The following presentation enumerates how to claim refund under GST and also auditing mechanism such as auditing by a chartered accountant, taxing authorities and special audit under GST. The presentation also details out the treatment of zero rated supplies and deemed export.

1. REFUNDS UNDER GST & IMPACT
OF GST AUDIT ON STATUTORY/
TAX AUDITS
Puneet Agrawal
(Partner – ALA Legal)

2. TOPICS COVERED
• Refund
• Audit under GST
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3. REFUNDS UNDER GST
(SECTION 54 – 58, RULES 89 – 97A)
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4. REFUNDS UNDER GST
• Timely refund mechanism is essential in tax administration, as it
facilitates trade through release of blocked funds for working
capital, expansion and modernization of existing business.
• The provisions pertaining to refund contained in the GST law aim
to streamline and standardize the refund procedures under GST
regime.
• A registered person may claim refund by making an application in
FORM GST RFD – 01, before the expiry of 2 years from the
relevant date.
• A person may claim the refund of any balance in the Electronic
Cash Ledger.
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5. SITUATIONS LEADING TO REFUND
CLAIMS (S. 54, 77, R. 89)
1. Supplies to SEZs units and developers
2. Deemed Export supplies
3. Refund of taxes on purchase made by UN or embassies etc
4. Refund arising on account of judgment, decree, order or direction of the Appellate
Authority, Appellate Tribunal or any court
5. Refund of accumulated Input Tax Credit on account of inverted duty structure
6. Finalisation of provisional assessment
7. Refund of pre-deposit
8. Excess payment due to mistake
9. Refunds to International tourists of GST paid on goods in India and carried abroad at
the time of their departure from India
10. Refund on account of issuance of refund vouchers for taxes paid on advances against
which goods or services have not been supplied
11. Refund of CGST & SGST paid by treating the supply as intra-State supply which is
subsequently held as inter-State supply and vice versa
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6. DOCUMENTS REQUIRED
• Documentary evidence that:
– Refund is due
– The incidence of tax has not passed on to any other
person. [unjust enrichment]
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7. AMOUNT TO BE CREDITED TO THE FUND
• Section 54(5)
• If the proper officer is satisfied that whole/ part of
amount claimed as refund is refundable, he may
make an order to be credited to the Consumer
Welfare Fund.
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8. AMOUNT TO BE PAID TO APPLICANT
• Section 54(8): Amount when to be paid to the applicant of refund,
instead of crediting in the Consumer Welfare Fund:
a) refund of tax paid on zero-rated supplies of goods or services or both
or on inputs or input services used in making such zero-rated supplies;
b) refund of unutilised input tax credit under sub-section (3);
c) refund of tax paid on a supply which is not provided, either wholly or
partially, and for which invoice has not been issued, or where a refund
voucher has been issued;
d) refund of tax in pursuance of section 77;
e) the tax and interest, if any, or any other amount paid by the applicant,
if he had not passed on the incidence of such tax and interest to any
other person; or
f) the tax or interest borne by such other class of applicants as the
Government may, on the recommendations of the Council, by
notification, specify.
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9. CREDIT NOTES
• Section 34 of the CGST Act, 2017 provides for issuance of credit notes for
post supply discounts or if goods are returned back within a stipulated time.
• When such credit notes are issued, it calls for reduction in output liability of
the supplier. Hence, the taxes paid initially on the supply would be higher
than what is actually payable.
• Thus, excess tax paid by the supplier needs to be refunded.
• However, instead of refunding it outright, it is sought to be adjusted after
verifying the corresponding reduction in the input tax credit availed by the
recipient.
• Section 43 of the CGST Act, 2017 provides for procedure for reduction in
output liability on account of issuance of such credit notes. This is another
form of refund by adjustments in the output tax liability.
• Such refund is not governed under the general refund provisions contained
in Section 54 of the CGST Act, 2017.
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10. REFUND OF UNUTILIZED ITC
• The GST Law permits refund of unutilised ITC in two scenarios:
1. If such credit accumulation is on account of zero rated supplies, or
2. On account of inverted duty structure, subject to certain exceptions.
• Refund of unutilized ITC not allowed when:
1. Goods Exported out of India, being subjected to export duty.
2. If supplier of goods or services or both, avails drawback in respect of
Central Tax or claims refund of IGST on such supplies.
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11. TREATMENT OF ZERO RATED SUPPLIES:
OPTION OF REFUND (S. 16(2))
• Registered person making zero rated supply shall
be eligible to claim refund in either of the
following options:
– Supply Goods/ services under Bond/ LUT, without the
payment of IGST (in the manner prescribed) and
claim refund of unutilized ITC
– Supply Goods/ services with the payment of IGST (in
the manner prescribed) and claim refund of such tax.
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12. S. 16 (IGST) R/W S. 54 (CGST) & R. 96,
96A OF CGST RULES
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Registered person making zero rated
supply has the following available
modes
With payment of IGST
Without payment of
IGST
Under a Bond Under a LUT

