Office of the

Commissioner of State Tax,

(GST), 8th floor, GST Bhavan,
Mazgaon, Mumbai-400010.

INTERNAL CIRCULAR
(RESTRICTED CIRCULAR FOR OFFICE USE ONLY)

No. JC/HQ-I/GST/ Refund/Internal Cir/02/2017-18 Mumbai, Date: 01/12/2018

Internal Circular No. 35A of 2018.

To,
…………………..
…………………..

Subject:: : Processing of final refund under the GST-Revised

instructions regarding initiation of Audit.

Ref. : (1) Trade Circular No. 49 of 2017 dated 28th Nov. 2017.
(2) Internal Circular No. 24A of 2017 dated 11th Dec. 2017.
(3) Internal Circular No. 27A of 2017 dated 30th Dec. 2017.
(4) Trade Circular 1T of 2018 dated 1st Jan. 2018.
(5) Trade Circular No. 8T of 2018 dated 21st Feb. 2018.
(6) Trade Circular No. 17T of 2018 dated 2nd June 2018.
(7) Internal Circular No. 19A of 2018 dated 18th July 2018
(8) Trade Circular No. 22T of 2018 dated 1st September 2018.
(9) Trade Circular No. 33T of 2018 dated 14th November 2018
(10) Trade Circular No. 22T of 2018 dated 15th November 2018
(11) Trade Circular No. 33T of 2018 dated the 14h November
2018.
(12) Trade Circular No. 34T of 2018 dated the 15th November
2018.

Sir/Gentlemen/Madam,
1. Various Trade and Internal Circular(s) cited at Ref. above, were issued to
explain the procedure for manual processing of Refund claims under GST
law. Central Board of Indirect Taxes and Customs (CBIC) had also issued
various Circulars with regards to the processing of refund under GST.
2. After issuance of Trade Circular 22T of 2018 dated 1st September 2018,
queries have been received from the Departmental Authorities regarding
initiation of Audit proceedings under section 65 of the MGST Act vis-à-
vis processing of balance 10% refund i.e. the final refunds.
3. In view of the queries received from Departmental Authorities, the issue
of initiation of Audit proceedings or demand and recovery proceeding
under the GST Act were deliberated, accordingly, it was decided to delete
1
 Para 1.5 and 4 of PART-B of the Trade Circular 22T of 2018 dated 1st
September 2018. In view of the said decision the Para-1.5 and 4 of
the PART-B of the said Trade Circular (No. 22T of 2018) are deleted
and revised instructions are given hereinbelow:
4. The instruction vide Para-1.5 of the Trade Circular 22T of 2018 dated 1st
September 2018 were given on the background of delayed availability of
the GSTR-2A on the SAP system i.e. earlier after raising the request on
the SAP portal, the fetching of GSTR-2A data was taking 24 to 48 hours
or even more. However, now, this data of GSTR-2A qua request gets
available in less than two hours. On this background, it is decided that
the EIU shall not make the data available as stated in that Circular. The
instructions in this behalf stands modified as above.
5. In exercise of the powers conferred under section 168(1) of the
Maharashtra Goods and Services Tax Act, 2018 (hereinafter referred to
as “MGST Act”) and for ensuing uniformity, the following conditions and
procedure are laid down for the purpose of processing of refund.
6. Audit as per section 65 of the MGST Act:
6.1. Designation of State tax authorities as “proper officer” and
Delegation of power to initiate Audit as per section 65 of the
MGST Act:
(1) The Commissioner of State tax, Maharashtra State, has vide
Order dated 10th October 2017 designated Deputy
Commissioner of State Tax, Assistant Commissioner of State
Tax and State Tax Officer as “proper officer” and has alongwith
other sections also delegated the powers under section 65 of
the MGST Act to the aforesaid Authorities.
(2) Accordingly, section 65 of the MGST Act empowers the tax
authorities to undertake the Audit.
6.2. General procedure to be followed for Audit:
(1) In case the Nodal Officer decides to undertake the Audit, then
he/she shall issue a notice in FORM-GST-ADT-01. Depending
upon the record to be verified he/she may decide whether the
Audit is to be carried out at the business premises of the tax

