

Impact of TDS on Government civil contractors

The Indian government, on an average, gives out more than 10,000 civil contracts every year
throughout the country. The contract for constructing/repairing of the national highways average
more than Rs 100 crores. These contracts are acquired by big construction companies and then
sub-contracted to smaller firms and then again further sub-contracted to another small firm. This
loop will face problems due to GST and in particular due to the TDS liability.

The government would need to deduct TDS from the contractor which would ensure tax
compliance by the contractors and all the other sub-contractors. Currently, many small
civil/labour contractors do not fulfill tax compliance. Under GST it will be imperative for them
to get registered and fulfill tax compliance.

TCS compliance for e-commerce sector

A clause has been inserted under GST law for all the e-commerce aggregators. E-commerce
aggregators are made responsible under the GST law for deducting and depositing tax at the rate
of 1% from each of the transaction. Any dealers/traders selling goods/services online would get
the payment after deduction of 1% tax. It is a significant change which would increase a lot of
compliance and administration cost for online aggregators like Flipkart, snapdeal, amazon etc.
They would need to deposit the tax deducted by the 10th day of the next month.

All the traders/dealers selling goods/services online would need to get registered under GST
even if their turnover is less than 20 Lakhs for claiming the tax deducted by Ecommerce
operators.

TDS and TCS under GST

TDS rule will help in achieving transparency in the operations of government contracts and tax
compliance. Online sellers like Amazon, Flipkart, Snapdeal etc would need to make certain
changes in their online payment process and administration/finance department to incorporate
the TCS rule inserted under GST.

CST Calculations
Formulation of Principles for determining when a Sale or Purchase of goods takes place in
the course of inter-State trade or commerce or outside a State or in the course of Import or
Export

Section 3,4 and 5 of the CST Act formulate the principles for determining when a sale or
purchase of goods takes place in the course of inter-state trade or commerce or outside a state or
in the course of import or export from India respectively. After studying this chapter we will be
able to understand:

– When is a sale or purchase of goods said to take place in the course of inter-State trade or
commerce.

A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or
commerce if the sale or purchase-
(a) occasions the movement of goods from one State to another; or

(b) is effected by a transfer of documents of title to the goods during their movement from one
State to another.

Explanation 1

Where goods are delivered to a carrier or other bailee for transmission, the movement of the
goods shall, for the purposes of clause (a) be deemed to commence at the time of such delivery
and terminate at the time when delivery is taken from such carrier or bailee. In the following
cases, though goods are moving from one state to another, it is not a sale or purchase in the
course of inter-state trade or commerce:

(1) When the goods are transported from a place of business in a State of dealer to another place
of business in another State.

(2) When goods are sent on consignment from one State to another State.

(3) When goods are sent from factory(in one State) to a godown or branch or sales office   
situated in another State.

Explanation 2

Where the movement of goods commences and terminates in the same State it shall not be
deemed to be a movement of goods from one State to another by reason merely of the fact that in
the course of such movement the goods pass through the territory of any other State.

When is a sale or purchase of goods said to take place outside a State

(1) Subject to the provisions contained in Section 3, when a sale or purchase of goods is
determined in accordance with sub-section (2) to take place inside a State, such sale or purchase
shall be deemed to have taken place outside all other States.

(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are
within the State-

(a) in the case of specific or ascertained goods, at the time the contract of sale is made, and

(b) in the case of unascertained or future goods, at the time of their  appropriation to the contract
of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to
such appropriation.

Explanation  
Where there is a single contract of sale or purchase of goods situated at more places than one, the
provisions of this sub-section shall apply as if there were separate contracts in respect of the
goods at each of such places.

 When is a sale or purchase of goods said to take place in the course of import or export

(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the
goods out of the territory of India only if the sale or purchase either occasions such export or is
effected by a transfer of documents of title to the goods after the goods have crossed the customs
frontiers of India.

(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the
goods into the territory of India only if the sale or purchase either occasions such import or is
effected by a transfer of documents of title to the goods before the goods have crossed the
customs frontiers of India.

(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods
preceding the sale or purchase occasioning the export of those goods out of the territory of India
shall also be deemed to be in the course of such export, if such last sale or purchase took place
after, and was for the purpose of complying with, the agreement or order for or in relation to
such export.

(4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the
dealer selling the goods furnishes to the prescribed authority in the prescribed manner a
declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed
form obtained from the prescribed authority.

(5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier
purchases Aviation Turbine Fuel for the purposes of its international flight, such purchase shall
be deemed to take place in the course of the export of goods out of the territory of India.

Explanation

For the purposes of this sub-section, “designated Indian carrier” means any carrier which the
Central Government may, by notification in the Official Gazette, specify in this behalf.

