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Union Territory Goods and Services Tax Act, 2017 | Chapter VI

Section 12 of the UTGST Act, 2017: Tax Wrongfully Paid to the Government

Section 12 deals with a GST supply originally classified as intra-State or inter-State but later found to belong to the other category. It provides for refund of tax paid under the incorrect classification and relief from interest in the reverse situation.

Meaning and scope of Section 12

An intra-State supply generally attracts Central Goods and Services Tax (CGST) and Union Territory Goods and Services Tax (UTGST) in a Union territory covered by this Act. An inter-State supply generally attracts Integrated Goods and Services Tax (IGST). The classification depends on the place-of-supply and location-of-supplier rules under the IGST Act, 2017, including its special provisions and exceptions.

Section 12: statutory provisions explained

Section 12(1) - Refund where CGST and UTGST were paid instead of IGST

A registered person who paid central tax and Union territory tax on a transaction treated as an intra-State supply, but which is subsequently held to be an inter-State supply, is entitled to a refund of the taxes so paid, in the prescribed manner and subject to the prescribed conditions.

The supplier must account for the applicable IGST on the transaction. Refund of the incorrectly paid CGST and UTGST is governed by the applicable refund framework, including section 77 of the CGST Act, section 12 of the UTGST Act and the relevant provisions of rule 89 of the CGST Rules, applied to UTGST through section 21 of the UTGST Act.

Section 12(2) - No interest when IGST was paid instead of CGST and UTGST

A registered person who paid integrated tax on a transaction treated as an inter-State supply, but which is subsequently held to be an intra-State supply, is not required to pay interest on the central tax and Union territory tax payable.

This provision removes the interest liability on the correctly payable CGST and UTGST arising from that reclassification. It does not waive the underlying CGST and UTGST liability. The corresponding treatment of wrongly paid IGST and its refund is addressed by section 19 of the IGST Act.

Refund procedure and time limit

For a supply subsequently held to be inter-State after CGST and UTGST were paid, rule 89(1A) of the CGST Rules, 2017 provides a refund application mechanism and a period of two years from the date of payment of tax under the correct head. For correct-head tax paid before the rule was introduced, the transitional calculation in the rule must be checked. The rule was introduced by Notification No. 35/2021-Central Tax, dated 24 September 2021.

The classification error, payment of tax under both heads, the relevant return entries and supporting records should be reconciled before a refund application. Whether an error falls within the scope of the statutory relief, including the requirement that a transaction is subsequently held to be of a different supply type, depends on the facts and applicable rules.

Illustrative application

  • Initially intra-State, actually inter-State: CGST and UTGST were paid. Once the transaction is properly treated as inter-State and the correct IGST is paid, the supplier may seek a refund of the incorrectly paid CGST and UTGST under the prescribed procedure.
  • Initially inter-State, actually intra-State: IGST was paid. The supplier must account for the applicable CGST and UTGST but is not required to pay interest on those taxes merely because of the reclassification covered by section 12(2). Relief for IGST is considered under section 19 of the IGST Act.
Important distinction: Section 12 concerns tax paid under the wrong GST head because of an intra-State/inter-State classification issue. It is not a general refund provision for every incorrect GST payment. For the underlying levy, see section 7; for the application of CGST procedures, see section 21.

Official legislation and guidance

Historical GST rate articles and guidance from the original page are retained below for reference; earlier rates may have changed through later notifications.