2
 payer or at the office concerned. The place at which the Audit
is to be carried out shall be expressly stated in the said Notice.
(2) The Nodal Officer while fixing the date on which the Audit is to
be carried out shall give clear 15 days’ time period. The Audit
Notice shall also mention the record to be verified. Notice for
Audit shall be given for a financial year.
(3) The Audit findings shall be communicated to the Tax payer in
FORM-GST-ADT-02.
(4) In case the Tax payer accepts the Audit findings and make the
payment of tax, interest and penalty as determined, through
FORM-GST-DRC-03 then the Audit proceeding shall be closed
and the closure of the Audit proceeding shall be communicated
to the said tax payer.
(5) However, in the cases where the tax payer disputes the Audit
findings and refuses to make the default good or fails to pay the
amount as determined then, in all such cases, as provided
under section 65(7) of the MGST Act, the proceeding for
demand and recovery shall be initiated as per the provisions of
the section 73 or 74 of the MGST Act.
6.3. No Audit in case of refund on account of Excess Balance in Cash
Ledger:
(1) It may be noted that the Audit procedure discussed in this
Internal Circular shall not be applicable to the processing of
claim of refund on account of Excess Balance in Cash Ledger.
(2) In other words, the refund on account of Excess Balance in
Cash Ledger, shall be given without Audit.
6.4. Initiation of Audit under certain Circumstances: The Audit as
per provisions of section 65 of the MGST is to be initiated in the
following circumstances:
6.4.1. Where the,-
(a) provisional refund of 90% or, as the case may be,
balance (Final) refund of 10% is granted i.e. the order
in FORM-GST-RFD-04 or, as the case may be, FORM-
GST-RFD-06, respectively, before the date of issuance
3
 of Internal Circular 19A of 2018 dated the 18th July
2018; or
(b) final refund of 10% is pending as on the date of
issuance of this Circular or same is granted on or after
the date of issuance of Internal Circular 19A of 2018
dated the 18th July 2018; or
(c) final refund of 10% is to be given at any time on or after
the issuance of this Circular,
then the decision about Audit in all aforesaid
contingencies shall be undertaken as per the guidelines
given hereinbelow:
6.4.2. Where on scrutiny and verification, it is noticed that there
is,-
(a) no mis-match of ITC;
(b) no un-match of ITC;
(c) no in-admissible/in-eligible ITC
(d) no discrepancy in the refund claimed and eligible
refund;
(e) no discrepancy related to the outward supply or output
tax liability,
then in such cases there is no necessity to initiate Audit
proceedings as per section 65 of the MGST Act. In all such
cases the Nodal Officer shall process the refund and issue
refund order in FORM-GST-RFD-06, subject to the
fulfillment of requirements as provided in the Trade/Internal
Circular(s) issued in this behalf.
6.4.3. Where on scrutiny and verification, it is noticed that there is
a,-
(a) mis-match (supplier has passed on less ITC but buyer
has claimed more ITC or vice versa);
(b) un-match [buyer has claimed ITC however, supplier (in
GSTR-1 of that month or subsequent month) has not
disclosed any supply to said buyer] of ITC;
(c) in-admissible/in-eligible ITC
4
 (d) discrepancy in the refund claimed and eligible refund ;
(e) any other discrepancy related to the outward supply or
output tax liability,
on noticing one or more of the aforesaid discrepancies then
a show-cause notice in FORM-GST-RFD-08 shall be issued
asking the tax payer to show-cause as to why the refund on
account of one or more discrepancies listed above shall not
be rejected. The tax payer may be advised to make the
payment with the use of FORM-GST-DRC-03 equal to the
amount of refund proposed to be rejected with interest and
penalty, as may be applicable.
6.4.4. In response to the show-cause notice issued in FORM-GST-
RFD-08 the tax payer is required to file reply in FORM-GST-
RFD-09 within 15 days from the date of receipt of the notice
in FORM-GST-RFD-08. The tax payer may accept the
contention given therein or may object to the proposed
rejection of refund. In the former case, the tax payer will
prefer to make the payment equal to the amount of refund
rejected with the interest and penalty, as may be applicable;
with the use of FORM-GST-DRC-03. Whereas, in the latter
case the Nodal Officer needs to examine the evidences
available on the record and if in his/her opinion, the
evidences available on the record are sufficient, then the
demand and recovery proceedings as given in section 73 or
74 of the GST Act shall be initiated with the issuance of
Show-cause notice in FORM-GST-DRC-01.
6.4.5. However, in case the evidences are in-sufficient for issuance
of show-cause notice or to build a proper case so as to
sustain the demand under section 73 or 74, the Nodal Officer
may initiate the Audit proceedings as per section 65 of the
MGST Act.
6.4.6. In case the tax payer accepts the rejection of refund and
pays the amount equal to the refund so rejected with
applicable interest and penalty, if any, through FORM-
5
 GST-DRC-03 then there is no necessity to initiate Audit
proceedings.
6.4.7. Where the tax payer does not agree to the contentions stated
in notice in FORM-GST-RFD-08, then the initiation of Audit
proceedings shall be decided as explained in the succeeding
paragraphs and subject to the remarks given in the column
(f) of the Table-1 below:
6.4.8. The cases involving aforesaid contingencies are explained
with the examples that are given in the Table-1, Table-2 and
Table-3 below:
Table-1
(Figures in Rs.)
Difference between
Provisional
refund claimed and Whether
refund Balance
refund to be granted Audit
granted refund
Sr. Refund (Due to mis-match need to
under order to be
No. claimed or un-match in ITC be
in Form- granted
or due to any other initiated
RFD-04 (10%)
reason) Yes/No
(90%)

