It has been a matter of great debate that whether Tax Rate/Classification of Supply be decided in Refund Proceedings or Whether Refund of Inverted Duty Structure be denied as Tax Rate is incorrect without invoking provisions of Section 73/74. For this lets see definition of of “assessment” as provided under the Section 2(11) of CGST Act, 2017 which provides as follows
(11) “assessment” means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment.
Further Section 59 of CGST Act, 2017 relating to self-assessment provides that every registered person shall self-assess the taxes payable under this Act and furnish a return for each tax period as specified under section 39. That Self-assessment has been considered as “assessment” under Section 2(11) of CGST Act, 2017 and rate once decided in self-assessment cannot be altered in refund proceedings and if at all it has been re-decided it can only be done in one of the proceedings which have been covered under “assessment” in GST rather that refund proceedings.
A reference can be made to the decision of Hon’ble Apex Court in the matter ITC Ltd vs CCE, Kolkata Iv on 18 September, 2019 although in Custom Regime, wherein the question before the Apex Court was
The question involved in these appeals is whether in the absence of any challenge to the order of assessment in appeal, any refund application against the assessed duty can be entertained?
The relevant definition of the term “assessment” has been defined under the customs act as under-
“2(2) “assessment” includes provisional assessment, self assessment, reassessment and any assessment in which the duty assessed is nil;”
Hon’ble Apex Court in Para 41 of the Judgement held that
41. It is apparent from provisions of refund that it is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise.
The definition of “assessment” in GST is similar to the one in Customs Act and under both the statutes the term “assessment” includes self-assessment. That Hon’ble apex court as referred above held that provisions of refund are more or less in the nature of execution proceedings and it is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise. Therefore, Hon’ble apex court held that claim for refund cannot be denied unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings.
In case of refund under inverted duty structure, since tax has been self-assessed by the taxpayer while filing of return as per the provisions of Section 59 of CGST Act, 2017, therefore, if at all the rate has to be decided afresh, it can only be decided initiating assessment proceedings under Section 73/74 and not merely invoking refund proceedings under Section 54 as refund proceedings are in the nature of execution proceedings.
That only compliance for the conditions laid down in Section 54 should be verified while performing the verification of refund application filed and if any disallowance of ITC/Change in Rate Structure is to be made, appropriate proceedings under Section 73/74 be initiated.
Link to Part I-Inverted Duty refund Application-Can refund application be rejected by holding that tax rate on outward supplies is incorrect and thereby if higher tax rate would have been applied no refund would have become payable; Can Refund Proceedings take shape of completion of entire assessment proceedings? https://gst-online.com/inverted-duty-refund-application-can-refund-application-be-rejected-by-holding-that-tax-rate-on-outward-supplies-is-incorrect-and-thereby-if-higher-tax-rate-would-have-been-applied-no-refund-would-hav/