Published 18 October 2026
A supplier who gets the place of supply wrong pays the right amount of tax to the wrong government. A sale treated as intra-State, with CGST and SGST, turns out to be inter-State and liable to IGST, or the other way round. The tax that should have been paid is still due, and the Act does not allow the wrong payment to be set off against it. The supplier pays again under the correct head and then claims back what it paid first. For years the main dispute was when the two years for that claim began. The rules now answer that question, but claims filed late are still being decided by the courts.
This guide covers section 77 of the CGST Act and section 19 of the IGST Act: when they apply, the order of steps, the time limit in rule 89(1A), the form and statement, and what the Karnataka High Court has held about late claims. How the place of supply is determined is in Place of Supply: CGST and SGST, or IGST.
Two provisions, one for each direction
| Wrong payment | Refund of the wrong tax | No interest on the correct tax |
|---|---|---|
| CGST and SGST (or UTGST) paid; supply is inter-State | Section 77(1), CGST Act | Section 19(2), IGST Act |
| IGST paid; supply is intra-State | Section 19(1), IGST Act | Section 77(2), CGST Act |
Section 77(1) reads: “A registered person who has paid the Central tax and State tax or, as the case may be, the Central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.”
Section 19(1) of the IGST Act is its mirror image for IGST paid on a supply “subsequently held to be an intra-State supply”.
The second sub-section of each provision deals with interest on the correct tax. Section 77(2) provides that the person who paid IGST “shall not be required to pay any interest on the amount of central tax and State tax”. Section 19(2) of the IGST Act provides that the person who paid CGST and SGST “shall not be required to pay any interest on the amount of integrated tax payable”. Read together, the two Acts give relief from interest in both directions. Read alone, the CGST Act gives it in one direction only.
What “subsequently held” covers
Circular No. 162/18/2021-GST (25 September 2021) answers the question whether the provisions apply only where an officer holds the supply to be of the other kind. It says that “subsequently held” “covers both the cases where the inter-State or intra-State supply made by a taxpayer, is either subsequently found by taxpayer himself as intra-State or inter-State respectively or where [it] is subsequently found/ held … by the tax officer in any proceeding”. The refund is available in both situations, “provided the taxpayer pays the required amount of tax in the correct head”.
The portal’s FAQ for this ground still describes it as available “if an order is issued by the tax officer”. Under the circular, a supplier’s own correction is enough. The FAQ is narrower than the law.
Two limits follow from the circular:
- The correct tax must be paid first. The refund is of the wrong tax only after the right tax has been paid.
- No refund where a credit note was used. Under para 4.4, the refund “would not be available where the taxpayer has made tax adjustment through issuance of credit note under section 34”. A supplier who has already reversed the wrong tax by a credit note, within the time section 34(2) allows, has nothing left to claim.
The time limit: rule 89(1A)
Section 77 and section 19 contain no time limit of their own. Before 24 September 2021, claims were measured against section 54(1) and its residuary relevant date, “the date of payment of tax” (Explanation 2(h)). Officers often read that as the date of the wrong payment, so many claims were out of time before the error was even found.
Notification No. 35/2021-Central Tax inserted rule 89(1A) from 24 September 2021, the date of publication. A person claiming refund under section 77 may file RFD-01 “before the expiry of a period of two years from the date of payment of the tax on the inter-State supply”. The proviso reads: “the said application may, as regard to any payment of tax on inter-State supply before coming into force of this sub-rule, be filed before the expiry of a period of two years from the date on which this sub-rule comes into force.”
Circular No. 162/18/2021-GST para 4.2 states the rule in general terms. The refund “can be claimed before the expiry of two years from the date of payment of tax under the correct head”. Para 4.3 applies the rule to section 19 of the IGST Act as well. It also says that applications filed before 24 September 2021, “whether pending or disposed off”, are to be dealt with under rule 89(1A).
The circular’s illustrations, for an invoice of 10 March 2018 on which CGST and SGST were paid:
| Correct IGST paid on | Last date for RFD-01 |
|---|---|
| 10 May 2021 (self-discovered, before the rule) | 23 September 2023, two years from the rule |
| 10 November 2021 (self-discovered, after the rule) | 9 November 2023, two years from the correct payment |
| 10 May 2019 (after an officer’s order, before the rule) | 23 September 2023 |
| 10 November 2022 (after an officer’s order, after the rule) | 9 November 2024 |
The one-time window for payments before 24 September 2021 closed on 23 September 2023. For later payments, the clock runs from each correct payment.
The Karnataka High Court on late claims
Assistant Commissioner of Central Taxes v M/s Merck Life Science Pvt Ltd (Karnataka High Court, Division Bench, S.G. Pandit and K.V. Aravind JJ, Writ Appeal No. 110 of 2026 and connected appeals, 17 March 2026; one of the connected appeals on gst.bharattax.net).
- The facts. The assessee provided intermediary services to foreign entities. For October 2017 it paid IGST, treating the services as exports. In March 2018 it paid CGST and SGST on the same supplies, treating them as intra-State. It applied for refund of the IGST on 30 March 2024. The claim was rejected as beyond the window in the proviso to rule 89(1A).