(a) (b) (c) (d) (e) (f)

(1) 6,00,000 5,40,000 60,000 Nil No
(2) 6,00,000 5,40,000 60,000 Upto 60,000 Yes
(3) 6,00,000 5,40,000 60,000 More than 60,000 Yes

(1) The cases falling under Serial No. (1) above i.e. the scenarios
given in Para- 6.4.2, then in such cases there is no need to
initiate Audit as per section 65 of the MGST Act. In all such
cases Nodal Officer shall process the refund and issue the order
in FORM-GST-RFD-06. Needless to say that such grant of
refund should be in accordance with the requirements given in
the Trade/Internal Circular(s) issued in this behalf from time to
time.
(2) The refund cases falling under Sr. No. (2) and (3) above, i.e. the
scenarios given in Para-6.4.3, where balance refund which is
found in-admissible/in-eligible or mis-match or un-match is
6
 upto 10% or more than 10%, then, under aforesaid
circumstances, the refund order in FORM-GST-RFD-06, shall
be issued after following the procedure given in Para 6.4 above.
In case the tax payer does not accept the contention given in
the notice in FORM-GST-RFD-08, then the order in FORM-
GST-RFD-06 shall be issued showing the total refund claim,
amount allowed as provisional refund, or the final refund, as
the case may be, and the amount of refund rejected.
(3) After issuance of FORM-GST-RFD-06, the Nodal Officer need
to examine the evidences available on the record and if in his
opinion, the evidences available on the record are sufficient,
then the demand and recovery proceedings as given in section
73 or 74 of the MGST Act shall be initiated with the issuance of
show-cause notice in FORM-GST-DRC-01.
(4) However, in case the evidences are in-sufficient for issuance of
show-cause notice or to build a proper case so as to sustain the
demand under section 73 or 74, the Nodal Officer shall initiate
the Audit proceedings as per section 65 of the MGST Act.
6.5. Rejection of refund on certain grounds and re-credit procedure
to be followed:
6.5.1. Cases falling at Sr. No. (2) of the Table-1 above:
(1) In this scenario say the applicant is an exporter of goods
without payment of Integrated tax (IGST) and seeks the
refund of the accumulated input tax credit. Further,
presume that the said tax payer has claimed refund of
ITC on account of capital goods for which he is not
eligible to claim refund. [Please see section 54(3)] and in
this case the difference between refund claimed and
refund sanctioned is upto Rs. 60,000/- (i.e. upto 10%)
then in all such cases the following procedure shall be
followed:
(2) In this example say out of balance refund of Rs.
60,000/- refund of Rs. 40,000 is eligible to be

7
sanctioned as it fulfills all the legal requirements.
Therefore, refund of Rs. 20,000/- is disallowed.
(a) Out of this Rs. 20,000/- in-eligibility/in-
admissibility etc. of ITC is given in the Table-2 below:

