GST: Submission highlighting issues relating to processing/ grant of refund of excess balance of TCS

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GST: Submission highlighting issues relating to processing/ grant of refund of excess balance of TCS

Tejasvi

@tejasvi

September 6, 2021

Public Policy

Background and Issue:

As per S. 52 of Central Goods and Service Tax Act, 2017 (CGST Act), e-commerce operators are required to collect and deposit an amount of 1% of net supplies effected by the suppliers (or the e-tailers) through such e-commerce portals and also furnish monthly details of such amounts collected and deposited by filing Form GSTR-8.

The amount collected by the e-commerce operator and declared in GSTR-8 is credited to electronic cash ledger of the supplier.

The supplier then, utilises TCS credits in electronic cash ledger to discharge their output tax liability. Any balance available in electronic cash ledger of the supplier is eligible for being claimed as refund as per S.49(6) of CGST Act in accordance with provisions of S. 54 of CGST Act.

It may be noted that as per response to Q. No. 24 in the Frequently Asked Questions (FAQs) issued by the Law Committee, GST Council on November 30, 2018, it has been clarified that if the supplier is not able to use the amount of TCS credited to electronic cash ledger, the supplier may claim refund of the excess balance lying in his electronic cash ledger in accordance with the provisions contained in S.54(1) of CGST Act, 2017.

Additionally, Instruction 2/1/2020-GST dated April 9, 2020 states that the refund processing mechanism will be expedited by the department and refunds will be granted on merit basis considering the relevant provisions, ideally within 60 days.

Despite GST provisions permitting refund of TCS as well as the fact that refund of excess balance in electronic cash ledger are substantiated by submission of relevant details by suppliers during filing of refund applications, it has been observed that GST officers have been increasingly rejecting the claim of TCS refund on the following premises:

-There are no provisions in GST law which permit claiming of TCS refund;
- Excess amounts in the cash ledger can only be utilised against discharge of GST output liability; or
- Companies have not paid such amount in cash to be claiming refund of the same.

Notwithstanding the above and in addition, the following issues are also being increasingly faced with respect to TCS refund applications filed (especially, refunds filed in the states of Karnataka and Haryana):

- Significant delay in processing refund applications even when all information / documents have been submitted promptly - Insistence on completion of assessment / audit prior to sanctioning of refund;
- Partial processing of refund applications thereby indicating lack of co-ordination amongst authorities, or
- Instances of refund approval being obtained, but not credited to bank account of taxpayer within reasonable time.

The fact that the amount of TCS collected is made available to the supplier in his electronic cash ledger makes it clear that such amount is not in the nature of tax per se and is cash which belongs to the supplier, which could either be utilised to discharge GST output tax liability or could be claimed as refund.

Suppliers are tax compliant assessees and guarantee full co-operation in submission of details that are sought for by the GST department for validating refund claims. However, details of customer address do not seem to be a prominent parameter towards verifying the legitimacy of a refund claim of excess cash balance.

Further, these details could be sought as part of audit/assessment proceedings but holding refunds for the want of details that are not directly related to the refund claim seems to defeat the intent of law.

Recommendation

In this regard, we have made a submission to GST Policy Wing and GST Council on September 3, 2021 requesting them to issue clear and concise guidelines (as internal directive to departmental officers) relating to refund of excess balance in electronic cash ledger on the following:

S. 49(6) of CGST Act makes it expressly clear that refund of the balance available in the electronic cash ledger can be applied for, in accordance with provisions of S.54 of CGST Act.
Refunds claimed by assesses, in such cases, should be processed post validation of requisite information / documents submitted by suppliers.
Refunds, in its entirety, should be granted and credited to taxpayers without any reasonable delay, in cases where validity of refund application has been substantiated by the assessee.

This will help in resolving liquidity issue for small sellers selling on e-commerce platform, thereby enabling ease of doing business.

We will keep you posted on further developments in this regard.

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Tejasvi