- The single judge. The single judge allowed the writ petition, holding section 54 and rule 89(1A) “directory in nature and not mandatory”.
- The appeal. The Division Bench disagreed on the principle. It held that “the period of two years prescribed under Section 54 of the CGST Act, 2017 is mandatory”, and that the proper officer has no power to entertain a claim made after it. It linked the two years to the three- and five-year periods for demands under sections 73 and 74.
- The remedy. It held that a person who misses the period may seek condonation of delay from the High Court under Article 226. Where the Court condones delay, it must give the officer a corresponding extension of time to act under sections 73 and 74, and the claim is then treated as filed in time. It noted that section 77 “enables refund without prescribing any limitation”.
- The result. The delay was six months beyond the proviso and the Revenue did not dispute the entitlement. The Court condoned the delay and directed the application to be considered in accordance with law.
The decision does not make the time limit flexible before the officer. It holds that only the High Court can excuse delay, case by case, on terms. Other High Courts have taken different views on whether the two years in section 54 is directory. These are discussed in Refund of Unutilised Credit.
What to have ready
| Item | Where it comes from |
|---|---|
| The invoices, debit notes and credit notes on which the wrong tax was charged | Books, GSTR-1 |
| The return or DRC-03 in which the wrong tax was paid | GSTR-3B, DRC-03 |
| The return, amendment or DRC-03 in which the correct tax was paid, with its date | GSTR-3B, GSTR-1A/amendments, DRC-03 |
| Any officer’s or appellate order holding the supply to be of the other kind | Order |
| Confirmation that no credit note under section 34 was issued for the wrong tax | Books |
| The recipient’s position on credit, if it took credit of the wrong tax | Recipient |
| Bank account and Aadhaar authentication | Registration |
The form, the statement and the portal steps
The application is FORM GST RFD-01 under the ground “Refund of tax paid on an intra-State supply which is subsequently held to be inter-State supply and vice versa”. Circular No. 125/44/2019-GST, Annexure A, requires two things only:
- Statement 6 under rule 89(2)(j), “a statement showing the details of transactions considered as intra-State supply but which is subsequently held to be inter-State supply”
- the undertaking relating to section 16(2)©
No declaration or certificate on unjust enrichment is required. A refund “in pursuance of section 77” is paid to the applicant under section 54(8)(d), and the provisos to rule 89(2)(l) and (m) exclude clause (d).
The portal’s FAQs describe the steps:
- Under Services > Refunds > Application for Refund, select the ground. “Tax period won’t be asked”, so no nil applications are needed for other periods.
- Download the offline utility and enter Statement 6, selecting each document as invoice, debit note or credit note.
- Upload and validate it. The details “would be validated from the details provided by taxpayer while filing return”. Invalid documents are listed for correction.
- Upload supporting documents, such as the order holding the supply to be of the other kind. Up to ten of 5 MB each are allowed.
- Select the bank account, preview, and file with DSC or EVC. All GSTR-3B returns due must have been filed.
How the refund is paid
The officer acknowledges in RFD-02 or issues a deficiency memo in RFD-03 within fifteen days (rule 90), and issues RFD-08 before any rejection. Because this is a refund of tax paid, not of a zero-rated supply or deemed export, rule 92(1A) applies. The refund is paid in cash “proportionate to the amount debited in cash”. For the part of the wrong tax that was paid from the credit ledger, the officer issues PMT-03 “recrediting the said amount as Input Tax Credit”. A supplier that paid the wrong tax wholly from credit therefore gets credit back, not cash.
Interest under section 56 runs if the refund is not paid within sixty days of a complete application.
Consequences, and what can still be put right
- The correct tax not yet paid. The claim is premature. The correct tax is paid first, without interest by virtue of section 77(2) or section 19(2) of the IGST Act, and then the refund is claimed.
- A demand for the correct tax. Where an officer finds the supply to be of the other kind, the demand is for the correct tax. Paying it starts the two years for the refund of the wrong tax.
- A wrong statement. It is corrected and refiled, or the application is withdrawn in RFD-01W before an order issues.
- A claim out of time. The officer cannot entertain it. On the Karnataka High Court’s view in Merck, the remedy is a writ petition seeking condonation of delay.
- A rejection. It is appealable under section 107 (Appeals and Pre-Deposit).
The procedure in order
- Determine the correct place of supply and the correct head of tax.
- Check whether the wrong tax has already been adjusted by a credit note. If it has, there is no refund.
- Pay the correct tax, through the return or DRC-03, and note the date. No interest is payable on it.
- Within two years of that payment, file RFD-01 under the wrong-head ground with Statement 6 and the undertaking, with DSC or EVC.
- Track RFD-02 or RFD-03, and answer any RFD-08 in RFD-09 within fifteen days.
- Check that the RFD-06 pays the cash portion and that PMT-03 re-credits the portion paid from credit.
The next guide covers two refunds of tax paid in excess: by a registered person that paid more than its liability, and by an unregistered buyer whose contract was cancelled.