Table-2
Sr. Reason for in-eligibility/ Amount
No. in-admissibility of ITC
(a) (b) (c)
(1) Capital Assets 5,000
(2) Mis-match, Un-match etc. 9,000
Due to contingencies given in 6,000
(3)
section 16, 17, 18, 19 etc.
TOTAL 20,000

(b) As presented in Table-2:

(i) Sr. No. (1) above:
 As shown at Sr. No. (1) of the Table above,
Rs. 5,000/- ITC is eligible on account of Capital
Assets of which the tax payer is not entitled to
claim refund but may utilize the same for
payment of output liability. However, such
refund need to be rejected. Therefore, rejection
of claim for refund of input tax credit of Rs.
5,000/- on account of non-entitlement of
refund of accumulated credit pertaining to the
Capital Assets, as discussed above, the Nodal
Officer shall re-credit the rejected amount to
the electronic credit ledger of the claimant
using FORM GST RFD-01B.
 It may also be noted that there is no need to
initiate the action for recovery of the amount of
Rs. 5,000/- which may remain in the Credit
Ledger or may be utilized towards the payment
of output tax. Further, re-credit of this amount

8
 of Rs. 5,000/- can only be done on submission
of an undertaking to the effect that said tax
payer shall not file an appeal or in case appeal
is filed, then the re-credit will depend on the
outcome of the appeal.
(ii) Sr. No. (2) and (3) of the Table-2 above:
 As shown at Sr. No. (2) and (3) of the Table-2
above, ITC of Rs. 9,000/- and Rs. 6,000/- i.e.
total ITC of Rs. 15,000/- is in-admissible due to
the reasons given in column (b) of the said
Table.
 The facts as aforesaid i.e. in-admissibility of the
ITC and thereby non-entitlement of refund shall
be brought to the notice of the tax payer by
issuing notice in FORM-GST-RFD-08 pointing
out the aforesaid discrepancies and asking the
applicant to show cause as to why the refund of
Rs. 15,000/- shall not be rejected. It may be
noted that the show-cause notice shall
expressly mention the reasons i.e. the in-
admissibility of the ITC on account of mis-
match or un-match or other reasons etc.
 If evidences available on record are in-
sufficient, then the proceedings of Audit as per
section 65 of the MGST Act shall be initiated.
However, as discussed above, in case necessary
supporting documents and evidences available
on the record are sufficient, then the Nodal
Officer shall issue a show-cause notice to
initiate the Demand and Recovery as per
section 73 or 74 of the MGST Act.
 In case of rejection of claim for refund of Rs.
15,000/-, the rejected amount shall be re-
credited to the electronic credit ledger of the
9
 claimant using FORM GST RFD-01B only after
the receipt of an undertaking from the claimant
to the effect that he/she shall not file an appeal
against the said rejection or in case he/she files
an appeal, the same is finally decided against
the claimant, as has been laid down in rule 93
of the MGST Rules.
 It may be kept in mind that re-credit of rejected
refund and recovery of the same i.e. of Rs.
15,000/-, a demand notice i.e. the adjudication
order shall have to be simultaneously issued to
the claimant under section 73 or 74 of the
MGST Act, as the case may be.
 In case order is passed due to the facts
discussed above, as per sub-section (9) of
section 73, or sub-section (9) of section 74 of
the MGST Act, as the case may be, the said
amount shall be added to the electronic liability
register of the claimant through FORM GST
DRC-07.
(c) Alternatively, in case the claimant desires
voluntarily to pay this amount of Rs. 15,000/- along
with interest and penalty, as applicable, on
communication of the discrepancies in FORM-GST-
RFD-08 or before service of notice in FORM-GST-
DRC-01 under section 73 or 74, and intimate the
same to the Nodal Officer in FORM GST DRC-03
about the payment of the amount determined in
accordance with sub-section (5) of section 73 or sub-
section (5) of section 74 of the MGST Act, as the case
may be, read with sub-rule (2) of rule 142 of the
MGST Rules. In such cases, the need for passing
Order under section 73 or 74 of the MGST Act and
serving a demand notice will be obviated. Once the
10
 tax payer makes the payment as aforesaid through
FORM-GST-DRC-03 to the extent of refund wrongly
paid or ITC found in-eligible with the applicable
interest and penalty, if any, then such cases shall
not be taken for Audit.
(d) However, in case the tax payer disagree to make
payment as above, then under such circumstances,
initiation of proceedings for Audit u/s 65 or for
demand and recovery as per section 73 or 74 of the
GST Act shall be initiated as discussed in the
preceding Paragraphs.
6.5.2. Cases falling at Sr. No. (3) of Table-1 above:
(1) In order to better explain the case following at Sr. (3) of
the Table-1 above, an example is given in Table-3 below:
Table-3

