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Goods and Services Tax (GST) and Corporate Tax Planning · Procedural Compliance under GST

Assessment, Refunds and Demand Recovery under GST

Updated 11 October 2026 · Fact-checked

Assessment is the determination of tax liability: self-assessment by you, or scrutiny, provisional and best judgment assessment by the officer. A refund of tax is claimed under section 54 within two years from the relevant date. Demand and recovery covers notices and orders for tax not paid or short paid. Solve each question by applying provision, facts, conclusion.

Understand Assessment, Refunds and Demand Recovery

Assessment means working out the tax payable. Under GST the registered person first assesses himself. He computes the tax on his own supplies and pays it through returns. This is self-assessment. The officer does not step in unless something looks wrong.

If the officer finds discrepancies in a return, he can scrutinise it and ask for an explanation. If the person explains satisfactorily, the matter ends. If not, the officer can start proceedings for determination of tax. Other forms of assessment apply in special cases: provisional assessment when the person cannot determine the value or rate of tax and asks for provisional payment, and best judgment assessment (section 62) when a registered person fails to file returns even after notice, and also for unregistered persons and cancelled registrations in the cases the Act lists. Treat the section numbers other than 54 as points to confirm from your bare Act before quoting them.

A refund is the return of tax, interest or any other amount you paid, or of unutilised input tax credit (ITC). Section 54 lays down who may claim, in what time, and with what proof. The claim must be made before two years from the relevant date. The relevant date differs by case, for example the date the ship or aircraft leaves India for goods exported by sea or air.

Section 54 allows refund of unutilised ITC only in two cases: zero-rated supplies made without payment of tax, and an inverted duty structure where the rate on inputs is higher than the rate on output supplies (other than nil rated or fully exempt supplies), except supplies notified by the Government. The proper officer must pass the order within sixty days from the date of receipt of an application complete in all respects.

Demand and recovery deals with tax that was not paid, short paid, wrongly refunded, or wrongly claimed as ITC. The Act separates cases without fraud (section 73) and cases with fraud, wilful misstatement or suppression (section 74). The officer issues a show cause notice, hears you, and passes an order. Unpaid amounts are then recovered by the modes the Act provides.

Key rules to remember

Time limit for refund claim
Application before expiry of 2 years from the relevant date
Section 54(1). For UN bodies, embassies and notified persons, two years from the last day of the quarter in which the supply was received (section 54(2)).
Refund of unutilised ITC
Allowed only for (i) zero-rated supplies without payment of tax; (ii) inverted rate structure
Section 54(3). Inverted rate refund excludes nil rated or fully exempt output supplies and notified supplies. No refund if the supplier avails drawback of central tax or claims refund of integrated tax.
Provisional refund on zero-rated supplies
90% of the amount claimed
Section 54(6). Final order follows after verification of documents. Notified categories of registered persons are excluded.
Time to pass refund order
Within 60 days from receipt of a complete application
Section 54(7).
Unjust enrichment exemption
Claim below ₹2,00,000: a declaration is enough
Section 54(4) proviso. For ₹2,00,000 or more, documentary evidence that incidence of tax was not passed on is needed.
Minimum refund
No refund under section 54(5) or (6) if amount < ₹1,000
Section 54(14).
Relevant date, common cases
Goods exported by sea/air: date ship or aircraft leaves India. Services exported: receipt of payment in convertible foreign exchange (or INR where RBI permits), or invoice date if paid in advance. Any other case: date of payment of tax.
Explanation (2) to section 54. For inverted duty refund, it is the due date for filing the return under section 39 for the period of the claim.
Withholding of refund
Officer may withhold if return not filed or tax, interest or penalty unpaid beyond last date to appeal
Section 54(10). He may also deduct unpaid dues from the refund.

How to solve Assessment, Refunds and Demand Recovery questions

Every question on this topic is a case. Identify the stage (assessment, refund or demand), apply the rule to the facts, and conclude.

  1. 1Read the facts and mark the stage: return filed, return not filed, refund claimed, or tax short paid.
  2. 2For assessment, name the type: self, scrutiny, provisional, or best judgment, and say why it fits the facts.
  3. 3For refund, identify the category (export, inverted rate, excess payment, other) and the relevant date.
  4. 4Count two years from the relevant date and check whether the application is in time.
  5. 5Check conditions: unjust enrichment, ₹2,00,000 limit, ₹1,000 minimum, drawback, pending returns or dues.
  6. 6For demand, decide whether fraud, wilful misstatement or suppression is present. That decides section 73 or 74.
  7. 7State the procedure: notice, hearing, order, and the time for the officer to act.
  8. 8Write a clear conclusion and a practical point, such as the compliance step or the reply to draft.

Quickest way: Three-question filter

When to use it: Use this when time is short and the question gives many facts.

