Government entities or suppliers consistently aim to have an advantage in their interactions with private businesses. When contracts are nullified, a common concern arises about managing the previously paid GST, particularly if there’s no applicable outward tax liability. Addressing this matter, Serial Number 3 of Circular Number 137/07/2020-GST dated 13/4/2020 outlines the subsequent details —
Situation 01
An instance arises where a supplier receives payment in advance for a service contract, which later gets canceled. The supplier had already sent an invoice before actually providing the service and had paid the corresponding GST on it. Now, the question is whether the supplier can get a refund for the tax paid, or if they need to manage their tax obligations differently in their records.
When a supplier pays GST on the advance received for a service that was later canceled, and if this advance was tied to an invoice issued even before the service was given, the supplier needs to generate something called a “credit note.” This process is defined in section 34 of the CGST Act. The supplier should include all the specifics of this credit note in the tax return for the month in which the credit note was produced. The tax responsibility will then be adjusted within this tax return, all according to the terms outlined in section 34 of the CGST Act. Importantly, this doesn’t require a separate application for a tax refund. However, if there’s no tax obligation against which this credit note can be balanced, individuals registered under GST can go forward and initiate a claim for any “Excess payment of tax,” if applicable. This can be done using FORM GST RFD-01.
Situation 02
Imagine a situation where a company gets paid in advance for a service they were supposed to provide. But later, the plans change, and the service doesn’t happen. The company already paid a tax called GST on that advance money. Now, the company wants to know if they can get that tax money back or if they have to adjust it against their other taxes.
If a company pays GST on the money they got in advance for an event that got canceled, and they didn’t give an official bill (invoice) as per the GST rules, they need to make a special note (a “refund voucher”) as per the rules. Then, they can ask for the GST money back by filling out a form called GST RFD-01, saying they paid too much tax.
Calcutta High Court
Now, let’s think about when the company gets the GST money back. There was a case with a company called IRCTC. They got paid by someone for a service, including GST, and then the plans got canceled. IRCTC said they’d give back the GST money, but only if the government also gives them money back. This is even though the person who paid said they didn’t use that GST money for any tax benefits.
The Calcutta High Court looked at a similar case involving Griham Food and Hotel Private against the government. The Court said that there’s no reason why the GST money shouldn’t be given back to the petitioner. The Court didn’t agree that IRCTC should always get money back from the government. IRCTC couldn’t show why they waited so long to deal with the petitioner’s request for a GST refund. If the government should give money back to IRCTC will depend on the law. But it’s clear that the petitioner should get the GST money back from IRCTC. So, IRCTC was told to give the GST money back to the petitioner quickly.