Amount of Balance Amount

refund refund Final of
Sr. Act amount refund
(provisional- refund
No. Name (10%) rejected
90%) allowable
(In Rs.) (In Rs.)
(1) IGST 1,80,000 20,000 1,55,000 45,000
(2) CGST 1,80,000 20,000 1,55,000 45,000
(3) SGST 1,80,000 20,000 1,55,000 45,000

(2) In this case the provisional refund of 90% has already

been processed and refund of Rs. 1,80,000/- is given
accordingly. However, on scrutiny of the record i.e. GSTR-
1, GSTR-2A, GST-RFD-01A, Statement of invoices and
other documents including the documents related to
outward supply, it is seen that the said tax payer is
entitled to claim the refund of Rs. 1,55,000/-. As result,
it is noticed that the tax payer is not entitled the refund
of Rs. 45,000/-. This fact about the excess claim/wrong
claim of refund may be brought to the notice of the
applicant and a show-cause in FORM-GST-RFD-08 may

11
 be issued and applicant may be asked as to why this
refund should not be rejected and recovered.
(3) In effect, in this case, the tax payer has claimed excess
refund of Rs. 45,000/-, the amount which is already
debited from the credit ledger at the time of uploading the
refund application in FORM-GST-RFD-01A. This excess
claim of refund need to be rejected after giving the said
tax payer a reasonable opportunity of being heard.
(4) However, as discussed above, it may be kept in mind that
the refund of Rs. 25,000/- has been wrongly granted and
recovery of the said amount need to be undertaken. These
facts i.e. the re-credit of the rejected refund of in-eligible
ITC and the recovery of the amount so re-credited i.e. Rs.
45,000/-+ refund of Rs. 25,000/-=Rs.70,000/- shall be
followed simultaneously as discussed in the succeeding
paragraphs.
(5) Recovery of refund of Rs. 25,000/- wrongly paid and
ITC of Rs, 45,000/- found in-admissible:
(a) In above example it is seen that the tax payer has
been wrongly granted the refund of Rs. 25,000/-.
Further the ITC Rs, 45,000/- is also found in-
admissible. Therefore, recovery of Rs. 25,000/- of
the refund wrongly paid in cash (from Electronic
Cash Ledger)+ and rejected amount of refund f Rs.
45,000/- (ITC found in-admissible) becomes
essential.
(b) The re-credit of the rejected refund of in-eligible ITC
and the recovery of the amount so re-credited i.e. Rs.
45,000/-+ refund of Rs. 25,000/-=Rs.70,000/- shall
be followed simultaneously. These facts shall be
brought to the notice of the tax payer. In case the
claimant tax payer desires voluntarily to pay this
amount of Rs. 70,000/- ( Rs. 45,000/-+ wrong
refund of Rs. 25,000/-) along with interest and
12
 penalty, as applicable, on communication of the
discrepancies or before service of notice under
section 73 or 74, and intimate the same to the Nodal
Officer that he has made the payment of Rs.
70,000/- and applicable interest and penalty, as
above, in FORM GST DRC-03 in accordance with
sub-section (5) of section 73 or sub-section (5) of
section 74 of the MGST Act, as the case may be, read
with sub-rule (2) of rule 142 of the MGST Rules. It
shall also be kept in mind that tax payer need to
make the payment of Rs. 25,000/- in cash only. In
other words, the tax payer is not entitled to adjust
refund wrongly paid against the available credit in
the Electronic Credit Ledger.
(c) In such cases i.e. where the tax payer debits (pays)
Electronic Cash Ledger for Rs. 25,000/-, and
Electronic Credit Ledger for Rs. 45,000/- with
interest and penalty, as applicable, voluntarily, then
the need for passing an order under section 73 or 74
and serving a demand notice will be obviated. Once
the tax payer makes the payment as discussed
above through FORM-GST-DRC-03 to the extent of
refund wrongly paid and ITC found in-admissible
with applicable interest/penalty, then to this
extent such case shall not be taken for Audit.
(d) However, in case the tax payer disagrees for
voluntary payment of refund wrongly paid (Rs.
25,000/-) and refund rejected (Rs. 45,000/-)
alongwith applicable interest and penalty then it
