Form GST RFD-04: Expediting Refunds with the Provisional Refund Order

The Goods and Services Tax (GST) framework includes provisions for a swift refund mechanism, particularly for taxpayers involved in zero-rated supplies like exports. To ease the working capital blockages faced by such businesses, the GST law allows for the sanction of a provisional refund during the refund processing cycle. This provisional sanction is communicated to the taxpayer through Form GST RFD-04.

This article provides a comprehensive overview of Form GST RFD-04, explaining its purpose, when it is issued, who is eligible, its contents, significance, and how it fits into the overall GST refund process.

What is Form GST RFD-04?

Form GST RFD-04 is the Provisional Refund Order issued by the jurisdictional GST tax officer. It is a temporary order sanctioning a part of the total refund amount claimed by the taxpayer in their Form GST RFD-01 application, pending final verification and processing.

Purpose: The primary purpose of Form GST RFD-04 is to provide immediate liquidity to eligible taxpayers by sanctioning and disbursing a major portion (up to 90%) of their claimed refund amount on a provisional basis, particularly to facilitate export-related working capital needs.

When is Form GST RFD-04 Issued?

Form GST RFD-04 is issued by the proper officer within seven days from the date of the acknowledgement of the refund application (i.e., within seven days from the generation of Form GST RFD-02), provided the refund application falls under specific eligible categories and is found to be prima facie in order after a quick initial scrutiny.

Who is Eligible for Provisional Refund via RFD-04?

The provisional refund mechanism, and hence the issuance of Form GST RFD-04, is primarily applicable to refund claims arising on account of zero-rated supplies. This specifically includes:

• Refund of unutilized Input Tax Credit (ITC) on account of exports of goods or services made without payment of tax (under LUT/Bond).
• Refund of unutilized ITC on account of supplies made to Special Economic Zone (SEZ) units or SEZ developers without payment of tax.

In practice, provisional refunds are also often processed for IGST paid on exports of goods (where the shipping bill is deemed the refund application), although the formal issuance of RFD-04 might vary depending on the automation level for this specific type of claim. The core idea is to expedite refunds for zero-rated supplies.

What Information Does Form GST RFD-04 Contain?

Form GST RFD-04 includes crucial details related to the provisional refund sanctioned:

• ARN of the original refund application (Form GST RFD-01): The reference number of the application under consideration.
• Date of Filing of RFD-01: The date the original application was submitted.
• Details of the Taxpayer: GSTIN, Name, etc.
• Tax Period and Refund Type: The period and reason for the refund claim.
• Amount of Refund Claimed: The total amount originally applied for in Form RFD-01.
• Amount Sanctioned Provisionally: The specific amount of refund sanctioned on a provisional basis.
• Breakdown by Tax Heads: The provisional amount is shown broken down by major tax heads (CGST, SGST, IGST, Cess) and minor heads (Tax, Interest, etc.).
• Percentage of Provisional Refund: It often indicates that the sanctioned amount is up to 90% of the total claim.
• Reference to Final Order: It mentions that a final refund order (Form GST RFD-06) will be issued later after complete verification.

What is the Significance of Form GST RFD-04?

The significance of Form GST RFD-04 lies in its role in facilitating timely refunds for exporters and suppliers to SEZs:

• Improved Liquidity: By providing up to 90% of the claimed amount upfront, it significantly helps businesses manage their working capital and reduces the financial burden caused by funds being locked up in taxes on inputs/exports.
• Expedited Processing: It ensures that a major portion of the refund is processed and disbursed quickly (within 7 days of acknowledgement), much faster than the timeline for the final refund order (60 days).
• Government’s Commitment to Exporters: The provisional refund mechanism is a key feature aimed at supporting India’s export sector by ensuring faster release of funds.

What Happens After Form GST RFD-04 is Issued?

Upon the issuance of Form GST RFD-04:

1. Disbursement of Provisional Amount: The tax authorities proceed to disburse the provisional refund amount sanctioned in Form RFD-04 to the taxpayer’s bank account registered on the GST portal. This is typically done electronically via a payment advice (though a specific form like RFD-05 might be issued in the final stage, the provisional amount is paid out after RFD-04).
2. Final Processing Continues: The issuance of RFD-04 does not conclude the refund process. The tax officer continues with the detailed verification and scrutiny of the refund application and supporting documents.
3. Final Order (Form GST RFD-06): After completing the detailed scrutiny, the proper officer will issue a final refund order in Form GST RFD-06. This order will either sanction the remaining 10% of the claimed amount, sanction a different final amount (if any discrepancies were found during detailed scrutiny), or reject the claim entirely or partially.

Does Provisional Sanction Mean Final Sanction?

No, a provisional sanction through Form GST RFD-04 does not guarantee the final sanction of the entire claimed amount or even the provisionally sanctioned amount. The provisional sanction is based on a prima facie examination. The final decision on the refund claim is made only after a detailed verification, which culminates in the issuance of Form GST RFD-06. If the final order sanctions a lesser amount than provisionally paid, the excess provisional refund may be recovered.

Relation to Other Refund Forms

Form GST RFD-04 fits into the sequence as follows:

• It is issued by the tax officer after the filing of Form GST RFD-01 and the system’s generation of Form GST RFD-02, following a preliminary scrutiny.
• It is issued before the final refund order (Form GST RFD-06) and often precedes the payment advice (Form GST RFD-05), although the provisional amount is disbursed based on RFD-04.
• It will not be issued if a Deficiency Memo (Form GST RFD-03) was issued on the application.

Conclusion

Form GST RFD-04, the Provisional Refund Order, is a critical component of the GST refund mechanism designed to accelerate the release of funds for eligible taxpayers, particularly those engaged in zero-rated supplies like exports and supplies to SEZs. By enabling the quick disbursement of up to 90% of the claimed amount, it plays a vital role in improving liquidity and supporting international trade. While it provides much-needed relief, taxpayers must remember that it is a provisional step, and the final sanction is determined only upon the issuance of Form GST RFD-06 after complete verification.