Understanding Provisional GST Refund Orders and Form RFD-04

Previous discussions explored GST RFD-02, the acknowledgement form, and GST RFD-03, the discrepancy memo. This article focuses on GST RFD-04, utilized for the provisional approval of refunds by the designated officer, and the subsequent form for final net refund payment.

Recent Developments in GST Refunds

December 21, 2021

Effective January 1, 2022, the CBIC mandated Aadhaar authentication for refund applications filed under CGST Rules 89 (for excess tax, interest, penalties, and fees) and 96 (for IGST on exported goods or services) using Form RFD-01.

May 1, 2021

Extensions were granted for refund claims where the deadline for issuing full or partial rejection orders was between April 15, 2021, and May 30, 2021. The revised deadline is either 15 days after responding to a notice or May 31, 2021, whichever is later.

Approval of Provisional Refunds

GST officers may approve provisional refunds in specific situations following a refund application. These rules exist because the comprehensive refund process can be time-consuming. During this delay, exporters or legitimate claimants might experience working capital shortages. To mitigate these immediate financial challenges, refunds are temporarily issued, up to 90% of the claimed amount, pending a thorough review of the application and supporting documentation.

Upon completion of the detailed examination within the specified timeframe, the provisional refund order (RFD-04) is superseded by a final sanction or rejection order, typically RFD-06 or RFD-08. The final refund amount will be adjusted against any sum already disbursed provisionally. If the GST officer ultimately rejects the refund claim, the applicant must repay the entire amount previously received.

A provisional refund is issued after the jurisdictional GST Officer conducts an initial review of the application and documents.

Situations for Provisional Refunds:

1. Export of goods or services.
2. Supplies provided to Special Economic Zone (SEZ) units and developers.

In these instances, the GST officer will grant a provisional refund up to 90% of the claimed amount. This claimed refund excludes any Input Tax Credit (ITC) that was adjusted in the Electronic Credit Ledger when applying for the refund using Form RFD-01A/01.

Form RFD-04 is issued to grant the provisional refund within seven days of issuing the acknowledgement in RFD-02. This provisional refund amount is directly deposited into the applicant's bank account, accompanied by a payment advice in Form RFD-05.

Exclusion Criteria:

A provisional refund is not granted if the applicant has been prosecuted under any Indian law for tax evasion exceeding INR 250 Lakhs within the five years preceding the tax period for which the refund is sought.

Key Information in Form RFD-04

Form RFD-04 typically contains the following details:

• The Application Reference Number (ARN) for the refund, along with its submission date.
• The acknowledgement number from Form RFD-02, including its date.
• The total refund amount requested by the applicant, the remaining 10% yet to be refunded, and the provisional amount sanctioned for each tax category (IGST, CGST, SGST/UTGST, and any applicable cess).
• It is important to note that the provisional refund amount sanctioned may be less than or equal to the balance amount indicated in the form.
• Finally, the bank account details where the refund will be credited are specified in the form.

After reviewing the application and supporting documentation, if the GST officer is satisfied with the authenticity of the claims, they will issue a Payment Advice (Form RFD-05) concurrently with the Final Order of Refund Sanction.

Should there be concerns about unjust enrichment—meaning the claimant may have shifted the tax burden to the buyer who then claimed ITC on the same supplies—the GST officer will transfer the claimed refund amount to the Consumer Welfare Fund. Affected individuals can then apply to this fund with declarations and documents to substantiate their claim.

Exceptions to Unjust Enrichment Rule:

• Zero-rated supplies of goods or services, where the refund claim involves IGST paid or ITC on exports under a Letter of Undertaking (LUT).
• Inverted duty structure cases, where a refund of unutilized Input Tax Credit (ITC) is sought.
• Supplies that have been wholly or partially cancelled, and where an invoice has not been issued (leading to a refund of any tax paid).
• Refunds of tax paid where sufficient evidence demonstrates that the claimant did not pass the tax incidence to another party.
• Any other refund cases specifically notified by the government.