Excess Tax Paid, and Refunds to Unregistered Buyers

Two quite different people end up claiming the same kind of refund. The first is a registered supplier that paid more tax than it owed. It may have reported a sale twice, or applied the wrong rate, after the return was filed and could no longer be edited. The second is a home buyer who paid GST on instalments for a flat that was never built, or a policyholder who paid GST on a long-term premium and surrendered the policy. When the contract ended, the builder or insurer returned the money but kept back the tax, because the time to issue a credit note had passed. Both claims are refunds of tax paid. Both turn on the same test: whether the tax was passed on to someone else.

This guide covers the refund on the ground “Excess payment of tax”, and the refund to unregistered persons under Circular No. 188/20/2022-GST. The general procedure (RFD-01, processing, rejection) is in Refund of Unutilised Credit: Who Can Claim and How.

Part 1: a registered person who paid too much

Adjust first, refund if adjustment is not feasible

Not every excess needs a refund. Circular No. 26/26/2017-GST deals with liability over-reported in GSTR-3B. It allows the excess to be reduced in the GSTR-3B of later months. “In cases where such adjustment is not feasible, refund may be claimed.” Corresponding changes are made in GSTR-1 through its amendment tables. Where the invoice itself overstated the tax, section 34 allows a credit note. It must be declared by 30 November following the end of the financial year of the supply, or by the annual return if earlier. From 1 October 2025, the proviso to section 34(2) bars the reduction of the supplier’s liability if a registered recipient has not reversed the credit, or, in other cases, if the incidence has been passed on. How these corrections work is in Correcting Mistakes in Returns.

A refund is needed when adjustment is no longer possible: the business has stopped making taxable supplies, the excess is larger than future liabilities, or the credit note deadline has passed.

The ground, the statement and the declarations

The ground is “Excess payment of tax”. Rule 89(2)(k) requires “a statement showing the details of the amount of claim on account of excess payment of tax and interest, if any, or any other amount paid”. This is Statement 7. Circular No. 125/44/2019-GST, Annexure A, requires with it:

• the undertaking relating to section 16(2)©
• a self-declaration under rule 89(2)(l), if the claim does not exceed two lakh rupees
• a certificate of a chartered accountant or cost accountant in Annexure 2 of RFD-01, under rule 89(2)(m), if the claim exceeds two lakh rupees

Unjust enrichment. Section 54(4)(b) requires evidence that “the incidence of such tax and interest had not been passed on to any other person”. Explanation (ii) to rule 89(2) deems it passed on “where the amount of tax has been recovered from the recipient”. Under section 54(8)(e), the refund is paid to the applicant only “if he had not passed on the incidence of such tax”. Otherwise, under section 54(5), the amount is credited to the Consumer Welfare Fund under section 57. A supplier that charged the excess tax to its customer, and did not refund it to them, will usually fail this test.

Time limit. Two years from the relevant date. For this ground it is the residuary clause, Explanation 2(h) to section 54: “the date of payment of tax”.

Filing on the portal

The portal’s FAQs describe this ground as available to normal and casual taxpayers filing GSTR-3B, composition taxpayers filing GSTR-4, and non-residents filing GSTR-5. They describe the steps:

1. Under Services > Refunds > Application for Refund, select “Excess payment of tax”.
2. In Statement 7, select the return. The “Tax Period, Type of Return, ARN of Return and Date of Filing Return is auto-populated”. Enter the excess under each head. It “cannot be more than the amount of tax paid from the respective return”.
3. Upload the declaration or certificate and any working papers, up to ten files of 5 MB each. The FAQs state that a certificate is mandatory above Rs 2 lakh.
4. File with DSC or EVC. The minimum claim is Rs 1,000 (section 54(14)), applied head by head (Circular No. 125/44/2019-GST para 60).

The officer acknowledges or issues a deficiency memo within fifteen days, and issues RFD-08 before any rejection. Where the excess was paid partly from the credit ledger, rule 92(1A) applies. Cash is refunded in proportion to the cash paid, and the rest is re-credited by PMT-03.

Part 2: unregistered buyers whose contract was cancelled

The problem the circular addresses

Circular No. 188/20/2022-GST (27 December 2022) describes two cases:

• Flats. An unregistered buyer paid instalments with GST to a builder, and the agreement was cancelled “due to non-completion or delay in construction activity in time or any other reasons”. By then the period for a credit note under section 34 may have expired. The builder then “may refund the amount to the buyer, after deducting the amount of tax collected by him”.
• Insurance. In “long-term insurance policies where premium for the entire period of term of policy is paid upfront along with applicable GST” and the policy ends early, the insurer may refund “only the proportionate premium net off GST”.

Section 54(1) already allows “any person” to claim a refund of tax paid. Section 54(8)(e) pays it to the applicant if the incidence was borne and not passed on. What was missing was a way for a person without a GSTIN to file. Notification No. 26/2022-Central Tax (26 December 2022) inserted clauses (ka) and (kb) in rule 89(2), and Statement 8 in RFD-01, and the portal added a ground, “Refund for unregistered person”.

When an unregistered person may claim

Para 4.4 of the circular limits the claim. Where the time for a credit note had not expired when the contract was cancelled, the supplier “can issue credit note to the unregistered person” and pay back the tax itself. The refund claim by the unregistered person “can be filed … only in those cases where at the time of cancellation/termination of agreement/contract for supply of services, the time period for issuance of credit note under section 34 of the CGST Act has already expired”.