Inter-State Sales Tax Liability to tax on inter-State sales

(1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such
date as the Central Government may, by notification in the Official Gazette, appoint, not being
earlier than thirty days from the date of such notification, be liable to pay tax under this Act on
all sales of goods other than electrical energy effected by him in the course of inter-State trade or
commerce during any year on and from the date so notified,
Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in
accordance with the provisions of sub-section (3) of section5, is a sale in the course of export of
those goods out of the territory of India.

(1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in
the course of inter-State trade or commerce notwithstanding that no tax would have been leviable
(whether on the seller or the purchaser) under the sales tax law of the appropriate State if that
sale had taken place inside that State.

(2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale of
any goods in the course of inter-State trade or commerce has either occasioned the movement of
such goods from one State to another or has been effected by a transfer of documents of title to
such goods during their movement from one State to another, any subsequent sale during such
movement effected by a transfer of documents of title to such goods,-

(a) to the Government, or

(b) to a registered dealer other than the Government,

 if the goods are of the description referred to in sub-section (3) of section 8,

shall be exempt from tax under this Act.

Provided that no such subsequent sale shall be exempt from tax under this sub-section unless the
dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within
the prescribed time or within such further time as that authority may, for sufficient cause, permit,
–

(a) a certificate duly filled and signed by the registered dealer from whom the goods were
purchased containing the prescribed particulars in a prescribed form obtained from the prescribed
authority; and

(b) if the subsequent sale is made—

(i) to a registered dealer, a declaration referred to in clause (a) of sub-section (4) of section 8, or

(ii) to the Government, not being a registered dealer, a certificate referred to in clause (b) of sub-
section (4) of Section 8,

Provided  further that it shall not be necessary to furnish the declaration or the certificate referred
to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if, –

(a) the sale or purchase of such goods is, under the sales tax law of the appropriate State, exempt
from tax generally or is subject to tax generally at a rate which is lower than four per cent
(whether called a tax or fee or by any other name), and
(b) the dealer effecting such subsequent sale proves to the satisfaction of the authority referred to
in the preceding proviso that such sale is of the nature referred to in clause (a) or clause (b) of
this sub-section.

(3) Notwithstanding anything contained in this Act, no tax under this Act shall be payable by any
dealer in respect of sale of any goods made by such dealer, in the course of inter-State trade or
commerce, to any official, personnel, consular or diplomatic agent of –

(i) any foreign diplomatic mission or consulate in India; or

(ii) the United Nations or any other similar international body, entitled to privileges under any
convention or agreement to which India is a party or under any law for the time being in force, if
such official, personnel, consular or diplomatic agent, as the case may be, has purchased such
goods for himself or for the purposes of such mission, consulate, United Nations or other body.

(4) The provisions of sub-section (3) shall not apply to the sale of goods made in the course of
inter-State trade or commerce unless the dealer selling such goods furnishes to the prescribed
authority a certificate in the prescribed manner on the prescribed form duly filled and signed by
the official, personnel, consular or diplomatic agent, as the case may be.

Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale

(1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any
goods, on the ground that the movement of such goods from one State to another was occasioned
by reason of transfer of such goods by him to any other place of his business or to his agent or
principal, as the case may be, and not by reason of sale, the burden of proving that the movement
of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to
the assessing authority, within the prescribed time or within such further time as that authority
may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of
the other place of business, or his agent or principal, as the case may be, containing the
prescribed particulars in the prescribed form obtained from the prescribed authority, along with
the evidence of despatch of such goods and if the dealer fails to furnish such declaration, then,
the movement of such goods shall be deemed for all purposes of this Act to have been
occasioned as a result of sale..

(2) If the assessing authority is satisfied after making such inquiry as he may deem necessary that
the particulars contained in the declaration furnished by a dealer under sub-section (1) are true,
he may, at the time of, or at any time before, the assessment of the tax payable by the dealer
under this Act, make an order to that effect and thereupon the movement of goods to which the
declaration relates shall be deemed for the purposes of this Act to have been occasioned
otherwise than as a result of sale.

Explanation

 In this section, “assessing authority”, in relation to a dealer, means the authority for the time
being competent to assess the tax payable by the dealer under this Act.
 Job work
a) Meaning & Nature of job work:

The definition of job work has been defined in the Section 2(68) of CGST Act, “Job work”
means any treatment or process undertaken by a person on goods belonging to another registered
person.

For the purpose of this article, ‘Principal’ will be the persons who sends the goods for job work.

Treatment or process include packing, labelling, testing, re-conditioning, re-packing, inspection

etc.,

Schedule II clause 3 of CGST Act, considers any treatment or process applied to another person
goods as a supply of services.

To determine the value of job work charges, value of goods sent by the principal shall not be
included.