This circular provides clarification on the refund mechanism for tax paid under the wrong head in cases where a supply initially treated as intra-State or inter-State is later found to be otherwise, in terms of section 77(1) of the CGST Act and section 19(1) of the IGST Act.

It clarifies that the expression “subsequently held” covers not only cases where the nature of supply is determined by tax authorities through scrutiny, audit, adjudication or appellate proceedings, but also cases where the taxpayer himself later realizes and determines that the supply was wrongly classified. Accordingly, refund under the said provisions is available in both situations, provided the taxpayer pays tax under the correct head.

The circular further explains the time limit for filing refund claims in light of the insertion of sub-rule (1A) to rule 89 of the CGST Rules, 2017. Refund claims must be filed within two years from the date of payment of tax under the correct head. However, where such correct payment was made before 24 September 2021, the refund application can be filed within two years from that date.

Illustrative examples are provided to clarify computation of the limitation period. It is also clarified that refund under these provisions will not be available where tax adjustment has been made through issuance of a credit note under section 34 of the CGST Act. The clarification applies equally to pending and disposed refund applications.