The GST Council has recommended a phased overhaul of the refund mechanism, proposing automatic sanction of excess electronic cash ledger balances, system-based provisional refunds for zero-rated supplies and inverted duty structure claims, and a shorter deadline for acknowledging refund applications.
The recommendations seek amendments to Section 54 of the Central Goods and Services Tax Act, 2017, and the relevant CGST Rules to reduce manual intervention, speed up eligible refunds and improve business cash flows. The Council’s proposed reduction in the acknowledgement timeline from 15 days to 10 days was also reported following its 57th meeting.
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Full Automatic Refund Of Excess Cash Ledger Balance
Under the first phase, the entire refund claim relating to an excess balance in the electronic cash ledger would be sanctioned automatically by the system, without intervention by a tax officer.
The proposal would simplify the recovery of surplus amounts lying in the cash ledger and reduce taxpayers’ dependence on manual processing for such claims.
Acknowledgement Within 10 Days; Deemed Acceptance Of Application If Officer Does Not Act
The Council has recommended reducing the time available for issuing an acknowledgement or deficiency memo from 15 days to 10 days.
Where the proper officer does not issue either document within 10 days of the application, the system would generate a deemed acknowledgement. This would prevent refund applications from remaining pending indefinitely at the initial scrutiny stage.
The proposed deemed acknowledgement relates to acceptance of the application for processing; it does not, by itself, amount to sanction of the refund.
Automatic 90% Provisional Refund For Zero-Rated Supplies And Inverted Duty Structure
For refund claims arising from zero-rated supplies and an inverted duty structure, the first phase envisages automatic provisional sanction of 90% of the amount claimed.
The sanction would be based on the system’s identification and evaluation of risk and would take place without officer intervention.
An inverted duty structure generally arises where the tax rate on inputs is higher than the rate on output supplies, resulting in accumulated input tax credit. Faster provisional refunds could help eligible businesses release funds tied up in such accumulated credit.
The recommendation makes system-based risk assessment a central part of the proposed process. Accordingly, automatic provisional sanction would operate within that risk evaluation framework.
Second Phase To Provide Full Automated Refunds For Zero-Rated Supplies
In the second phase, the system would verify refund applications and issue acknowledgements automatically, without officer intervention.
For acknowledged claims relating to zero-rated supplies, the system would then sanction the full refund after adjusting pending dues, if any. This would also be subject to system-based identification and evaluation of risk.
While the first phase expressly covers provisional refunds for both zero-rated supplies and inverted duty structure claims, the second-phase recommendation for full automated sanction specifically concerns zero-rated supplies.
Refund Application To Use System-Readable Data
The Council has also recommended changes to FORM GST RFD-01 so that information is captured in a format the system can read and process.
For refund claims relating to zero-rated supplies and inverted duty structure, the proposed amendment would dispense with the requirement to upload scanned documents.
The change is intended to support automated verification and reduce the compliance burden associated with preparing and uploading scanned records.
Removal Of Export Turnover Valuation Restriction Proposed
The Council has recommended amending Rule 89(4)(C) of the CGST Rules to remove the restriction that caps the turnover of zero-rated supplies of goods at 1.5 times the value of comparable goods supplied domestically.
Removing this restriction would eliminate the specified domestic-value ceiling used in determining zero-rated turnover for the relevant refund calculation. The refund would continue to be governed by the applicable eligibility conditions and calculation framework.
₹1,000 Refund Threshold To Apply To Combined Tax Amount
An explanation has been proposed in Section 54(14) to clarify that the ₹1,000 threshold applies to the total refund amount across CGST, SGST or UTGST, and IGST taken together.
The clarification would establish that the threshold is assessed against the combined refund claim rather than separately under each tax head.
Greater Clarity On Interest For Refund Of Appeal Pre-Deposits
The Council has recommended amending Section 115 of the CGST Act to make it a standalone provision concerning the interest rate applicable to refunds of pre-deposits made for filing appeals.
A separate circular has also been recommended to clarify issues concerning the applicable interest rate on such refunds.
These measures seek to provide greater certainty to taxpayers awaiting repayment of appeal pre-deposits. The recommendations supplied do not specify a new interest rate.
Implementation To Require Legislative And Rule Changes
The proposed reforms aim to make refund processing faster, more transparent and more uniform, while reducing taxpayers’ interaction with the department.
Automatic cash ledger refunds, risk-based provisional sanction and electronic verification could improve access to working capital for eligible businesses. However, these are Council recommendations requiring the relevant amendments and implementation measures. The supplied recommendations do not specify commencement dates for the two phases.
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