GST Refund Process for Unregistered Buyers on Contract Cancellation

GST Treatment on Cancellation of Contract/Agreement of Sale of Flat/Building or Insurance Policy for Unregistered Buyers

This blog discusses the GST implications when a contract or agreement related to the sale of a flat or building, or an insurance policy is cancelled, specifically focusing on situations where the buyer or insurer is not registered under GST.

Grounds for Refund

Agreement with Builder: An unregistered individual has entered into a contract with a builder for construction services and has paid the applicable tax/GST.
Insurance Premium Payment: In scenarios involving long-term insurance policies, where the entire premium is prepaid along with GST, a refund may be necessary if the policy is terminated prematurely, particularly if the timeframe for issuing a credit note has elapsed. Consequently, insurance providers will only refund the proportionate premium minus GST.
Reasons for Cancellation: The contract or agreement may have been cancelled due to reasons such as incomplete construction or delays.
Expired Timeframe for Credit Note: At the time of cancellation, if the period to issue a credit note (the thirtieth day of November following the end of the financial year in which the supply was made) has expired, the unregistered person can claim a GST refund. If the timeframe has not expired, suppliers can simply refund the tax collected without the need for unregistered individuals to file a refund claim.

Unregistered persons can seek a refund of GST paid to the builder or insurance company by following the procedure outlined below.

Procedure for Filing Refund Application

Temporary Registration: The unregistered individual must obtain a temporary registration on the common portal using their Permanent Account Number (PAN).
Selection of State/UT: During registration, the individual should select the same State/UT where the supplier is registered. If the suppliers are registered in various States/UTs, the applicant must obtain temporary registration in each relevant State/UT.
Aadhaar Authentication: Complete Aadhaar authentication as part of the temporary registration process.
Bank Account Details: Enter bank account details (in the applicant's name and linked to their PAN) for the refund process.

Forms and Documents Required

Application Form: Submit the refund application in FORM GST RFD-01 on the common portal under the ‘Refund for unregistered person’ category.
Upload Required Documents: The applicant must upload Statement-8 (in PDF format) and all necessary documents as defined by sub-rule (2) of rule 89 of the CGST Rules.
Separate Applications: Applications for refunds must be submitted for each supplier's invoices.
Statement of Invoices: Include a statement (STATEMENT-08 as per CGST Rule 2017) detailing the invoices (number, date, value, tax paid, and payment details) pertinent to the refund claim, alongside copies of the invoices, proof of payment made to the supplier, and the agreement or contract with the supplier.
Supplier Certification: A certificate from the supplier confirming the following:
- He has paid tax on the invoices related to the refund claim.
- The tax amount has not been adjusted with his tax liabilities via credit notes.
- He will not claim a refund for the tax involved in these invoices.

Relevant Date for Filing Refund

The application must be filed within two years from the date the letter of cancellation is issued by the supplier regarding the contract/agreement for supply.

Conclusion

Navigating the GST refund process for unregistered individuals upon the cancellation of contracts for property or insurance services is essential for reclaiming taxes where applicable. By following the outlined procedure and ensuring that all documentation is in order, unregistered persons can facilitate their refund claims efficiently.