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GST laws relaxed! Tax paid on cancelled order to be adjusted in returns

Dipak Mondal     April 14, 2020

Predicting major disruption in business activities and cancellations of orders due to coronavirus, the government has further relaxed the Goods and Services Tax (GST) laws. In a circular issue by the Central Board of Indirect Taxes and Customs (CBIC) has come up with instructions and clarifications in situations arising out of cancellation of business orders.

For example, what happens if a supplier receives an advance payment for a service contract for which the supplier has raised an invoice and paid GST? Should he claim refund of tax paid or should he adjust his tax liability in his returns?

The CBIC clarifies that in such as situation the supplier is required to issue a credit note and declare the details of such credit notes in the return for the month during which such credit note has been issued. The tax liability will be adjusted in the return. There is no need to file a separate refund claim.

However, if there is no output liability against which a credit note can be adjusted, supplier may file a claim under "Excess payment of tax, if any" through Form GST RFD-01. GST RFD-01 is an online application form for refund. A similar process should be followed if goods supplied by a supplier are returned by the recipient.

For exporters, who use Letter of Undertakings (LUT) to avoid paying GST on goods to be exported, the validity of LUT expiring on 31 March 2020 will be extended till 30 June 2020.

Exported goods are zero-rated, which means no GST is charged on them. But the condition for no taxes being charged is that the exporter has to produce a Letter of Undertaking (LUT) from a bank. LUT has validity up to 12 months.

The circular also clarified that government departments, which are required to deduct TDS on any payments to vendors and suppliers can now deposit the tax by 30 June 2020. This is in line with finance minister Nirmala Sitharaman's 24 March announcement that all due dates for issue of notice, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents, time limit for any compliance under the GST laws where the time limit is expiring between 20 March 2020 to 29 June 2020 should be extended to 30 June 2020.

Also read: India's GDP will contract 6.1% in Q1 FY21: Nomura

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