The evidence

Rule 89(2)(ka) requires a statement of the invoices (number, date, value, tax paid and payment details), with:

• copies of the invoices
• proof of payment to the supplier
• the agreement, registered agreement or contract with the supplier
• “the letter issued by the supplier for cancellation or termination of agreement or contract”
• details and proof of the payment received back from the supplier

Rule 89(2)(kb) requires “a certificate issued by the supplier” that it has paid the tax on those invoices. The supplier also certifies that it “has not adjusted the tax amount involved in these invoices against his tax liability by issuing credit note”, and that it “has not claimed and will not claim refund” of that tax.

The second proviso to rule 89(2)(m), inserted by the same notification, dispenses with the chartered accountant’s certificate “where refund is claimed by an unregistered person who has borne the incidence of tax”. The rule does not dispense with the self-declaration under rule 89(2)(l) for claims up to two lakh rupees.

Temporary registration and filing

Circular No. 188/20/2022-GST para 4, and the portal’s manual for this ground, describe the procedure:

1. The applicant obtains a temporary registration on the portal using its PAN, selecting “the same state/UT where his/her supplier, in respect of whose invoice refund is to be claimed, is registered”. The portal’s FAQs refer to this as a temporary user ID for an unregistered user.
2. The applicant undergoes Aadhaar authentication under rule 10B. The manual says that filing cannot proceed until Aadhaar is authenticated or e-KYC documents are uploaded.
3. The applicant enters a bank account “which is in his name and has been obtained on his PAN”.
4. The applicant files RFD-01 under “Refund for unregistered person”, entering the supplier’s GSTIN, which the portal validates. It uploads Statement 8 in PDF, the rule 89(2)(ka) documents and the supplier’s (kb) certificate. The claim “shall not exceed the total amount of tax declared on the invoices”.
5. The application is signed and filed. The manual describes signing with a DSC or EVC.

Separate applications are needed for each supplier. Where suppliers are in different States, a temporary registration is needed in each State (para 4.3).

The relevant date and the minimum

The relevant date for “a person, other than the supplier” is “the date of receipt of goods or services or both by such person” (Explanation 2(g) to section 54). For a cancelled long-term contract there may be no date of receipt. The circular decides that “date of issuance of letter of cancellation of the contract/ agreement for supply by the supplier will be considered as the date of receipt of the services”. The two years run from the date of that letter. The Rs 1,000 minimum in section 54(14) applies (para 6).

Processing

The officer processes the claim like any other RFD-01 and must “upload a detailed speaking order along with the refund sanction order in FORM GST RFD-06” (para 7). Where the supplier paid back less than the buyer paid, “only the proportionate amount of tax involved in such amount paid back shall be refunded” (para 7.1).

An example. A buyer paid instalments of Rs 40,00,000, on which the builder’s invoices charged GST of Rs 2,00,000, for a flat under construction. The builder cancelled the agreement by a letter of 15 January 2026, more than a year after the credit note deadline for the earlier instalments. It returned Rs 30,00,000 of the value and none of the tax. The buyer may claim Rs 1,50,000, the tax on the Rs 30,00,000 paid back, within two years of 15 January 2026.

What to have ready

Item	Excess payment	Unregistered buyer	Where it comes from
The return in which the excess was paid, and its ARN	Yes	Not applicable	GSTR-3B, GSTR-4 or GSTR-5
Working showing the correct liability	Yes	Not applicable	Books
Evidence the tax was not recovered from customers	Yes	Not applicable	Invoices, credit notes, books
Agreement, invoices, payment proofs	Not applicable	Yes	Buyer’s papers
Supplier’s cancellation letter and proof of the amount paid back	Not applicable	Yes	Supplier, bank
Supplier’s certificate under rule 89(2)(kb)	Not applicable	Yes	Supplier
Declaration (up to Rs 2 lakh) or CA/CMA certificate (above)	Yes	Declaration only	Applicant; accountant
PAN, Aadhaar authentication, bank account in own name on PAN	Registration	Temporary registration	Portal

Consequences, and what can still be put right

• Incidence passed on. The amount goes to the Consumer Welfare Fund, not the applicant. A supplier that has refunded the excess to its customers can show that, and claim.
• A missing document or certificate draws a deficiency memo. A fresh RFD-01 follows, and the time from the first filing to the memo is excluded from the two years under the proviso to rule 90(3).
• A supplier that will not give the (kb) certificate. The rule requires it. Without it the claim is incomplete. The circular provides no alternative.
• A rejection is preceded by RFD-08 and a hearing, and is appealable under section 107 (Appeals and Pre-Deposit).
• Delay beyond sixty days from a complete application carries interest at 6 per cent under section 56.

The procedure in order

Excess payment by a registered person

1. Try adjustment in later returns, or a credit note within the section 34 deadline.
2. If adjustment is not feasible, confirm that the excess was not recovered from customers.
3. Within two years of the payment, file RFD-01 under “Excess payment of tax” with Statement 7 and the declaration or certificate.
4. Track the claim to RFD-06. Cash and credit come back in the proportion in which the tax was paid.

Refund to an unregistered buyer

1. Confirm the contract was cancelled after the credit note deadline, and obtain the supplier’s cancellation letter and (kb) certificate.
2. Take a temporary registration on PAN in the supplier’s State, complete Aadhaar authentication and add a bank account in the buyer’s own name.
3. Within two years of the cancellation letter, file RFD-01 under “Refund for unregistered person” with Statement 8 and the documents, one application per supplier.
4. Track the claim to the speaking order and RFD-06. The refund is the tax on the amount actually paid back.

The last guide in this set covers what happens when a refund does not arrive: deficiency memos and their effect on the time limit, withholding, payment and interest.