Requesting GST Refunds as an Unregistered Individual

The 48th GST Council meeting initiated the establishment of guidelines allowing individuals not registered under GST to seek refunds. This decision addressed scenarios where unregistered buyers faced contract cancellations, such as with construction agreements or long-term insurance policies, after having paid taxes. Subsequently, on December 27, 2022, the CBIC issued a circular detailing the procedure for unregistered individuals to file a GST refund application. This article outlines the method for an unregistered purchaser to claim a refund under India's GST framework.

Scenarios for Unregistered Individuals to Request GST Refunds

Circular No. 188/20/2022-GST specifies two primary situations where unregistered purchasers are eligible to seek a GST refund:

1. Buyers of Construction Services Without GST Registration This category includes individuals who are not GST-registered and have entered into agreements with builders for construction services (e.g., for apartments). These buyers may have made full or partial payments, including applicable taxes. If the agreement is subsequently terminated due to reasons like project delays or non-completion, the buyer is impacted. Often, by this point, the legal timeframe for the supplier to issue a credit note under Section 34 of the Central Goods and Service Tax (CGST) Act (earlier of November 30 of the subsequent financial year or the annual return filing date) has passed. Consequently, while the supplier might refund the payment for the cancelled contract, the GST component, already remitted to the government, would typically be withheld.

2. Buyers of Long-Term Insurance Policies Without GST Registration The second scenario involves unregistered individuals who purchased long-term insurance policies, paying the full premium upfront along with GST. If these policies are prematurely cancelled for any reason, a similar issue arises. The deadline for issuing credit notes may have elapsed, leading the insurance provider to refund only the proportional premium, excluding the GST portion.

To alleviate these difficulties for unregistered buyers in the aforementioned circumstances, the government has introduced a mechanism enabling them to submit a GST refund application.

Legal Provisions for Unregistered Persons' GST Refunds

Under Section 54(1) of the CGST Act, any individual can claim a refund for tax and interest paid by submitting an application within two years from the designated "relevant date," which will be detailed later in this article. Additionally, Section 54(8)(e) of the CGST Act specifies that if unregistered individuals have borne the tax burden and have not transferred it to another party, the refund should be issued directly to them, rather than being deposited into the Consumer Welfare Fund (CWF).

The government has also updated Rule 89(2) of the CGST Rules and incorporated Statement 8 into Form GST RFD-01 through Notification No. 26/2022-Central Tax, dated December 26, 2022. This amendment outlines the necessary documents to be submitted with the refund application.

While the legal framework for such refunds already exists, a new feature is now available on the GST portal. This functionality enables unregistered individuals to obtain a temporary registration specifically for applying for a refund under the "Refund for unregistered person" category.

Process for Unregistered Individuals to Submit a Refund Request

Here is the step-by-step process for an unregistered individual to file a GST refund application:

Step 1: Secure a Temporary GST Registration

• An unregistered individual whose construction or insurance contract has been cancelled must obtain a temporary registration on the GST portal using their Permanent Account Number (PAN).
• During registration, the applicant must select the same state or Union Territory where the supplier (whose invoices are relevant to the refund claim) is registered.
• The applicant is required to complete Aadhaar authentication, as stipulated under Rule 10B of the CGST Rules.
• They must also provide bank account details for receiving the refund. This bank account must be in the applicant's name and linked to their PAN.

Step 2: Submit a Refund Application (Form GST RFD-01) with Supporting Documents

• The applicant needs to file the refund application using Form GST RFD-01 on the GST portal, specifically under the category "Refund for unregistered person."
• Statement 8 (in PDF format), along with all necessary documents as per Rule 89(2) of the CGST Rules, must be uploaded. It's important that the claimed refund amount does not exceed the total tax value of the invoices for which the refund is sought.
• Additionally, the applicant must upload a certificate from the supplier, as per Rule 89(2)(kb) of the CGST Rules, when submitting the refund application.

According to Section 89(2)(kb), the supplier must issue a certificate confirming that they have paid the tax for the invoices related to the refund claim. This certificate should also affirm that the supplier has not adjusted the tax amount via a credit note, and has not claimed, nor will claim, a refund for the tax amount associated with these invoices.

Any other document that substantiates the applicant's payment and tax incidence, and proves their eligibility for the refund (e.g., invoices and payment receipts to the developer/builder), should also be uploaded.

Essential Conditions for Filing a Refund Claim

1. A separate refund application must be submitted on the GST portal for each refund claim related to a specific supplier. If the same supplier is registered in multiple states or Union Territories, a distinct temporary registration will be necessary for each relevant state/UT.
2. Refund claims are only appropriate when the timeframe for issuing a credit note has already expired. If the period has not yet elapsed, the supplier remains obligated to issue the credit note and refund the GST amount, rendering a separate refund application unnecessary.

Determining the Relevant Date for Refund Applications

Section 54(1) of the CGST Act allows unregistered individuals to submit a refund application within two years from the "relevant date." For refunds sought by someone other than the supplier, this "relevant date" is generally the date when goods or services, or both, were received, as per clause (g) of the second explanation to Section 54 of the CGST Act.

However, in situations involving the cancellation of a long-term contract between a supplier and an unregistered buyer, especially where advance or installment payments were made, the actual date of service receipt might be ambiguous if the supply was never fully rendered. In these specific instances, to establish the "relevant date," the date of the supplier's cancellation letter for the agreement or contract will be considered the date of service receipt by the buyer.

Post-Submission Process for Refund Applications

After a refund application is submitted, the designated officer will process the claim similarly to other RFD-01 applications.

• Initially, the officer will thoroughly review the application to confirm its completeness and the eligibility of the refund claim.
• Subsequently, a refund sanction order will be issued using Form GST RFD-06.
• Finally, within 60 days of receiving the complete application, the officer will upload a detailed speaking order along with the refund sanction order.

Should the amount returned by the supplier to an unregistered buyer upon contract termination or cancellation be less than the original payment made by the buyer, only a proportionate tax amount, corresponding to the refunded sum, will be disbursed to the unregistered individual. For example, if an unregistered buyer paid a premium of Rs. 1,000 for an insurance policy that was later cancelled, and the supplier refunded Rs. 500, then only a proportional GST amount of Rs. 90 would be refunded, not the full Rs. 180 originally paid.

Minimum Refund Amount for Application Submission

As per Section 54(14), no refund will be processed if the claimed amount is below Rs. 1,000. Therefore, the minimum tax refund amount for which an application can be filed is Rs. 1,000.