The 48th GST Council meeting, held on December 17, 2022, addressed the issue of GST refunds for buyers in cases of flat cancellations or termination of service supply contracts. To facilitate this, the government issued:

• Notification No. 26/2022 – CT (December 26, 2022)
• Circular No. 188/20/2022-GST (December 27, 2022)

This resolution was long-awaited by the industry and will help reduce disputes between buyers, service providers, and real estate developers.

Understanding the GST Refund Process for Buyers

Refund Eligibility for Unregistered Buyers [Rule 89(2)(ka), Circular 188/20/2022-GST]

Who Can Claim a Refund?

Unregistered buyers can claim a GST refund if their agreement for a service supply contract is canceled and the time limit for issuing a credit note (as per Section 34(1) of the CGST Act, 2017) has expired.

Examples:

• A buyer booked a flat and paid the full amount (including GST) in FY 2018 but later canceled the deal in 2021.
• A person paid GST-inclusive premium for a long-term insurance policy but later canceled the policy.

Procedure for Unregistered Buyers to Claim GST Refund

Step 1: Obtain a Temporary GST Registration

• A new functionality on the GST portal allows unregistered individuals to obtain a temporary GST registration for refund purposes.
• The unregistered buyer must register on the GST portal using their PAN.
• The temporary GST registration must be taken in the same State/UT where the supplier is registered.
• The applicant must complete Aadhaar authentication as per Rule 10B of the CGST Rules.
• Bank account details (linked to the applicant’s PAN) must be provided for refund credit.
• If the supplier is registered in multiple States/UTs, separate temporary registrations must be obtained in each relevant State/UT.

Step 2: File a Refund Application

• The refund application must be submitted in Form RFD-01 under the category ‘Refund for Unregistered Person’ along with Statement 8 and necessary documents.

Required Documents:

1. Statement of invoices (invoice number, date, value, tax paid, and payment details).
2. Copy of invoices and proof of payment made to the supplier.
3. Agreement/contract copy with the supplier.
4. Cancellation/termination letter issued by the supplier.
5. Proof of refund amount received from the supplier.
6. Certificate from the supplier confirming:
   • GST was paid on the relevant invoices.
   • No tax adjustment was made via a credit note.
   • No GST refund has been claimed or will be claimed by the supplier.
7. Separate refund applications must be filed for invoices from different suppliers.

Key Points on Refund Timelines and Amount

Time Limit for Refund Claim

• A refund claim must be submitted within two years from the date the supplier issues the cancellation letter.

Refund Amount Criteria

• The refund cannot exceed the total tax amount mentioned on the invoices for which the claim is made.
• If the supplier refunds only a portion of the amount initially paid by the buyer, then the GST refund will be granted only on the proportionate amount.

Cases Where Refund is Not Allowed

• If the time period for issuing a credit note (under Section 34 of the CGST Act) is still valid, the refund claim cannot be filed.

Processing by GST Officers

• The proper officer will verify the refund application.
• Once verified, the officer will issue a detailed order along with the refund sanction order (Form GST RFD-06).

This new mechanism provides relief to buyers and enhances transparency in tax refunds, reducing conflicts between service providers and consumers.