THE ICFAI LAW SCHOOL,

DEHRADUN

Internal Assignment on
GST and GST Refund

SUBMITTED TO SUBMITTED BY
Ms. Priyanka Shokeen Jayaditya Rai
Faculty In-charge BA-LL.B (Hons) - A
Principle of 17FLICDDN02059
Taxation Law
 Acknowledgment
I wish to express my sincere gratitude to my teacher Ms. Priyanka Shokeen for her guidance
in the making of the project. I would like to thanks my parents for constantly encouraging me
to put into it my best efforts

Every project big or small is successful largely due to the efforts of a numeral of wonderful
people who have always given their valuable advice or lent a helping hand. I sincerely
appreciate the inspiration, support and guidance of all those people who have been instrumental
in making this assignment a success.

Thank You.
 Introduction

• GST

The goods and services tax (GST) is a value-added tax levied on most goods and services sold
for domestic consumption. The GST is paid by consumers, but it is remitted to the government
by the businesses selling the goods and services.

The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of
certain goods and services. The business adds the GST to the price of the product, and a
customer who buys the product pays the sales price inclusive of the GST. The GST portion is
collected by the business or seller and forwarded to the government. It is also referred to as
Value-Added Tax (VAT) in some countries.

Most countries with a GST have a single unified GST system, which means that a single tax
rate is applied throughout the country. A country with a unified GST platform merges central
taxes (e.g., sales tax, excise duty tax, and service tax) with state-level taxes (e.g., entertainment
tax, entry tax, transfer tax, sin tax, and luxury tax) and collects them as one single tax. These
countries tax virtually everything at a single rate.

India established a dual GST structure in 2017, which was the biggest reform in the country's
tax structure in decades. The main objective of incorporating the GST was to eliminate tax on
tax, or double taxation, which cascades from the manufacturing level to the consumption level.

For example, a manufacturer that makes notebooks obtains the raw materials for, say, Rs. 10,
which includes a 10% tax. This means that they pay Rs. 1 in tax for Rs. 9 worth of materials.
In the process of manufacturing the notebook, the manufacturer adds value to the original
materials of Rs. 5, for a total value of Rs. 10 + Rs. 5 = Rs. 15. The 10% tax due on the finished
good will be Rs. 1.50. Under a GST system, the previous tax paid can be applied against this
additional tax to bring the effective tax rate to Rs. 1.50 – Rs. 1.00 = Rs. 0.50.

In turn, the wholesaler purchases the notebook for Rs. 15 and sells it to the retailer at a Rs. 2.50
mark-up value for Rs. 17.50. The 10% tax on the gross value of the good will be Rs. 1.75,
which the wholesaler can apply against the tax on the original cost price from the manufacturer
(i.e., Rs. 15). The wholesaler's effective tax rate will, thus, be Rs. 1.75 – Rs. 1.50 = Rs. 0.25.
Similarly, if the retailer's margin is Rs. 1.50, his effective tax rate will be (10% x Rs. 19) – Rs.
1.75 = Rs. 0.15. Total tax that cascades from manufacturer to retailer will be Rs. 1 + Rs. 0.50
+ Rs. 0.25 + Rs. 0.15 = Rs. 1.90.

India has, since launching the GST on July 1, 2017, implemented the following tax rates:

• A 0% tax rate applied to certain foods, books, newspapers, homespun cotton cloth, and
hotel services.
• A rate of 0.25% applied to cut and semi-polished stones.
• A 5% tax on household necessities such as sugar, spices, tea, and coffee.
• A 12% tax on computers and processed food.
• An 18% tax on hair oil, toothpaste, soap, and industrial intermediaries.
• The final bracket, taxing goods at 28%, applies to luxury products, including
refrigerators, ceramic tiles, cigarettes, cars, and motorcycles.

The previous system with no GST implies that tax is paid on the value of goods and margin at
every stage of the production process. This would translate to a higher amount of total taxes
paid, which is carried down to the end consumer in the form of higher costs for goods and
services. The implementation of the GST system in India is, therefore, a measure that is used
to reduce inflation in the long run, as prices for goods will be lower.

• GST Refund

The concept of refund under GST relates to any amount returned by the government that was:

• paid by the registered taxpayer either in excess or

• was not liable to be taxed.

GST was introduced not only to get rid of blocks like double taxation and no input tax credit,
but also bring about transparency and easy tax compliance.
To make easy tax compliance a reality, government of India took the GST process online. Right
from GST registration, return filing to claiming ITC and GST refund, almost everything takes
place on the GST online portal.
Talking about refund under GST, a time specific GST refund process was extremely necessary.
This is because it would help businesses manage taxes. Such a process would unblock funds
for working capital.
Thus, it would provide necessary pool of money for growth, modernization and expansion of
businesses.

Hence, government came with a standardized process for GST refund. There are various cases
resulting in accumulation of credit or payment of taxes in excess of what is due.

