Form GST RFD-07: Managing Sanctioned Refunds Through Adjustment or Withholding

In the Goods and Services Tax (GST) refund process, a refund application culminates in a sanction or rejection order in Form GST RFD-06. However, even if a refund amount is sanctioned, it may not always be immediately paid out to the taxpayer. There are situations where the sanctioned amount needs to be adjusted against existing demands or withheld temporarily due to ongoing proceedings. These scenarios are addressed through the issuance of Form GST RFD-07, which serves as the Order for Adjustment or Withholding of Sanctioned Refund.  

Form GST RFD-07 is a crucial communication that explains why a sanctioned refund amount is not being fully disbursed and outlines the reasons for adjustment or withholding. It is divided into two parts: Part A for Adjustment and Part B for Withholding.

What is Form GST RFD-07?

Form GST RFD-07 is an order issued by the GST tax officer detailing the reasons and amount of a sanctioned GST refund that is either being:

• Adjusted: Set off against any confirmed outstanding demand or liability of the taxpayer under the GST Act or any erstwhile law (Part A).  
• Withheld: Temporarily held back from disbursement due to specific circumstances, even though it has been sanctioned or provisionally sanctioned (Part B).  

Purpose: The purpose of Form GST RFD-07 is to formally notify the taxpayer about the adjustment or withholding of their sanctioned refund amount, providing transparency regarding the reasons and calculations involved.

When is Form GST RFD-07 Issued?

Form GST RFD-07 is issued by the proper officer after a refund amount has been sanctioned, either provisionally in Form GST RFD-04 or finally in Form GST RFD-06. It is issued when the officer determines that the sanctioned amount cannot be fully paid out due to outstanding demands or specific withholding conditions being met.  

Who Issues Form GST RFD-07?

Form GST RFD-07 is issued by the concerned jurisdictional GST tax officer who processed and sanctioned the refund claim, or in certain cases, a higher authority like the Commissioner, depending on the reasons for withholding.  

Form GST RFD-07 – Part A: Order for Complete Adjustment of Sanctioned Refund

Purpose: Part A of Form GST RFD-07 is specifically used when the entire sanctioned refund amount is adjusted against an existing confirmed outstanding demand from the taxpayer.

Contents of Part A:

• ARN of the original refund application (RFD-01).
• Reference to the Sanction Order (RFD-04/RFD-06) where the refund was sanctioned.
• Details of the amount of refund claimed, provisionally sanctioned (if any), and finally sanctioned.
• Details of the outstanding demand against which the refund is being adjusted, including the order number and date creating the demand.
• Confirmation that the entire sanctioned refund amount is adjusted against the demand.
• The balance amount of refund payable after adjustment (which will be ‘Nil’ in case of complete adjustment).

Implication of Part A: The issuance of Part A means that the taxpayer will not receive any monetary refund for this application, as the sanctioned amount has been used to settle an outstanding liability.

Form GST RFD-07 – Part B: Order for Withholding the Refund

Purpose: Part B of Form GST RFD-07 is used when a sanctioned refund amount (either provisional or final) is temporarily withheld from disbursement due to specific reasons outlined in the GST Act (Section 54(10) and 54(11)). This is typically done to protect revenue in cases where granting the refund might adversely affect pending proceedings.  

Common Reasons for Withholding (Section 54(10) & 54(11)):

• The order giving rise to the refund is under appeal, review, or further proceedings, and granting the refund is likely to adversely affect revenue.
• Any other proceedings under the GST Act are pending against the taxpayer, and granting the refund is likely to adversely affect revenue.
• The taxpayer has defaulted in furnishing any return or failed to pay any tax, interest, or penalty.
• Cases involving fraud of a serious nature.

Contents of Part B:

• ARN of the original refund application (RFD-01).
• Reference to the Sanction Order (RFD-04/RFD-06) where the refund was sanctioned.
• Details of the amount of refund claimed, provisionally sanctioned (if any), and finally sanctioned.
• The specific amount of sanctioned/provisional refund being withheld.
• Clear and specific reasons for withholding the refund, referencing the relevant section of the law or the nature of the pending proceedings/default.
• A declaration that the amount is withheld as per the provisions of the GST Act.

Implication of Part B: The issuance of Part B means that the taxpayer will not receive the withheld amount immediately. The amount will be held by the authorities until the conditions for withholding cease to exist.

Order for Release of Withheld Refund (Part B of RFD-07)

When the reasons for withholding a refund, as mentioned in RFD-07 Part B, no longer exist (e.g., the appeal is decided in favour of the taxpayer, the pending proceedings are concluded, or the default is regularized), the proper officer issues a release order, also in Part B of Form GST RFD-07. This release order authorizes the disbursement of the previously withheld amount.  

Relation to Other Refund Forms

Form GST RFD-07 fits into the refund workflow after a sanction has been made:

• It is issued after Form GST RFD-04 (Provisional Order) or Form GST RFD-06 (Final Order) to explain why the sanctioned amount is not being fully paid.
• If Part A (Adjustment) is issued, any remaining balance (if not fully adjusted) would lead to the issuance of RFD-05 (Payment Advice).
• If Part B (Withholding) is issued, it prevents the issuance of RFD-05 for the withheld amount until a release order in Part B is subsequently issued, which would then be followed by RFD-05 for the released amount.  

Conclusion

Form GST RFD-07 is a vital communication tool in the GST refund process, particularly when a sanctioned refund is not directly paid out. Part A addresses situations where the refund is adjusted against outstanding demands, ensuring proper accounting of liabilities. Part B addresses situations where the refund is temporarily withheld due to specific legal grounds, protecting the interests of the revenue. Understanding RFD-07 is crucial for taxpayers to comprehend the status of their sanctioned refunds when immediate full disbursement does not occur and to take necessary steps, such as resolving pending demands or waiting for the conclusion of proceedings, to eventually receive their eligible refund amount.