Cancellation of Order – GST Refund Procedure

Cancellation of Order – GST Refund Procedure

To address the issues brought forward by the taxpayers on account of disruption and cancellation of orders on account of COVID-19, the Central Board of Indirect Taxes and Customs (CBIC) has issued GST Circular No. 137/07/2020 on 13th April 2020 clarifying acceptable procedure.

Service Contract Cancellation – Invoice Issued – Advance Received

In this scenario, an advance is received by a supplier for a service contract which gets cancelled. The supplier has issued and invoice and paid GST but not delivered the service before cancellation.  On cancellation of order, the supplier would refund the money received. The question arises, whether the supplier can claim refund of tax paid or is required to adjust the tax liability subsequently.

Solution:  In case GST is paid by the supplier on advance received and the order is cancelled subsequently, the supplier is required to issue a credit note in terms of Section 34 of CGST Act. The details of the credit note must then be declared in the monthly GST return. Based on the details of credit notes filed, the tax liability would be automatically adjusted. Hence, there is no requirement to claim a refund.

In case there is no output liability to adjust the credit, the registered taxpayer can file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.

Service Contract Cancellation – Receipt Issued – Advance Received

In this scenario, an advance is received by a supplier for a service which is cancelled. The supplier has issued a receipt and paid GST on the advance received. Can the supplier claim refund of tax paid or adjust GST liability?

Solution: In this case, as the supplier has not issued an invoice for the advance received a refund voucher under Section 31(3) of the GST Act should be issued. The taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”.

Goods Returned – Invoice Issued

In this scenario, goods are supplied based on an invoice and the goods have been returned. Can a refund claim be initiated for GST paid or GST liability be adjusted?

Solution: In this case, the supplier is required to issue a “credit note” in terms of section 34 of the CGST Act. Detail of all credit note issued is mentioned in the GST return and there is no requirement to claim a separate refund as the output liability is automatically adjusted. However, if there is no output, the supplier can file a claim under “Excess payment of tax, if any” through FORM GST RFD-01.

A copy of the circular is reproduced below for reference: