TRADE CIRCULAR
No.VAT/Refund/ACST VAT 1
Trade Cir - 22T of 2010,
Date: 05/10/2010
Sub:Grant of Refunds
Fresh Guidelines for Disbursement of Refunds
Gentlemen/Sir/Madam,
Background:
After the introduction of VAT, a large number of refund applications are being filed, as compared to the BST period. The department is undergoing transition due to which business processes have undergone many changes. As a result, a number of circulars were issued from time to time to lay down the procedure for the granting of refund, modifying the procedure etc. As a further step towards e-governance, the refund applications are now taken electronically andMahavikasmodule for refunds is now operational. The entire processing of refunds has now .shifted on electronic platform. Also, due to electronic returns and electronic audit forms 704 it becomes faster to carry out the cross checking of transactions electronically. Due to electronic cross checking, visits of inspector for manual cross checking to the dealer's place of business could be avoided. Further, section 51 of MVAT Act is amended to provide for grant of part refunds. Of late, some irregularities are noticed in granting of refunds atPalghar. Due to all these changes, it becomes necessary to review the process of grant of refunds so as to speed up the process of disbursement of refunds after proper scrutiny. Also, due to the existence of number of circulars, it sometime becomes difficult for dealers as well as departmental officers to keep a track of the circulars. In view of this, a review of all the Trade Circulars on refund, pertaining to VAT issued after 1st April 2005 is taken and in suppression of all earlier Trade Circulars relating to grant of refunds this circular is now issued.
This circular is divided into following parts:
Part A / General InformationPart B / Refunds against Bank Guarantee
Part C / Fast Track Refund Scheme
Part D / Refunds under the Exporter Refunds Scheme
Part E / Part Refund Scheme for Annual Refunds (for periods from 1/4/08 onwards)
Part F / Refund After Refund Audit
Part G / Annexures
Part A
General Information
1.Applicability of this circular
The instructions/guidelines, relating to granting of refunds, contained in this circular shall be applicable for ail refund applications received after the date of issue of this circular. If in any case, refund has already been granted to the dealer, but the refund audit is pending, then the instructions relating to the Refund Audit in part F of this circular would be applicable. It goes without saying that in case either the refund has been granted or the audit has been completed before the issue of this circular, the circular instructions prevailing during the relevant time would be applicable.
2.Refunds for PSI Dealers
(a)PSI dealers, holding the Entitlement Certificate are not eligible to claim the Input Tax Credit but may claim refunds in the returns during the year. In these cases, CQB is required to be calculated and hence refund in these cases shall be granted only after completion of the assessment, except in Fast Track Scheme.
(b)The refund shall be granted only in respect of the refund claim which is. due, e.g. in case of a PSI dealer who holds the entitlement certificate for part of an industrial undertaking through investment in an expansion unit and whose production from the old and expansion unit is identifiable, (i.e. production facilities are separate), then in such cases, the refund will be granted only in respect of purchases corresponding to the production of the expansion unit in the total production. Cases in which the investment in expansion unit may or may not result in identifiable (separate) production capacity and / or may result in strengthening/upgrading the existing technology, product quality or quantity, purchases entitled for refund shall be worked out in proportion to the new (PSI) investment in the total investment. This principle shall also be applicable to applications made by PSI unit under the scheme for the refunds against Bank Guarantee, Fast track Refunds Scheme or the Special Refunds Scheme for Exporters, explained in the subsequentparas.
3.Procedure regarding refund application:
A notification has been issued on 21stAugust 2009 providing for filing of refund application in Form 501 electronically. In yew of this notification, all applications for refund in Form 501 shall be uploaded electronically on the department's web site The dealer should make application in form 501 as per his periodicity of returns for the relevant financial year.
Detailed instructions regarding e filing of Form 501, along with theAr.nexureare provided on the department's web site.
4.Different schemes for the grant of refund
Refund applications received after the issue of this circular would be disposed in either of the following manners only. Other than below mentioned schemes, if any other scheme for grant of refund in any of earlier circulars was stipulated (Including the Voluntary Refund Scheme), then the same shall stand discontinued with immediate effect.
(a)Grant of Refund before Refund Audit:A refundmay be granted before the refund audit under the Schemes:
i. Refunds against Bank Guarantee (See Part B)
iiFastTrack Refund Scheme. (See Part C)
(b)Grant of Refund after partial Refund Audit:
i. Special Refunds SchemeForExporters (See Part D)
ii. Part Refunds scheme for Annual Refunds (For the periods 2008-09 and onward). (See Part E)
(c)Refund after Refund Audit. (See part F)
Different schemes for grant of refund are explained in the subsequent parts B, C, D and E of this circular. It may be noted that refunds prior to completion of detailed refund audit, under various schemes stipulated in this circular, will be granted till the due date of filing of audit report in form 704. Further refunds after the date of filing of form 704 shall be granted only after completion of detailed refund audit for the period to which form 704 pertains, e.g. If the dealer is enrolled from 1/4/09, then he will continue to get refunds till all the periods from 1/4/09 to the due date of filing audit Report in form 704 for the year 2009-10, say 31/01/2011. Further refund as per various schemes for the period from 1/2/11 onwards will be granted only after completion of detailed refund audit for the period from 1/4/09 to 31/03/10.
Part B
Refunds against Bank Guarantee
Under this scheme, the dealer can claim refund before the refund audit. Henceforth, procedure for the grant of refund against Bank Guarantee shall be as follows:
a)Legal provisions: As per provisions of section 51(3)(b) of the MVAT Act, 2002, bank guarantee can be obtained from a dealer, before granting the refund. In case, the applicant dealer furnishes the bank guarantee, then the refund shall be granted within one month of the furnishing of the bank guarantee [Section 51(5)].
b)Application for refunds against Bank Guarantee should be made only when the dealer is entitled to make an application under section 51(3)(a) of MVAT Act.
c)Bank: Bank Guarantee should be from any branch of a bank notified as a Government Treasury (MVAT Rule 61). The term, "Government Treasury" is defined under MVAT Rule 2(1) (f). The said definition contains the list of the banks and branches, from which bank guarantee can be submitted. A non-resident dealer may furnish a bank guarantee from any branch, situated outsideMaharashtraof a bank, which is notified as a Government Treasury inMaharashtraunder MVAT Rules.
d)Bank guarantee period: Bank guarantee can be obtained for a maximum period of 36 months.
e)Bank Guarantee amount: Following parameters will be applied to the dealers willing to submit Bank Guarantee for refund
Sr / Category of dealer / Resultofprevious audit / Amountof
refund / Required
BG
1 / Diplomatic Authorities, Consulate Generals and International organisations / Not relevant / 100% / Nil
2 / Government organisations andPSU's / Audit of immediately previous period
completedwithout resulting into discrepancies more than 5% of the claim. / 100% / Nil
3 / All other dealers / Not relevant unless specified by the department. / 100% / 100 %
f)Bank Guarantee format: The format of Bank Guarantee is provided in Annexure 1 of this circular.
g)Grant of refund: Once the Bank Guarantee is accepted, then the refund shall be granted within 20 days without any audit. The dealer can claim refunds by furnishing Bank Guarantees till the due date of furnishing of audit report 704. The subsequent refunds against Bank Guarantee shall be granted only after completing the refund audit of the financial year to which form 704 pertains. If in the refund audit major discrepancies are found, then the dealer cannot claim future refunds by submitting bank guarantees.
h)Refund audit of BG cases: The Refund Audit of the Bank Guarantee cases shall be done on priority as soon as the last date for the audit Report in Form 704 is over. It will be in the interest of the claimant dealers to furnish the required information to the refund authorities urgently. The dealers may please note that while conducting refund audit, if major discrepancies are found, then action will be taken against the dealer, as per the provisions of the MVAT Act, 2002 along with encashment of the Bank Guarantee. In such cases, dealers will not be allowed to avail of refund by giving Bank Guarantee.
i)Release of Bank Guarantee: If after the "Refund Audit", no discrepancies are found, then the BG submitted by the dealer could be released or rolled over for the further period, at the option of the dealer. In case the refund audit does not get completed then the bank guarantee may have to be re rolled or a fresh BG may have to be submitted till the completion of the refund audit. In any case, future refunds will not be given under B.G. till the refund audit is complete.
Part C
Fast Track Refund Scheme
Background of the Scheme:
Some dealers have continuous and large claims of refunds. These dealers are generally big manufacturers and major exporters having extensive distribution network all over India . Since the normal refund audit process takes a longer time to complete, huge amounts of working capital of these dealers get blocked in refunds. Representations had been received from such dealers, requesting to provide a scheme for quicker grant of refunds. Considering the representations received a scheme of fast track refund was declared in 2008. The scheme was modified subsequently considering the feedback received. Under this scheme, the refunds are granted without prior refund audit and without bank guarantee and hence the scope of the scheme is restricted to the specified dealers who fulfill certain conditions.
2.Salient features of this Scheme are as follows:
a)This scheme is optional for the dealers.
b)This scheme is applicable to all the refund claims after 01/04/2009
c)The scheme is restricted for the specified dealers who fulfill certain criterion.
d)Normally, only manufacturers are eligible under this scheme. However, Commissioner may enroll any other dealer other than a manufacturer under this Scheme.
e)Under the scheme, the entire refund as claimed in form 501 by the dealer is granted within 10 days from making an application for refund.
f)The refund is granted without any audit and without Bank Guarantee.
g)The refund audit is conducted immediately after the period of Form 704 is over.
h)Dealer continues to get a refund till the due date of filing of Form 704 for the previous year. Further grant of refund will be only after completion of refund audit for the period to which form 704 relates. Therefore, it will be in the interest of dealers to complete refund audit at the earliest. It may be noted that if during the refund audit major discrepancies are found then the dealers enrollment under the scheme will be cancelled.
i)The dealers enrolled under this scheme are expected to undertake the responsibility of verifying the tax payments by their vendors and if the vendors have not paid the tax, then the dealer shall make the said payment.
j)Since the scheme is open for specified dealers with repute and standing, it is expected that these dealers should adhere to the law. If any dealer is found to be not compliant then the enrollment under the scheme shall be cancelled immediately.
k)The dealers, who were enrolled earlierneednot enroll again, provided they fulfill the conditions, as laid down in this circular.
3.Eligibility conditions for enrolling for the Scheme:
(a)Application for refunds against this scheme should be made only when the dealer is entitled to make an application under section 51(3)(a) of MVAT Act.
(b)Net worth: This scheme is applicable to the dealers, whose net worth of the business is more thanRs. 25crorefor the latest year for which the accounts have been finalized and audited. The formula for calculating the net worth is shown in Annexure 3.
(c)Refund period: This scheme shall be applicable for all the refund claims in respect of periods starting from 1st April 2009.
(d)Refund amount: This scheme is applicable only if the refund claim amount is more thanRs. 5crorefor previous year. In case of dealers, who do not have a previous year or whose refund claim was less thanRs. 5crorein previousyearcan also apply under this Scheme as soon as the refund claim during the year exceedsRs. 5Crore.
(e)Nature of business: Normally, only manufacturers are eligible under this scheme. In case, any dealer other than a manufacturer desires to enroll for the Scheme, the application shall be forwarded to the Commissioner by the concerned Joint Commissioner of Sales Tax with his recommendations.
(f)Certain commodity dealers, not eligible: The dealers, who are dealing in Iron and Steel, Dyes and Chemicals or edible oil by way of sales are not eligible to avail the benefit of this scheme.
(g)Refund Audit of previous year: At least one Refund Audit in respectof ,anyof the previous years should have been conducted and the differential demand, if any in respect of that year should not have exceeded 1% of the claim.
(h)Refund claim above 20%: Refund claim should not exceed by an amount of more than 20% of the claim for the immediately preceding year, unless specifically permitted by the commissioner.
(i)Returns filing of previous period: The claimant dealer should have filed all the returns and Form 704 due for the previous periods.
(j)Responsibility of ITC verification and payment: The claimant dealer should undertake the responsibility of the verification of his ITC claim to check that his vendors have deposited the taxes in respect of his purchases from them. In case the vendors have not deposited the payment, the claimant dealer shall make the payment.
(k)A dealer in whose case some major discrepancies have been noticed in the earlier periods of last 5 years will not be entitled to be enrolled under this scheme.
4.Applicability of the scheme to the newly registered dealers:
a)The benefit of this scheme can be taken even in the first year of registration, containing the effective date of registration.
b)Newly registered dealer shall he eligible for this scheme, as and when it achieves the net worth ofRs. 25Crore.
c)In case of newly registered dealers, the net worth for the latest year for which accounts have been closed and adjusted may not be available. In such cases, net worth shall be calculated for each period of refund in the year of registration and shall be certified by Chartered Accountant/Cost Accountant. The basis for calculating the net worth shall, of course, be the standard accounting practice in India .
d)The condition regarding refund audit of the previous year shall not be applicable to the newly registered dealers for refund claim of first year.
5.Enrollment of the dealer
The dealers who fulfill above conditions can make the application as per annexure 2, for enrollment under this scheme to the Joint Commissioner in charge of the dealers' refund case. Upon receipt of application, the concerned JC shall scrutinize the application and if found that the dealer fulfills all the conditions then he shall enroll the dealer for the grant of refund as per this scheme. If any dealer or the Joint Commissioner has any doubt regarding the interpretation of eligibility conditions, then the same should be referred to the Commissioner of Sales Tax for clarification.
6.GrantOfRefunds: Once the dealer is enrolled under this scheme then his claim of refund should be processed immediately. The dealer shall be granted the entire refund as per his claim in form 501 within 10 days from making an application for refund without audit of books of accounts or submission of bank guarantee. The dealer will continue to get his refund as per his claimtil!thedue date of form 704 for the previous year. At the time of submitting form 70^ for the previous year, the dealer shall declare and make payment of his liability in respect of the previous year to which form 704 relates to the extent of,
a) Un-received CST declarations for all the earlier periods from 1-4-2005. A statement of the CST declarations received/not received till the due date of Form 704 for the previous year shall be furnished.
b) Nonpayment of taxes by the vendors to the extent of his purchases from him.