13. Zero Rated
Supply
Under LUT/
Bond
Refund of
unutilized
ITC and IGST
13
• Attracts Section 54, Rule 96A of the CGST Act, 2017.
• Notification No. 37 /2017 – CT, dtd. 4th October, 2017 extended the facility of
LUT to all exporters. Notification No. 16/2017-CT dtd. 7th July, 2017 specifies
the conditions and safeguards for furnishing a LUT in place of a bond for export
without payment of integrated tax.
• Refund of unutilized ITC shall be allowed only when export/ supply to SEZ
made without the payment of IGST.
• Registered person availing the option to supply goods or services for export,
without payment of IGST is required to furnish a bond or a Letter of
Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner,
binding himself to pay the tax due along with the interest specified under sub-
section (1) of section 50 within 15 days after expiry of 3 months of the date of
invoice, if the invoiced goods are not exported.

14. COTND…
• As per formula under Rule 89(4) of the CGST Rules, 2017,
for any relevant period,
Refund Amount = (Tzg + Tzs) x Net ITC ÷Adjusted Total
Turnover
Where, Tzg = Turnover of zero-rated supply of goods
Tzs = Turnover of zero-rated supply of services
• If inputs purchased & ITC availed during the period when
exports made – this formula would yield the right refund.
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15. EXAMPLE
Option 1:
• In the transaction below Exporter shall furnish a Bond or Letter of Undertaking .
• Supply worth Rs. 10,000
• Charges IGST @ 18%
• ITC on Purchase – 1,800
Purchase
• Value addition – 4,000
• Sale to SEZ Unit – Rs.
14,000 without charging
IGST under Bond or LUT
• Can Utilize ITC paid on
purchases for payment of
output tax.
Sale to SEZ • Exporter can claim the
refund of Unutilized ITC out
of Rs. 1,800 paid on
purchase of inputs for such
sale to SEZ.
Benefit
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16. 16
Zero Rated
Supply
Payment
of IGST
Refund of
IGST
• Attracts Section 54, Rule 96 of the CGST Act, 2017.
• Credit of ITC may be availed, subject to Section 17(5), for making
zero rated supply, notwithstanding that such supply may be an
exempt supply. [Section 16(2) IGST Act, 2017]
• The shipping bill filed by exporter of goods shall be deemed to be
an application for refund of IGST paid on the goods exported.

17. EXAMPLE
Option 2:
• Export goods or services on payment of IGST and claim refund of such tax on goods and services
supplied.
•Supply worth Rs. 10,000
•Charges IGST @ 18%
•ITC on Purchase – 1,800
Purchase
•Value addition – 4,000
•Sale to SEZ Unit – Rs. 14,000
•Pay IGST of Rs. 2,520
•Can Utilize ITC paid on
purchases for payment of
output tax.
Sale to SEZ • Exporter Can Claim Refund of
IGST of Rs. 2,520 paid on
supply to SEZ Unit subject to
the fulfillment of Conditions.
Benefit
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18. SUPPLIES TO/ BY SEZ
SUPPLY BY SUPPLY TO KIND OF SUPPLY RELEVANT PROVISION
SEZ DTA Interstate Supply Section 7(5)
SEZ SEZ/ Export
Interstate Supply &
Zero Rated
Section 7(5)
Section 16
DTA SEZ
Interstate Supply &
Zero Rated
Section 7(5)
Section 16
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• All goods imported by a SEZ unit/ developer for authorised operations are
exempt from the whole of IGST leviable under Section 3(7) of the Customs
Tariff Act, 1975 (51 of 1975) r/w Section 5 of the IGST Act, 2017. [Notification
No. 64/2017- Customs, 05 July 2017]
• Similarly, all services imported by a SEZ unit/ developer for authorised
operations are exempt from the whole of IGST leviable under Section 5 of the
IGST Act, 2017. [Notification No. 18/2017-Integrated Tax(Rate), 05 July 2017]

