Deficiency Memo in GST

Byadmin
on October 8, 2024

Introduction

The term ‘refund’ means to repay or restore; to return money in restitution or a repayment. Under tax laws, when any tax, interest, or any other amount is paid to the Government more than the liability incurred or accrued, then a situation for refund will arise.

In terms of the explanation (1) to Section 54 of the CGST Act, 2017, “refund” includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit.

Steps involved in processing of Refund Application which are filed on the GST Portal:

Step 1
Applicant files the refund application on the GST Portal in Form GST RFD‐ 01. Such an application will be available at the Dashboard of Tax Official as a pending work item.
Step 2
The refund application filed by the applicant has to be processed by the Refund Processing Officer (RPO). RPO will also scrutinize the application and attachments filed by the applicant.
Step 3
Based on scrutiny of the refund application filed by the applicant, if the refund application is found to be complete in all aspects, Acknowledgement in Form GST RFD‐02 will be issued by the RPO, within 15 days from the date of filing of the refund application.
Step 4
Based on scrutiny of the refund application and attachments filed by the applicant, in case, any deficiencies are noticed in refund application, the Deficiency Memo will be issued in Form GST RFD‐03 on the refund application by the RPO.
Step 5
RPO can issue an online notice for rejection of application for refund or recovery of erroneously granted refund for seeking any clarification in Form GST RFD‐08, if required.
Step 6
The applicant is required to furnish a reply to the notice (issued in Form GST RFD-08) in Form GST RFD‐09 online on GST Portal, within 15 days of issuance of notice.
Step 7
Tax Official may issue Provisional Refund Order in Form GST RFD‐04 within 7 days from the date of acknowledgment up to 90% of the refund claimed amount, if the applicant is eligible to get a provisional refund.
Step 8
RPO will issue a Refund Sanction/ Rejection Order in Form GST RFD‐06.
Step 9
Payment Order needs to be issued in Form GST RFD‐05 after issuance of Form GST RFD‐04 or Form GST RFD‐06 in case of sanction of refund. The sanctioned refund amount may be withheld by the RPO by issuing Form GST RFD‐07 (Part B). In such cases, Tax Official will not issue Form GST RFD-05, till the withholding order is in operation.

Acknowledgement [Rule 90 of the CGST Rules, 2017]:

90(1). Where the application relates to a claim for refund from the electronic cash ledger, an acknowledgement in FORM GST RFD-02 shall be made available to the applicant through the common portal electronically, clearly indicating the date of filing of the claim for refund and the time period specified in sub-section (7) of section 54 shall be counted from such date of filing.

90(2). The application for refund, other than claim for refund from electronic cash ledger, shall be forwarded to the proper officer who shall, within a period of fifteen days of filing of the said application, scrutinize the application for its completeness and where the application is found to be complete in terms of sub-rule (2), (3) and (4) of rule 89, an acknowledgement in FORM GST RFD-02 shall be made available to the applicant through the common portal electronically, clearly indicating the date of filing of the claim for refund and the time period specified in sub-section (7) of section 54 shall be counted from such date of filing.

90(3). Where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03 through the common portal electronically, requiring him to file a fresh refund application after rectification of such deficiencies.

Clarifications on Deficiency Memo [Circular No. 125/44/2019-GST dated 18th November, 2019]:

If the application for refund is complete in terms of sub-rule (2), (3) and (4) of rule 89 of the CGST Rules, an acknowledgement in FORM GST RFD-02 should be issued within 15 days of the filing of the refund application. The date of generation of ARN for FORM GST RFD-01 is to be considered as the date of filing of the refund application.
Sub-rule (3) of rule 90 of the CGST Rules provides for communication of deficiencies in FORM GST RFD-03 where deficiencies are noticed within the aforesaid period of 15 days. It is clarified that either an acknowledgement or a deficiency memo should be issued within the aforesaid period of 15 days starting from the date of generation of ARN.
Once an acknowledgement has been issued in relation to a refund application, no deficiency memo, on any grounds, may be subsequently issued for the said application.
After a deficiency memo has been issued, the refund application would not be further processed and a fresh application would have to be filed. Any amount of input tax credit/cash debited from electronic credit/ cash ledger would be re-credited automatically once the deficiency memo has been issued. It may be noted that the re-credit would take place automatically and no order in FORM GST PMT-03 is required to be issued. The applicant is required to rectify the deficiencies highlighted in deficiency memo and file fresh refund application electronically in FORM GST RFD-01 again for the same period and this application would have a new and distinct ARN.
It is further clarified that once an application has been submitted afresh, pursuant to a deficiency memo, the proper officer will not serve another deficiency memo with respect to the application for the same period, unless the deficiencies pointed out in the original deficiency memo remain un-rectified, either wholly or partly, or any other substantive deficiency is noticed subsequently.
It is also clarified that since a refund application filed after correction of deficiency is treated as a fresh refund application, such a rectified refund application, submitted after correction of deficiencies, shall also have to be submitted within 2 years of the relevant date, as defined in the explanation after sub-section (14) of section 54 of the CGST Act.