Such cases can occur on account of mistakes or unintentional errors by the registered taxpayers.
This refund mechanism enables taxpayers to claim refunds easily under such circumstances.

It is unlike the previous indirect tax regime, that was time consuming and called for tedious
manual filing of indirect tax refund.

As per the CGST act 2017, there are various situations under which a registered taxpayer can
claim GST refund. Let’s have a look at situations that necessitate GST refund and the
underlying provisions.
 Objective of GST Refund
• Mode for transfer of information to tax administration under GST tax system

One of the main purposes of GST returns is that tax payer can use this tax paying system as
one of the major modes of transfer of information to tax administration about their firm and
daily business activities.

• Compliance verification program of tax administration

A Tax payer fulfils his compliance verifications program of tax administration by being a part
of nation’s tax administration system.

• Finalization of the tax liabilities of the taxpayer within stipulated period of

limitation; to declare tax liability for a given period

The obligation to government on tax liability of a tax payer is met within the prescribed time
limit. A tax payer also declares his tax liability for a given period on GST tax system.

• Providing necessary inputs for taking policy decision under GST system

A tax payer participates indirectly in taking economic policy of the nation by providing inputs
to government.

• Management of audit and anti-evasion programs of tax administration.

A tax payer manages his business activities by following the tax laws, thereby management of
audit and anti-evasion programs of tax administration.

This post explains about the purpose of GST returns filing in India. If you like to add more
information about purpose of GST tax payment and returns filing in India, share below your
thoughts:
 Claiming GST Refund

There are many cases where refund can be claimed. Here are some of them –

Excess payment of tax is made due to mistake or omission.

• Dealer Exports (including deemed export) goods/services under claim of rebate or

Refund

• ITC accumulation due to output being tax exempt or nil-rated

• Refund of tax paid on purchases made by Embassies or UN bodies

• Tax Refund for International Tourists

• Finalization of provisional assessment

The time limit for claiming a refund is 2 years from relevant date.

The relevant date is different in every case.

Here are the relevant dates for some cases –

Reason for claiming GST Refund Relevant Date

Excess payment of GST Date of payment
Export or deemed export of goods or services Date of despatch/loading/passing the frontier
ITC accumulates as output is tax exempt or Last date of financial year to which the credit
nil-rated belongs
Finalisation of provisional assessment Date on which tax is adjusted

Also, if refund is paid with delay an interest of 24% p.a. is payable by the government.

Step by Step procedure of claiming GST refund

Step 1: Login to the GST portal.

Step 2: Go to ‘Services’ > ‘Refunds’ > ‘Application for Refund’

Step 3: Select ‘Refund of Excess Balance in Electronic Cash Ledger’ and click on
‘CREATE’.

Step 4: Once you click on ‘CREATE’ in the above step, balance amount available in
Electronic Cash Ledger will be auto-populated in the form.

Step 5: You can enter values of the refund to be claimed in the editable ‘Refund Claimed’
table. The refund amount can be less than or equal to the amount available in Electronic Cash
Ledger.

Click on “Click to view Electronic Liability Ledger” to get details of liabilities/dues relating
to returns/other demands.
Step 6: Click on “GO BACK TO REFUND FORM” after viewing the outstanding demand.

Step 7: Select the bank account (in which you want the refund to be credited) from the drop-
down.
Step 8: To upload the supporting documents, please follow the steps below:

1. Give the description to the document

2. Click on “Choose File” to add the document

3. Click on “Delete” icon to delete the uploaded document

Click on “SAVE” after completion of uploading the document

Step 9: Click on “PREVIEW” to download the form in PDF.

After reviewing the draft, click on “PROCEED” to submit the form.

Step 10: Select the checkbox in the declaration. Select the name of the ‘Authorised
Signatory’ from the drop-down.

Based on the type of your organisation click on “SUBMIT WITH DSC” or “SUBMIT WITH
EVC”.

In case of DSC, select the certificate of the authorised signatory and click on ‘SIGN’ button.

In case of EVC, enter the OTP received on the mail ID or mobile number of the authorised
signatory and click on ‘VERIFY’.

Step 11: Once RFD-01 is filed ARN will be generated and “Refund ARN Receipt” can be
downloaded as PDF document from ‘Services’> ‘Refunds’> ‘My Saved/ Filed Applications’.

Filed applications can be tracked using the “Track Application Status” under Refunds.

After inspection by a GST authority refund amount will be credited to the applicant bank
account.
 Merits of GST

1. GST eliminates the cascading effect of tax

GST is a comprehensive indirect tax that was designed to bring the indirect taxation under one
umbrella. More importantly, it is going to eliminate the cascading effect of tax that was evident
earlier.

Cascading tax effect can be best described as ‘Tax on Tax’. Let us take this example to
understand what is Tax on Tax:

Before GST regime:

A consultant offering services for say, Rs 50,000 and charged a service tax of 15% (Rs 50,000
* 15% = Rs 7,500).