becomes necessary to examine as to whether
sufficient evidences are available on the record.
(e) In case sufficient evidences are available, then
action as per provisions of section 73 or 74 of the
MGST Act shall be initiated and a show-cause notice
13
 in FORM-GST-DRC-01 shall be issued and the
demand and recovery proceedings as per section 73
or 74 of the MGST Act shall be initiated without
resorting to the Audit.
(f) In case order is passed under sub-section (9) of
section 73, or sub-section (9) of section 74 of the
MGST Act, as the case may be, the said amount shall
be added to the electronic liability register of the
claimant through FORM GST DRC-07.
(6) However, in case evidences in this behalf are not
sufficient then Audit as per section 65 of the MGST Act
becomes imperative. After completion of Audit, a Show-
cause notice in FORM-GST-DRC-01 shall be issued for
recovery of Rs. 45,000/-+Rs.25,000/- as per provisions
of section 73 or 74 of the MGST Act. The re-credit and the
recovery of the said amount shall be followed
simultaneously as discussed in the preceding
Paragraphs. The steps discussed in the preceding
Paragraphs shall be followed.
6.5.3. The refund relating to the inverted tax structure, or refund
on account of deemed export, similar procedure as
explained above be followed for grant or rejection of the
refund. It may also be kept in mind that there is no provision
to grant 90% refund as provisional within the 15 days from
the receipt of the refund application in FORM-GST-RFD-01A.
6.6. Audit or demand and recovery proceedings in the cases which
are re-assigned permanently of for processing of refund:
(1) Re-assignment of the cases due to permanent transfer of
the case from one officer to another:
(a) In case of transfer or re-assignment of cases from one
officer to the other (Eg. Nodal to LTU) then, in all such
cases the Audit or the proceedings for Demand and
Recovery shall be undertaken by the officer to whom the
case is transferred.
14
 (b) The record of refund pertaining to such cases available
shall be transferred accordingly.
(2) Re-assignment of the cases for processing of refund due to
monetary limit:
(a) As per the instructions given in the Internal Circular 14A
of 2018 dated 2nd June 2018, the cases are re-assigned by
the concerned Joint Commissioner to the Nodal Officer
who is empowered to process that refund. Where the
provisional or final refund of a case is processed by any of
the officer as per the monetary limit (State Tax Officer or
Assistant Commissioner of State Tax or Deputy
Commissioner of State Tax) and if it is found that Audit
under section 65 or the Demand and recovery then it shall
be undertaken by the Officer who has processed the refund
of the higher amount in that case at any time during the
financial year.
(b) The methodology given hereinabove shall be followed. The
concerned Joint Commissioner shall personally monitor
the amount of refund sanctioned, rejected and re-credited.
7. The reference of Audit appearing in Trade Circular 22T of 2018 dated
1st September 2018 shall stand modified as above and rest of the
Trade Circular remains unchanged. Audit as per provisions under
section 65, or the procedure for demand and recovery under section 73
or 74 of the MGST Act, and as laid down under this Internal Circular
shall be applicable for the period 1st July-2017 to 31st March 2018. It may
be noted that in case the tax payer has filed the refund application for
one or more periods and there are circumstances as discussed above,
then the Demand and recovery proceedings under section 73 or 74 of the
MGST Act, shall be undertaken for the entire period of 1st July 2017 to
31st March 2018.
8. The instructions in respect of the Audit or the demand and recovery
provisions for period starting on or after 1st April 2018 shall be given
subsequently. However, in exceptional circumstances, in case the refund
processing officer, find it necessary, to initiate the Demand and Recovery
15