Can unregistered persons file GST refund claims presently?

On 27 December 2022, the CBIC issued a circular prescribing how an unregistered person can apply for a refund. Unregistered persons can apply for GST refund on canceled contracts or premature termination of policies by obtaining temporary registration on the GST portal, the finance ministry said. A new ‘Refund for Non-Registered Person’ functionality has been made available on the GST portal and an unregistered person who wants to file a refund claim will get registration temporarily on the portal using his Permanent Account Number (PAN). So let’s discuss the GST refund claim by unregistered person.

Who is an Unregistered Person?

Section 63 of the CGST Act, 2017 applies to unregistered persons i.e. persons who are required to obtain registration under Section 22 and have not obtained registration will be covered by this section.

This provision also applies to cases where the registration was canceled according to Section 29 sub-section 2.

Situations where unregistered persons can claim a refund?

Unregistered buyers who entered into a contract/agreement with a builder for the construction of an apartment/house, etc., and paid an amount in consideration for such service, whether in whole or in part, together with the relevant tax, had to receive the said amount the contract/agreement canceled subsequently due to non-completion or delay of construction activity in time or for other reasons, or if an unregistered person has paid tax at a higher rate of tax (i.e. if the applicant has applied for Credit Linked Subsidy Scheme (Pradhan) Mantri Awas Yojana Scheme.)

In cases of long-term insurance contracts, where the premium for the entire duration of the insurance contract is paid in advance together with the applicable GST subsequently it is necessary to terminate the insurance contract early for certain reasons.

An unregistered person claiming tax refunds for canceled contracts

In cases where the contract/agreement on the supply of apartment/house construction services has been canceled or the long-term insurance has been terminated, an unregistered person who wants to submit a request for a refund according to § 54 para. 1 letter CGST Act must obtain temporary registration on the common portal using their Permanent Account Number (PAN). At the same time, the unregistered person must choose the same state/UT in which his supplier is registered, for whose invoice refund he is requesting a refund. The unregistered person would then have to undergo Aadhaar authentication as per the provisions of Rule 10B of CGST. In addition, the non-registered person will be asked to enter the details of the bank account to which he wishes to receive the refund. The applicant must provide details of any bank account obtained using his PAN number in his name.

Procedure for applying for a refund by an unregistered person

• An unregistered person who wants to apply for a refund shall obtain a temporary registration on the common portal (gst.gov.in) using his Permanent Account Number (PAN). It should be noted that if the suppliers whose invoices are to be claimed are registered in different States/UTs, the claimant shall obtain a provisional registration.
• The unregistered person chooses the same state/UT where his supplier is registered, whose invoice refund is to be requested.
• An unregistered person will have to undergo Aadhaar authentication in terms of the provisions of Rule 10B of the CGST Rules.
• An unregistered person would be asked to enter the details of his bank account, on which he requests a refund of the requested amount. It is to be noted that the applicant will provide details of the bank account which is in his name and has been obtained on his PAN.
• A refund application is made in FORM GST RFD-01 on the common portal under the “Refund for unregistered person” category.
• The applicant shall upload statement-8 (in pdf format) (inserted as Annexure 1 of Form GST RFD-01 after statement-7) and all required documents as per the provisions of new clause (ka) rule 89 (2) of the CGST Rules, 2017. The refund application must be accompanied by a statement detailing the invoices, i.e. number, date, value, tax paid, and details of the payment in respect of which the refund is sought, along with a copy of such invoices, proof of execution of such payments to the supplier, a copy of the agreement or registered agreement or contract, as applicable, entered into with the supplier to supply the service, a letter issued by the supplier canceling or terminating the contract or service agreement, details of the payment received from the supplier against the cancellation or termination such contracts together with proof thereof.
• The requested refund amount will not exceed the total amount of tax declared on the invoices for which the refund is requested.
• The applicant shall also upload the certificate issued by the supplier in terms of clause (kb) of sub-rule (2) of rule 89 of the CGST Rules along with the refund application. The rule states that a tax refund application must be accompanied by a certificate issued by the supplier that he has paid tax in respect of the invoices for which the applicant is requesting a refund; that he did not adjust the amount of tax contained in these invoices against his tax liability by issuing a credit memo; and further, that he has not claimed and will not claim a refund of the amount of tax related to these invoices if the refund is requested by an unregistered person when the contract or service contract has been canceled or terminated.
  A proviso has been inserted in clause (m) of rule 89(2) of the CGST Rules, 2017 which clarifies that a certificate from a Chartered Accountant or Cost Accountant shall not be required in cases where a refund is claimed by an unregistered person who is a taxpayer.
• The applicant shall also upload any other document(s) in support of his claim that he has paid and borne the tax burden and that the said amount is refundable to him.
• It should be noted that separate refund claims must be made for invoices issued by different suppliers.

The relevant date for submitting a refund request

The refund request must be submitted within 2 years of the “relevant date”. The “relevant date” for making a refund claim in such cases is the date of receipt of goods or services or both by such person within the meaning of clause (g) of Explanation (2) under section 54 of the CGST Act, 2017.

However, in cases where the supplier and an unregistered person (beneficiary) concluded a long-term contract/agreement on supply with the provision of payment in advance or installments, e.g. construction of apartments, or long-term policies, if the contract is canceled/terminated for any reason before the service is completed, there may not be a service acceptance date if the delivery has not been made/provided. Therefore, in such cases, according to the circular, it was stated that to determine the relevant date, the date of issuance of the letter of cancellation of the supplier’s contract/agreement will be considered as the date of acceptance of services by the applicant.

Minimum Refund Amount

No refund will be claimed if the amount is less than one thousand rupees under sub-section (14) of section 54 of the CGST Act, 2017.

Maximum Refund Amount

In cases where the amount paid back by the supplier to an unregistered person on cancellation/termination of contract/contract on the supply of services is lower than the amount paid by this unregistered person to the supplier, only the proportionate amount of tax related to the thus refunded amount will be refunded to the unregistered person.

Consequences of filing refund request post date

After submitting the refund request, the relevant official will process the claim in a similar way to other RFD-01 claims.

• First, the concerned officer will examine the application to ensure the completeness and validity of the refund application.
• They will further issue a penalty refund order in Form GST RFD-06.
• Finally, the concerned officer shall upload the detailed call order along with the sanction recovery order within 60 days from the date of receipt of the filled application.

If the amount refunded by the supplier to the unregistered buyer upon termination or cancellation of the contract is less than the amount paid by the unregistered buyer to the supplier, only the pro rata amount of tax refunded to the unregistered person will be refunded. For example, an unregistered buyer paid a premium of Rs 1,000 for an insurance policy that was later canceled. The supplier returned Rs.500. So only the prorated GST amount of Rs.90 will be refunded and not the total GST amount of Rs.180.

Final words

By inserting new rules, and forms, and issuing a detailed circular, an important gap in the application of the claim of unregistered persons was thus filled. Unregistered persons can now take a sign of relief as the GST paid by them and not refunded by the service provider can now be claimed by the government itself.