19. CONTD…
• Rule 89
“Provided further that in respect of supplies to a Special
Economic Zone unit or a Special Economic Zone developer,
the application for refund shall be filed by the –
(a) supplier of goods after such goods have been admitted in
full in the Special Economic Zone for authorised operations,
as endorsed by the specified officer of the Zone;
(b) supplier of services along with such evidence regarding
receipt of services for authorised operations as endorsed by
the specified officer of the Zone:”
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20. DEEMED EXPORT & SUPPLY TO EOU
• As per Section 147, the government may notify certain supplies, where the
goods do not leave India, payment is in INR/ convertible foreign
exchange & if such goods are manufactured in India, as DEEMED
EXPORTS.
(Example: Supply of goods by a registered person against Advance
Authorisation, Supply of capital goods by a registered person against EPCG
Authorisation)
• No Specific provisions are made for sale to 100% EOU Units in the Act. Sale
to 100% EOU Units will be leviable to GST under normal provisions of GST
Law.
• However, Notification 48/2017 – Central Tax was issued dated 18th October,
2017, whereby supply of goods by a registered person to Export Oriented
Unit was notified as Deemed Export under Section 147 of the CGST Act,
2017. 20

21. CONTD…
• Rule 89:
“(1)…
Provided also that in respect of supplies regarded as deemed exports, the
application may be filed by, -
(a) the recipient of deemed export supplies; or
(b) the supplier of deemed export supplies in cases where the recipient does not
avail of input tax credit on such supplies and furnishes an undertaking to the effect
that the supplier may claim the refund”
• Explanation to Section 54(14):
“(1) “refund” includes refund of tax paid on zero-rated supplies of goods or
services or both or on inputs or input services used in making such zero-rated
supplies, or refund of tax on the supply of goods regarded as deemed exports, or
refund of unutilised input tax credit as provided under sub-section (3).”
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22. REFUND UNDER SECTION 54(6)
Number of days in which refund shall be allowed
(6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of
any claim for refund on account of zero-rated supply of goods or services or both made by
registered persons, other than such category of registered persons as may be notified by the
Government on the recommendations of the Council, refund on a provisional basis, ninety per
cent. of the total amount so claimed, excluding the amount of input tax credit provisionally
accepted, in such manner and subject to such conditions, limitations and safeguards as may be
prescribed and thereafter make an order under sub-section (5) for final settlement of the refund
claim after due verification of documents furnished by the applicant.
[Circular No. 17/17/2017 – GST, dtd. 15 November 2017.]
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23. REFUND OF ITC ON ACCOUNT OF INVERTED DUTY
STRUCTURE
(SECTION 54(3))
• Where the credit has accumulated on account of rate of tax on inputs being
higher than the rate of tax on output supplies (other than nil rated or fully
exempt supplies), except supplies of goods or services or both as may be
notified by the Government on the recommendations of the Council [Example:
In case of Services: Not allowed on Construction Services (Item 5(b) of
Schedule II), Notification No. 15/2017 – CT(R), dt. 28.06.2017; in case of
Goods, a notified list under Notification 05/2017 – CT(R), as last amended by
Notification 44/2017 – CT(R): woven fabric of cotton, silk, wool, manmade
textile, etc.].
• This would include even those cases where supply has been made to exporters
under Notification no. 40/2017- Central Tax (Rate) dated 23.10.2017 or
notification No. 41/2017-Integrated Tax (Rate) dated 23.10.2017 or both.
• In such cases also, refund can be applied under Section 54 of the CGST Act,
2017 read with Rule 89 of the CGST Rules, 2017.
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24. CALCULATION OF REFUND UNDER INVERTED DUTY
STRUCTURE [RULE 89(5)]
{(Turnover of inverted rated supply of goods) x Net ITC ÷
Adjusted Total Turnover} – tax payable on such inverted rated
supply of goods
• “Net ITC” means input tax credit availed on inputs and input
services during the relevant period;
• “Adjusted Total turnover” means the turnover in a State or a
Union territory, as defined under clause (112) of section 2,
excluding the value of exempt supplies other than zero-rated
supplies, during the relevant period;
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25. PAYMENT OF WRONG TAX
(SECTION 77)
• If integrated tax paid instead of CGST +
SGST/UTGST because of incorrect application of