Reasons for issuance of Deficiency Memo:

Reasons for issuance of deficiency memo may include:

Required documents are not uploaded.
Uploaded documents are not legible.
Refund claim is filed in another category.
HSN code is not mentioned in statement of invoices etc.

Does GST officers have a right to issue deficiency memo after 15 days?

Hon’ble Delhi High Court in case of Jian International V/s. Commissioner of Delhi Goods and Services Tax, W.P. (C) 4205/2020, held that the officers have no right to find a deficiency in refund application after 15 days from the date of filing of refund application.

The court finds that Rules 90 and 91 of CGST/DGST Rules provide a complete code with regard to acknowledgement, scrutiny and grant of refund. The said Rules also provide a strict time line for carrying out the aforesaid activities. For instance, Rules 90(2) and (3) of the DGST Rules states that within fifteen days from the date of filing of the refund application, the respondent has to either point out discrepancy/deficiency in FORM GST RFD-03 or acknowledge the refund application in FORM GST RFD-02. In the event deficiencies are noted and communicated to the applicant, then the applicant would have to file a fresh refund application after rectifying the deficiencies.

The court held that, as neither any acknowledgment in FORM GST RFD-02 has been issued nor any deficiency memo has been issued in RFD-03 within time line of fifteen days, the refund application would be presumed to be complete in all respects in accordance with subrule (2), (3) and (4) of Rule 89 of CGST/DGST Rules.

Whether the GST officer can issue a show cause notice and pass an order in RFD-04/06, where the refund application is not re-submitted after the issuance of deficiency memo?

CBIC has clarified in Para 7.2 of the Circular No. 59/33/2018-GST dated 4th September, 2018, that, show-cause-notices are not required to be issued where deficiency memos have been issued. A refund application which is re-submitted after the issuance of a deficiency memo shall have to be treated as a fresh application. No order in FORM GST RFD-04/06 can be issued in respect of an application against which a deficiency memo has been issued and which has not been resubmitted subsequently.

Will the period of limitation of 2 years apply in case of a fresh refund application filed in correction or in response to earlier deficiencies?

CBIC has clarified in Para No. 12 of the Circular No. 125/44/2019-GST dated 18th November, 2019, that, since a refund application filed after correction of deficiency is treated as a fresh refund application, such a rectified refund application, submitted after correction of deficiencies, shall also have to be submitted within 2 years of the relevant date, as defined in the explanation after sub-section (14) of section 54 of the CGST Act.

It is to be noted that, rule 90(3) of the CGST Rules, provides for filing of fresh refund application in case of deficiency memo but it nowhere provides that the calculation of period of limitation shall be counted from the submission of fresh refund application. This point has been clarified by the Circular No. 125/44/2019-GST. On reading the Circular with Rule 90(3), it is evident that Circular goes beyond the scope of sections/rules made under the Act. Accordingly, it is a settled principle that if the circular is contrary to the legal provisions thereby it is non-est in law as held by the Hon’ble SC in the case of Commissioner V/s. Ratan Melting and Wire Industries – 2008 (10) TMI 5.

Moreover, in the pre-GST era, there are catena of judgments, wherein it has been held that time limit (i.e. period of limitation) is to be computed from the date on which refund/rebate claim was originally filed. High Court and CESTA Tribunal, have held in the following cases that original refund/rebate claimed filed within prescribed time limit laid down in section 11B of the Central Excise Act, 1944 and the claim resubmitted along with some required documents/prescribed formats on direction of department after the said time limit cannot be held time barred as the time limit should be computed from the date on which rebate claim was initially filed.

- M/s IOC Ltd. 2007 (220) ELT 609 (GOI)
- M/s Saurabh Steel Udhyog 137/CE/DLH/10
- CCE Delhi-I V/s. Aryan Export & Ind. 2005 (192) ELT 89 (DEL.)
- A Tosh & Sons Pvt. Ltd. V/s. ACCE 1992 (60) ELT 220 (Cal.)
- CCE Bolpur V/s. Bhandiguri Tea Estate 2001(134) ELT 116 (T. Kol.)
- Good Year India Ltd. V/s. CCE Delhi 2002 (150) ELT 331 (T.Del)
- CCE Pune-I V/s. Motherson Sumi Systems Ltd. 2009 (247) ELT 541 (T. Mum.)

Before Parting:

The act of issuance of deficiency memo is indirectly leading to rejection of refund claim, wherein no opportunity of being heard is given to the applicant. Though, the applicant will again file the refund application, but consider a situation wherein the application is submitted in the last week of the due date and a deficiency memo is issued; or a situation wherein refund is not processed till 50-60 days and then a deficiency memo is issued. These all will lead to blockage of working capital and loss of interest to the applicant.

Trade and Industry are expecting necessary directives on the above; as one of them is restricting their right to claim refund and another is resulting into delay in processing of refund claim and loss of interest.