We are already aware that section 107[2] of the CGST Act, 2017 provides that the Commissioner may review any order or decision, including an order of refund, with respect to its legality or propriety and he may direct any officer subordinate to him to file an appeal against the said decision or order within 6 months of the date of communication of the said decision or order. Further, para 3.3. of the Circular 17/17/2017-GST dated 15.11.2017 states that pre-audit of refund is not required to be carried out but post-audit of refund orders may continue on the basis of extant guidelines.

However, the Board has been receiving reports of different practices being followed by field formations with respect to review, sanction, and post-audit of refund claims. For example, in certain commissionerates, speaking orders are issued in respect of all refund claims whereas in others, speaking orders are not being issued if the refund is sanctioned in full.

Therefore, in order to ensure uniformity in procedure and enable effective monitoring of sanction of refund claims to safeguard the interest of revenue, the following instructions are issued for sanction, post-audit, and review of refunds:

Sanction of Refund

It has also been mentioned in both Circular No.17/17/2017-GST dated 15.11.2017 [for manual processing of refunds] and Circular No.125/44/2019-GST dated 18.11.2019 [for electronic filing and processing of refunds] that the proper officer shall follow principles of natural justice before taking final decision with regard to the refund claim. This means that, while passing a refund sanction order in FORM GST RFD-06, the proper officer should, upload a detailed speaking order along with the said sanction order which provides a basis for sanction or rejection of refund in order to uphold the principles of natural justice.

The speaking order should contain the following details:

Details for all categories of refund claims

a) The period for which refund claim has been filed, date of filing, and category in which refund has been claimed.

b) Whether it has been checked that refund claim has not been filed in the same category including any claim filed under the ‘Any other’ category.

c) Details of deficiency memo, if any, in FORM GST RFD-03 issued in respect of the said refund claim previously.

d) Whether the refund claim has been filed within the limitation of time, as provided under CGST Act and Rules thereof, including in the cases, where a deficiency memo in FORM GST RFD-03 has been issued previously.

e) Details of the documents/statements uploaded along with the refund claim. Whether all necessary documents have been uploaded with the refund claim in terms of Rule 89(2) of the CGST Rules. Details of documents furnished by the applicant via e-mail in soft copy/hard copy may also be provided.

f) Whether all the due returns have been filed by the applicant or not, whether any dues are pending recovery from the applicant, and whether a refund is required to be withheld or any amount is required to be deducted as per provisions of section 54[10] of the CGST Act on account of non-filing of returns or dues being pending recovery from the applicant.

g) Whether any SCN was issued to the applicant, details of reply of the applicant, and PH details.

h) Discussion and findings in respect of applicant submission. Details of case laws relied upon in deciding the matter if any.

i) Whether provisions of unjust enrichment are applicable or not in terms of the provisions of section 54(8) of the CGST Act. If unjust enrichment is applicable in the refund, whether the applicant has furnished due documents/certificates, in terms of clause (b) of section 54(4) of the CGST Act, certifying or establishing not passing the burden of tax, in respect of which refund is being claimed, on any other person.

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Additional details in case of a refund of accumulated ITC [on account of zero-rated supplies or inverted duty structure] and refund of IGST paid on account of zero-rated supplies

a) Whether the refund amount claimed has been debited from the electronic credit ledger, in terms of sub-rule [3] of rule 89 of CGST Rules.

b) In case of a refund of IGST paid on account of zero-rated supplies, whether the amount of IGST has been paid through GSTR-3B return.

c) Whether the calculation given by the applicant of export/zero-rated turnover, adjusted aggregate turnover, and turnover of inverted duty supplies, as applicable is correct as per relevant provisions.

d) Whether the calculation of Net ITC, where ever applicable, is correct as per the relevant provisions. Also, whether the verification of admissibility of ITC as per the provisions of GST law has been done or not and the findings thereof.

e) Whether it has been verified that ITC on capital goods has not been included in the calculation of Net ITC for a refund of ITC in zero-rated supplies.

f) Whether it has been verified that ITC in respect of input services as well as capital goods is not included in the calculation of NET ITC in case of inverted duty structure refund.