  1. Ask: what is being claimed or demanded, and by whom?
  2. Ask: what is the time limit, and from which date does it start?
  3. Ask: is there a blocking condition such as pending return, unpaid dues, fraud or pass-on of tax?
  4. Write the rule, apply it in one or two lines, then conclude.

Common mistakes in Assessment, Refunds and Demand Recovery

  • Counting the two years from the date of payment in every refund case.

    Students remember the 'any other case' rule only.

    Fix: Find the relevant date first. For exports of goods it is the date the ship or aircraft leaves India.

  • Saying all unutilised ITC is refundable.

    The word 'refund' feels general.

    Fix: Remember only two cases: zero-rated supplies without payment of tax, and inverted rate structure.

  • Treating the 90% provisional refund as the final refund.

    Students stop reading after section 54(6).

    Fix: Say that the balance follows by a final order after verification of documents.

  • Ignoring the ₹2,00,000 threshold for unjust enrichment.

    Students forget the proviso to section 54(4).

    Fix: State that below ₹2,00,000 a self-declaration suffices; at or above it, evidence is required.

  • Mixing up section 73 and section 74.

    Both deal with short payment and look alike.

    Fix: Ask whether fraud, wilful misstatement or suppression exists. If yes, section 74; if no, section 73.

  • Forgetting that a refund can be withheld.

    Students treat a valid claim as automatically payable.

    Fix: Check section 54(10) for defaulted returns or unpaid dues, and 54(11) for withholding on grounds of fraud.

Worked examples

Example 1

Madhav Exports Ltd., Chennai, shipped goods on 10 March 2026. The ship left India that day. It applies for refund of unutilised ITC on zero-rated supply on 15 April 2028. Is the application in time?

Show the solution
  1. Refund of unutilised ITC on exports without payment of tax is allowed under section 54(3)(i).
  2. The application must be made before two years from the relevant date (section 54(1)).
  3. Check the relevant date. For the ITC refund clause (ii) case, it is the return due date. For this zero-rated export, apply the rule the question gives: the relevant date for goods exported by sea is the date the ship leaves India, that is 10 March 2026.
  4. Two years from 10 March 2026 expire on 10 March 2028.
  5. The application was made on 15 April 2028, which is after that date.

Answer: The application is time-barred on the facts given, as it was made after the two-year period from the relevant date of 10 March 2026.

Example 2

Kaveri Textiles claims a refund of ₹1,80,000 of tax it paid in excess. Another claim by Kaveri Textiles is for ₹6,50,000. What proof is needed for each regarding unjust enrichment, and when must the officer decide?

Show the solution
  1. Section 54(4) requires proof that the incidence of tax was not passed on to any other person.
  2. For ₹1,80,000, which is less than ₹2,00,000, no documentary evidence is needed. A declaration certifying that the incidence was not passed on is enough.
  3. For ₹6,50,000, which is above ₹2,00,000, the applicant must furnish documentary or other evidence.
  4. The proper officer must issue the order within sixty days from receipt of an application complete in all respects (section 54(7)).
  5. If the refund is below ₹1,000 it would not be paid, but both claims are above that figure.

Answer: The ₹1,80,000 claim needs only a declaration. The ₹6,50,000 claim needs documentary evidence. In both cases the order is due within sixty days of a complete application.

Exam tips

  • Quote the sub-section of section 54 with each rule. Examiners reward precise references.
  • Learn the relevant date table. Questions often change only the mode of export or the type of supply.
  • Always end with a conclusion and one practical step, such as filing the application or replying to the notice.
  • For demand questions, begin by saying whether fraud or suppression exists. It sets the section.
  • Write the unjust enrichment limit and the sixty-day period in every refund answer.

Practice questions from Procedural Compliance under GST

Assessment, Refunds and Demand Recovery in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Assessment, Refunds and Demand Recovery: frequently asked questions

What is the time limit for claiming a GST refund?

Section 54(1) requires the application before the expiry of two years from the relevant date. The relevant date depends on the case, such as the date the ship or aircraft leaves India for goods exported by sea or air. In any other case it is the date of payment of tax.

When is refund of unutilised ITC allowed?

Only for zero-rated supplies made without payment of tax, and where credit has accumulated because the rate on inputs is higher than the rate on outputs. Nil rated or fully exempt outputs are excluded from the second case. Notified supplies are also excluded.

What is the difference between section 73 and section 74?

Both deal with tax not paid, short paid or wrongly refunded or availed. Section 73 applies where there is no fraud, wilful misstatement or suppression. Section 74 applies where such fraud, wilful misstatement or suppression exists.

When does best judgment assessment apply?

It applies under section 62 where a registered person fails to furnish returns even after a notice under section 46. The officer assesses the tax liability to the best of his judgment, based on the relevant material available.