the place of supply provisions, refund may be
claimed.
• In such cases, while making the appropriate payment
of tax, interest will not be charged.
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26. REFUND TO CASUAL TAXABLE PERSON/
NRTP
• Advance Tax deposited by a CTP/ NRTP under
Section 27(2).
• Conditions for Refund:
– The person had furnished all required returns under
Section 39, for the entire period for which his
registration was in-force.
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27. REFUND WHEN SUPPLY NOT PROVIDED
• Refund of tax paid on a supply which is NOT
PROVIDED (either wholly or partially)
• Refundable amount shall be paid to the applicant,
instead of being credited to the fund, upon the
following conditions:
– The invoice has not been issued, or
– A refund voucher has been issued.
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28. REFUND TO UN BODIES/ NOTIFIED AGENCIES
(SECTION 55, RULE 95)
• The government vide the following notifications
allowed refund of GST paid by the specialized
UNO agencies/ MFIO notified under UN
(Privileges & Immunities) Act, 1947/ Consulate/
Embassy of foreign countries/ any other person:
– Notification No. 6/2017 – CT(R), dated 28 July 2017
(CSD)
– Notification No. 16/2017 – CT(R), dated 28 July 2017
(UN/ MFIO, etc.)
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29. REFUND TO INTERNATIONAL TOURISTS
• Section 15 of the IGST Act, 2017.
• An international tourist procuring goods in India, may
while leaving the country seek refund of integrated tax
paid by them.
• The term “tourist” has been defined and refers to any
person who is not normally resident in India and who
enters India for a stay of not more than 6 months for
legitimate non-immigrant purposes.
(HOWEVER, THIS SECTION IS NOT YET NOTIFIED)
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30. RELEVANT DATE
Event Relevant Date
Export by Sea/ Air the date on which the ship or the aircraft in which such goods are
loaded, leaves India
Export by Land the date on which such goods pass the frontier;
Export by post The date of dispatch of goods by the Post Office concerned to a
place outside India
Deemed Export The date on which the return relating to such deemed exports is
furnished
Export of Service the date of––
(i) receipt of payment in convertible foreign exchange, where the
supply of services had been completed prior to the receipt of such
payment;
or
(ii) issue of invoice, where payment for the services had been
received
in advance prior to the date of issue of the invoice;
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31. CONTD…
Event Relevant Date
In consequence of judgment,
decree, order or direction of
GSTAT/ Appellate Authority
or any court
Date of communication of such judgment/ decree/ order/
direction.
Refund of unutilized ITC End of Financial Year
Provisional Payment of Tax Date of adjustment of tax after the final assessment
Other Cases Date of payment of tax
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32. INTEREST ON DELAYED REFUNDS
(SECTION 56, 54)
Situation Rate of Interest Date of Applicability
Order to refund under 54(5), not
refunded within 60 days of application
of Refund
Not exceeding 6% From the date immediately
after the expiry of 60 days
till the date of refund.
Refund arising from order that has
attained finality, passed by adjudicating
authority/ Appellate Authority/
Appellate tribunal/ court.
Not exceeding 9% From the date immediately
after expiry of 60 days of
filing application after such
order, till date of refund.
Withheld refund where order is subject
to appeal and the commissioner is of
the opinion that such refund is against
the interest of revenue
Not exceeding 6% If he is eligible to such
refund as a result of such
appeal
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33. CONSUMER WELFARE FUND
(SECTION 57, 58)
• The amount credited to the fund includes:
– As per Section 54(5), whereby the proper officer so deems fit,
– Income from investment of account credited to the Fund
– Other monies, as specified in
• section 12C(2) of the Central Excise Act, 1944 (1 of 1944),
• section 57 of the Central Goods and Services Tax Act, 2017 (12 of 2017) read
with section 20 of the Integrated Goods and Services Tax Act, 2017 (13 of
2017),
• section 21 of the Union Territory Goods and Services Tax Act, 2017 (14 of
2017) and
• Section 12 of the Goods and Services Tax (Compensation to States) Act, 2017
(15 of 2017) shall be credited to the Fund
Provided that an amount equivalent to fifty per cent. of the amount of integrated
tax determined under sub-section (5) of section 54 of the Central Goods and
Services Tax Act, 2017, read with section 20 of the Integrated Goods and Services
Tax Act, 2017, shall be deposited in the Fund.
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34. AUDIT
34

