GST Refund Application Procedure for Unregistered Persons: CBIC Circular

CBIC has prescribed the procedure for filing GST refund application in the case of unregistered persons (URDs), vide Circular 188/20/2022 dt. 27/12/2022.

CBIC received representations requesting the provision of a facility for unregistered buyers/recipients to claim refund of tax borne by them in the event of cancellation of contract/agreement for supply of services for construction of flat/building or on termination of long-term insurance policy.

CBIC has been made aware of instances in which unregistered buyers who had entered into an agreement/contract with a builder for supply of services of construction of flats/buildings, etc. and had paid the amount towards consideration for such service, either fully or partially, along with applicable GST, had to subsequently cancel the said contract/agreement due to non-completion or delay in construction activity within the stipulated time or for other reasons. In a number of such instances, the period for issuance of credit note on account of such cancellation of service under section 34 of the CGST 2017 may have already expired. In such circumstances, the supplier may refund the amount to the purchaser after deducting the amount of tax he collected from the purchaser.

Similar instances have been brought to CBIC’s attention in the case of long-term insurance policies, where the premium for the entire term of the policy is paid in advance, along with any applicable GST, and the policy is then required to be terminated early for various reasons. In certain instances, the time limit for issuing a credit note under section 34 of the CGST Act may have already passed, so insurance companies may only refund the proportional premium net of GST.

Existing GST refund provisions for Unregistered Persons (URDs):

In this regard, it is pertinent to note that Section 54(1) of the CGST Act already stipulates that any person may claim a refund of any tax and interest, if any, paid on such tax or any other amount paid by him, by submitting an application within two years of the relevant date in the prescribed form and manner. In addition, in accordance with Section 54(8)(e) of the CGST Act, if the unregistered person has borne the incidence of tax and not passed it on to another person, the refund shall be paid to him instead of being credited to the Consumer Welfare Fund (CWF).

In order to enable such unregistered persons to file application for refund under Section 54(1) of the CGST Act, in cases where the contract/agreement for supply of services of construction of flat/ building has been cancelled or where long-term insurance policy has been terminated, a new functionality has been made available on the common portal which allows unregistered persons to take a temporary registration and apply for refund under the category ‘Refund for Unregistered person’.

Further, CGST Rule 89(2) has been amended and statement 8 has been inserted in FORM GST RFD-01 vide Central Tax Notification 26/2022 to provide for the documents required to be furnished along with the application of refund by the unregistered persons and the statement to be uploaded along with the said refund application.

In order to ensure uniformity in the application of the above provisions of the law across field formations, the CBIC has clarified the refund issues for unregistered persons under GST as follows:

Filing of GST refund application by URDs:

In cases where the contract/agreement for supply of services of construction of flat/building has been cancelled or where a long-term insurance policy has been terminated, an unregistered person who wishes to file an application for refund under section 54(1) of the CGST Act must obtain a temporary registration on the common portal using his Permanent Account Number (PAN). While doing so, the unregistered individual must select the same state/UT in which his/her supplier, for whose invoice refund a refund is being sought, is registered. The unregistered person would then be required to undergo Aadhaar authentication in accordance with the provisions of CGST Rule 10B. In addition, the unregistered individual would be required to enter his bank account information in which he wishes to receive the refund. The applicant must provide the details of any bank account obtained using his PAN that is in his name.

The refund request must be submitted using FORM GST RFD-01 on the common portal under the heading “Refund for unregistered person.” The applicant must upload statement 8 (in pdf format) and all necessary documents in accordance with CGST Rule 89(2). The requested refund amount cannot exceed the total amount of tax declared on the invoices for which the refund is being requested. In addition, the applicant must upload the certificate issued by the supplier in accordance with CGST Rule 89(2)(kb) alongside the refund request. The applicant must also upload any additional documents to support his claim that he has paid and borne the tax burden and that he is entitled to a refund of the aforementioned amount.

For refunds on invoices issued by various suppliers, separate applications must be submitted. In addition, if the suppliers whose invoices are to be refunded are registered in different states or territories, the applicant must obtain temporary registration in each of the concerned states or territories where the suppliers are registered.

Where the time period for issuing a credit note under section 34 of the CGST Act has not expired at the time of cancellation or termination of an agreement or contract for the supply of services, the relevant suppliers may issue a credit note to the unregistered person. In such cases, the supplier would be able to pay back the amount of tax he collected from the unregistered person; therefore, the unregistered person would not be required to file a claim for a refund. Consequently, unregistered persons may only file a refund claim if, at the time of cancellation/termination of an agreement/contract for the supply of services, the time limit for issuing a credit note u/s 34 of the CGST Act has expired.

Relevant date for GST refund application filing by URDs:

According to Section 54(1) of the CGST Act, a refund application must be submitted within two years of the applicable date. In addition, the relevant date in cases of refund by a person other than the supplier is the date of receipt of goods, services, or both by such person in accordance with clause (g) of Explanation (2) of section 54 of the CGST Act. In cases where the supplier and the unregistered person (recipient) have entered into a long-term contract/ agreement for the supply, with the provision of making payment in advance or in instalments, for instance- construction of flats or long-term insurance policies, if the contract is cancelled/ terminated before completion of service for any reason, there may be no date of receipt of service, to the extent supply has not been made/ rendered. For the purpose of determining the relevant date in terms of clause (g) of Explanation (2) under section 54 of the CGST Act, the date of issuance of the letter of cancellation of the contract/agreement for supply by the supplier shall be considered as the date of receipt of the services by the applicant in such cases.

Minimum GST refund amount for application by URDs:

Section 54(14) of the CGST Act prohibits refunds under sub-sections (5) and (6) for amounts less than one thousand rupees. Therefore, refunds cannot be requested for amounts below one thousand rupees.

Processing of GST Refund applications of URDs:

The proper officer shall process the unregistered person’s refund claim in the same manner as other RFD-01 claims. The proper officer shall examine the application for completeness and eligibility of the refund claim to his satisfaction before issuing the refund authorization order on FORM GST RFD-06. In addition to uploading the refund authorization order on FORM GST RFD-06, the approving officer must also upload a detailed speaking order.

In cases where the amount paid back by the supplier to the unregistered person upon cancellation or termination of an agreement or contract for the supply of services is less than the amount paid by the unregistered person to the supplier, only the proportionate amount of tax involved in the amount paid back shall be refunded to the unregistered person.

CBIC GST Circular 188/20/2022 dt. 27/12/2022: GST Refund Application Procedure for Unregistered Persons (URDs)