Then say, he would buy office supplies for Rs. 20,000 paying 5% as VAT (Rs 20,000 *5% =
Rs 1,000).

He had to pay Rs 7,500 output service tax without getting any deduction of Rs 1,000 VAT
already paid on stationery.

His total outflow is Rs 8,500.

Under GST

GST on service of Rs 50,000 @18% 9000

Less: GST on office supplies (Rs 20,000*5%) 1000

Net GST to pay 8000

2. Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more than Rs 5 lakh (in most
states) was liable to pay VAT. Please note that this limit differed state-wise. Also, service tax
was exempted for service providers with a turnover of less than Rs 10 lakh.

Under GST regime, however, this threshold has been increased to Rs 20 lakh, which exempts
many small traders and service providers.
Let us look at this table below:

Tax Threshold Limit

Excise 1.5 crores
VAT 5 lakhs in most states
Service Tax 10 lakhs
GST 20 lakhs (10 lakhs for NE state)

3. Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it gives an
option to lower taxes by utilizing the Composition scheme. This move has brought down the
tax and compliance burden on many small businesses.

4. Simple and easy online procedure

The entire process of GST (from registration to filing returns) is made online, and it is super
simple. This has been beneficial for start-ups especially, as they do not have to run from pillar
to post to get different registrations such as VAT, excise, and service tax.
5. The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had their own returns and compliances.
Below table shows the same:

Tax Return Filing

Excise Monthly
Service Tax Proprietorship/ Partnership- Quarterly
Company/ LLP- Monthly
VAT “Different for different States”
Some states require monthly returns over a
threshold limit.
Some states like Karnataka require a monthly
return

Under GST, however, there is just one, unified return to be filed. Therefore, the number of
returns to be filed has come down. There are about 11 returns under GST, out of which 4 are
basic returns which apply to all taxable persons under GST. The main GSTR-1 is manually
populated and GSTR-2 and GSTR-3 will be auto-populated.

6. Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector was not defined. It had
variable VAT laws. Let us look at this example:

Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh had to file a VAT
declaration and mention the registration number of the delivery truck. Tax authorities could
sometimes seize goods if the documents were not produced.

Again, these e-commerce brands were treated as facilitators or mediators by states like Kerala,
Rajasthan, and West Bengal which did not require them to register for VAT.

All these differential treatments and confusing compliances have been removed under GST.
For the first time, GST has clearly mapped out the provisions applicable to the e-commerce
sector and since these are applicable all over India, there should be no complication regarding
the inter-state movement of goods anymore.
7. Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple warehouses across states to
avoid the current CST and state entry taxes on inter-state movement. These warehouses were
forced to operate below their capacity, giving room to increased operating costs.

Under GST, however, these restrictions on inter-state movement of goods have been lessened.

As an outcome of GST, warehouse operators and e-commerce aggregators players have shown
interest in setting up their warehouses at strategic locations such as Nagpur (which is the zero-
mile city of India), instead of every other city on their delivery route.

Reduction in unnecessary logistics costs is already increasing profits for businesses involved
in the supply of goods through transportation.

8. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India like construction and textile
were largely unregulated and unorganized.

Under GST, however, there are provisions for online compliances and payments, and for
availing of input credit only when the supplier has accepted the amount. This has brought in
accountability and regulation to these industries.
 Disadvantage of GST
It took 17 years for the GST bill to finally get the nod in both the parliament houses. While
GST promised and did eliminate most of the indirect taxes and converted them into a single,
unified tax, it continues to receive much criticism.

While much of the animosity is due to an inaccurate understanding of the new tax regime, there
indeed are a few drawbacks or limitations. Let us have a look at some of the biggest
disadvantages of GST in India-

1. Additional Software Expense

Most businesses use ERP or accounting software to manage their day-to-day operations. These
solutions were developed as per the traditional tax laws in the country. The implementation of
GST required the businesses to switch to GST-compliant solutions or standalone GST software
to keep up with the new tax laws.

This not only increased the operational expenses but also required the business to offer
additional training to the employees to use the new software effectively.

2. Online Tax Regime

GST is an online tax system. From GST registration to filing GST returns, every aspect of this
new tax regime is done online. While businesses are gradually shifting to digital solutions,
small businesses are still not very well-versed with such modern technologies and solutions.

While the government has made the online system very simple, there is still a learning curve
which can be challenging for many businesses.

3. Higher Taxes for SMEs

If you are looking for what are the disadvantages of GST, you will come across how it has
increased the tax liabilities for small and medium enterprises (SMEs). This is because, in the
past, the excise tax was only paid by businesses with an annual turnover of above Rs. 1.5 crores.
However, with the new tax regime, any business with an annual turnover of above Rs. 20 lakhs
is required to pay GST.

However, there is a composition scheme for SMEs that have a turnover of up to Rs. 1 crore
(Rs. 75 lakhs in specified states). With this scheme, such SMEs can pay only 1% tax on their
turnover. But if you use this composition benefit, you cannot claim the input tax credit.
Conclusion