The initial implementation of the novel GST law and the dual GST system presented challenges, as transactions were often incorrectly categorized as either intra-state or inter-state supplies. This led to taxpayers paying taxes under the wrong categories. To rectify these errors, some taxpayers voluntarily corrected their tax payments using the form DRC-03 or form GSTR-3B after being informed by tax authorities. However, many are still unsure about the fate of the taxes they incorrectly paid. This article aims to explore potential solutions for addressing taxes paid in error due to incorrect place of supply classification.
What is GST Section 77 of the CGST Act?
Before delving into this discussion, it's essential to grasp the provisions of Section 77 of the CGST Act 2017 (in conjunction with Section 19 of the IGST Act 2017) to understand the legal framework governing these situations. The relevant sections are provided below for easy reference.
“77. Tax wrongfully collected and paid to the Central Government or State Government. —
A registered person who has paid the Central tax and State tax or, as the case may be, the Central tax and the Union territory tax on a transaction considered by him to be an intra-state supply, but which is subsequently held to be an inter-state supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.
A registered person who has paid integrated tax on a transaction considered by him to be an inter-state supply, but which is subsequently held to be an intra-state supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the Central tax and the Union territory tax payable”.
Therefore, in summary, Section 77 of the CGST Act 2017 stipulates that if you initially misclassified a transaction as intra-state, but later realized (either by your own discovery or through notification by a tax officer) that it was actually an inter-state transaction, you have the option to correct your tax payment by categorizing it correctly under IGST. Subsequently, you can claim a refund for the CGST and SGST paid in error.
GST Section 54 Under CGST Act
The provisions outlined in Section 54 of the CGST Act 2017 address the timeframe for filing such a refund claim, which is set at 2 years from the relevant date. Therefore, in cases where taxes were paid mistakenly, determining the specific relevant date becomes a crucial aspect.
Regarding this matter, Section 77 of the CGST Act 2017 emphasizes that the government will establish the procedure and conditions for requesting a refund in such situations.
Government Sub-rule (1A) of Rule 89 Under CGST Rules
The government vide notification No. 35/2021-Central Tax dated 24.09.2021 has inserted sub-rule (1A) of rule 89 of the CGST Rules. The said sub-rule (1A) of rule 89 of CGST Rules, 2017 states that-
"(1A) Any person, claiming refund under section 77 of the Act of any tax paid by him, in respect of a transaction considered by him to be an intra-State supply, which is subsequently held to be an inter-State supply, may, before the expiry of a period of two years from the date of payment of the tax on the inter-State supply, file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner:
Provided that the said application may, as regards any payment of tax on inter-State supply before coming into force of this sub-rule, be filed before the expiry of a period of two years from the date on which this sub-rule comes into force."
The recent amendment to Rule 89 of the CGST Rules, 2017 provides clarity on the timeline for claiming refunds under Section 77 of the CGST Act and Section 19 of the IGST Act, 2017. According to this amendment, refunds can be requested within two years from the date of tax payment under the correct category. For instance, if you paid integrated tax for a subsequent inter-state supply or central and state tax for a subsequent intra-state supply, the two-year window starts from that payment date.
However, if the taxpayer made the correct tax payment before the issuance of Notification No. 35/2021-Central Tax on 24.09.2021, the refund application under Section 77 of the CGST Act or Section 19 of the IGST Act can be submitted within two years from the date of issuance of this notification, which is September 24, 2021.
To illustrate this concept more clearly, consider the following example:
On 10.03.2018 an assessee “A” provided the invoice levying CGST and SGST on the transaction and as per that tax (CGST and SGST) paid in the return for the March 2018 tax period. Mentioned below are the elaborated cases-
In light of the fact that the deadline for submitting a refund application under Section 77 of the CGST Act 2017 is 23.09.2023, it is recommended to take advantage of this chance and request a tax refund for the fiscal years 2017–18.
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