35. AUDIT BY TAX AUTHORITIES
(SECTION 65)
• “Audit” has been defined in Section 2(13) of the
CGST Act, 2017 and it means:
“the examination of records, returns and other
documents maintained or furnished by the registered
person under the GST Acts or the rules made there
under or under any other law for the time being in
force to verify the correctness of turnover declared,
taxes paid, refund claimed and input tax credit availed,
and to assess his compliance with the provisions of the
GST Acts or the rules made thereunder.”
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36. TYPES OF AUDIT
36
Audit
Chartered/ Cost
Accountant
Normal Audit Special Audit

37. CHARTERED/ COST ACCOUNTANT AUDIT
• Audit by Chartered Accountant or Cost Accountant – Rule 80 and
Section 35(5)
• Every registered person whose turnover during a financial year
exceeds Rs 2 Crore [Rule 80(3) of CGST Rules 2017]
• shall get his accounts audited by a chartered accountant or a
cost accountant and
• shall submit a copy of the audited annual accounts, the reconciliation
statement under sub-section (2) of section 44 of CGST Act 2017, a
reconciliation statement in FORM GSTR-9C, reconciling the value of
supplies declared in the return furnished for the financial year with the
audited annual financial statement, and such other particulars as may be
prescribed.
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38. AUDIT BY TAX AUTHORITIES
(SECTION 65)
• The Commissioner or any officer authorised by him, by way of a general or a specific
order, may undertake audit of any registered person for such period, at such frequency
and in such manner as may be prescribed, at the place of business of the registered
person or in their office.
• The registered person shall be informed by way of a notice not less than fifteen
working days prior to the conduct of audit in such manner as may be prescribed and
shall be completed within a period of three months from the date of commencement of
the audit.
• On conclusion of audit, the proper officer shall, within thirty days, inform the
registered person, whose records are audited, about the findings, his rights and
obligations and the reasons for such findings.
• Where the audit conducted results in detection of tax not paid or short paid or
erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer
may initiate action under section 73 or section 74of CGST Act 2017.
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39. SPECIAL AUDIT (SECTION 66)
• If at any stage of scrutiny, inquiry, investigation or any other proceedings before
him, any officer not below the rank of Assistant Commissioner, having regard to the
nature and complexity of the case and the interest of revenue, is of the opinion that
the value has not been correctly declared or the credit availed is not within the
normal limits, he may, with the prior approval of the Commissioner, direct such
registered person by a communication in writing to get his records including
books of account examined and audited by a chartered accountant or a cost
accountant as may be nominated by the Commissioner.
• The report of the Cost/ Chartered Accountant to be signed & submitted within 90
days
• Where the special audit conducted under sub-section (1) results in detection of tax
not paid or short paid or erroneously refunded, or input tax credit wrongly availed
or utilized, the proper officer may initiate action under section 73 or section 74 of
CGST Act 2017.
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