GST Refund Clarifications: Key Highlights of Circular No. 135/05/2020-GST

2025-03-03 06:17:20 02March

02March

GST Refund Clarifications: Key Highlights of Circular No. 135/05/2020-GST

<h4>Introduction</h4>The Ministry of Finance issued Circular No. 135/05/2020-GST on March 31, 2020, to address multiple concerns related to GST refunds. This circular brings important clarifications regarding refund applications, ITC restrictions, HSN/SAC requirements, and procedural changes to ensure uniform compliance across all GST field formations.<hr><h3>Key Highlights</h3><h3>1. Bunching of Refund Claims Across Financial Years</h3><ul><li>Earlier, businesses could not club refund claims across different financial years (as per Circular No. 125/44/2019-GST).</li><li>The Delhi High Court (Pitambra Books Pvt. Ltd. case) ruled that such restrictions were not legally justified.</li><li>Now, businesses can claim refunds across financial years, particularly benefiting merchant exporters who make purchases in one year and export in the next.</li></ul><hr><h3>2. No Refund for ITC Accumulated Due to GST Rate Reduction</h3><ul><li>Businesses cannot claim a refund for ITC that accumulated due to a GST rate reduction on the same goods.</li><li>Example:<ul><li>If a trader buys goods at 18% GST and later the GST rate drops to 12%, ITC accumulated due to this reduction will not be refunded.</li></ul></li><li>Refunds apply only when input GST rates are higher than output GST rates, not when the same product's rate is reduced over time.</li></ul><hr><h3>3. Change in Refund Process for Tax Paid on Non-Zero-Rated Supplies</h3><ul><li>Refund claims on tax paid for non-zero-rated supplies (other than exports and SEZ supplies) must now be adjusted proportionately based on how tax was initially paid (cash vs. ITC).</li><li>New changes:<ul><li>Refunds for such cases will be issued partly in cash and partly as a re-credit to the ITC ledger.</li><li>The proportion follows how much tax was paid in cash vs. ITC originally.</li></ul></li><li>This prevents businesses from wrongly encashing ITC credits instead of adjusting them against future tax liabilities.</li></ul><hr><h3>4. Restriction on Refund for ITC Not Reflecting in GSTR-2A</h3><ul><li>Refund of accumulated ITC is now restricted to only those invoices appearing in GSTR-2A (filed by suppliers in GSTR-1).</li><li>Earlier, businesses could submit invoices manually for ITC refund claims.</li><li>This ensures better compliance and transparency, preventing fraudulent refund claims for unverified purchases.</li></ul><hr><h3>5. Mandatory HSN/SAC Code in Refund Applications</h3><ul><li>Businesses must now include HSN/SAC codes for ITC refund claims.</li><li>This helps tax authorities differentiate between inputs, services, and capital goods, especially in cases where ITC refunds are restricted for certain categories.</li><li>If a supplier is not required to mention HSN/SAC on an invoice, the applicant does not need to provide it.<a href="https://cms.plasament.com/storage/nisha/circular-refund-135-5-2020.pdf">circular_refund_135_5_2020</a>  </li></ul>