g) Whether refund has been restricted to the ITC as per those invoices, details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in FORM GSTR-2A of the applicant in terms of circular no.135/05/2020-GST dated 31.03.2020

h) Whether a refund is barred under the provisions of 2^nd and 3^rd proviso to section 54[3] of the CGST Act,2017

i) Details of computation of refund claim amount as per relevant provisions/prescribed formula in the Act/Rules and verification of whether the refund amount claimed is correct or not

j) In case of refund on account of inversion, whether the supply qualifies for a refund of unutilized ITC under clause (ii) of 1^st proviso to section 54[3] of the CGST Act, 2017.

k) In case of refund on account of export of goods, whether the details of shipping bill/bill of exports, wherever applicable have been verified from the ICEGATE portal.

l) In case of refund on account of export of services, whether the claimant has furnished the BRC/FIRC/other relevant documents evidencing receipt of export remittances in respect of zero-rated services for which refund is being claimed.

m)In case of refund on account of zero-rated supply by DTA to SEZ, whether the said supply is meant for authorized operations on the basis of a letter of authorization. Further, whether the details of supply by the applicant to the SEZ have been cross-checked from the SEZ Online Portal.

n) Whether the documents pertaining to zero-rated supply to SEZ have been endorsed by the specified/authorized officer of the zone.

o) Whether the DTA supplier has received the payment from the SEZ recipient in case of a supply of services to SEZ.

Additional details in case of a refund of tax paid on supplies regarded as deemed export

a) Whether necessary procedure was followed while making procurement/supplying of goods regarded as deemed exports.

b) Whether the ITC claimed against the tax paid on such deemed export supplies has been debited from the electronic credit ledger by the recipient for filing an application of refund.

c) Whether it has been verified that no ITC has been claimed by the recipient when a refund is claimed by the supplier.

Additional details in case of a refund of excess balance in the cash ledger

a) Whether the amount has been debited from the electronic credit ledger

b) Whether the amount to be refunded has been calculated in accordance with the provisions of section 49(6) of the CGST Act.

Additional details in case of refund filed under the other categories of refund except those mentioned above

a) Whether the documents furnished/uploaded along with the refund claim have been verified for their correctness from the source like FORM GSTR-1, GSTR-3B, ICEGATE Portal, etc wherever required.

b) Details of the verification conducted and reasoning for grant/rejection of the refund.

c) In case of refund ITC filed under “Any Other” category, whether the amount claimed has been debited from the ECL, wherever required.

It is also mentioned that the ACES-GST portal provides a facility for uploading a document in pdf format along with the FORM GST RFD-06 order. The same may be utilized by the proper officer for uploading the speaking order along with the refund sanction order, so that the same is available to the refund applicant as well as the post-audit/reviewing authority online.

Post Audit and Review

As per section 107[2] of the CGST Act and as per extant practice, all refund orders are required to be reviewed for examination of the legality and propriety of the refund order and for taking a view of whether an appeal to the appellate authority under provisions of sub-section [2] of section 107 of the CGST Act is required to be filed against the said refund order.

Further, post-audit of refund claims may continue but considering the large number of refund claims in GST, post-audit may henceforth be conducted only for refund claims amounting to Rs.1 Lakh or more till further instructions.

Post audit and review of the refund claims shall be conducted as per the following guidelines:

• All the refund orders passed should be immediately transferred online to the review module after the issuance of the refund sanction order. The review and post-audit officers shall have access to all documents/statements on the ACES-GST portal pertaining to the said refund claims.
• A post-audit cell under a Deputy/Assistant Commissioner along with one/two superintendents and Inspectors as required may be created in Commissionerate Headquarters.
  • The post-audit should be concluded within 3 months from the date of issue of the FORM GST RFD-06 order. The findings of the post-audit shall be communicated to the review branch within the said time period of 3 months.
• The review of the refund order shall be completed at least 30 days before the expiry of the time period allowed for filing an appeal under section 107[2] of the CGST Act.

However, till the time the functionality for conducting post-audit online is developed on the ACES-GST portal, post-audit of refund orders may be conducted in offline mode. For the said purpose, the refund orders of claims amounting to INR 1 Lakh or more and relevant documents may be provided to the post-audit cell by the concerned division through the e-office within 7 days of issuance of the refund sanction order. The post-audit report may be furnished by the post-audit cell to the review cell through the e-office as per the time limit specified i.e. 3 months from the date of issue of sanction order.