Massive relief for businesses: CBIC launches risk-based system to fast track 90% of GST refund

The Central Board of Indirect Taxes and Customs (CBIC) has initiated a significant, pro-business measure to inject immediate liquidity into the market by accelerating the processing of GST refunds. With effect from October 1, 2025, the tax system has implemented a new risk-based mechanism. This change, following the recommendation of the 56th GST Council meeting, is designed as a strong trade facilitation measure to ensure working capital is quickly returned to compliant taxpayers.

The mechanism is rooted in an amendment to Rule 91(2) of the CGST Rules, 2017, which allows for the sanction of 90% of the claimed refund amount on a provisional basis. The tax system uses a risk-based mechanism to screen applications. If a claim is categorized by the system as "low-risk" based on its risk score, the business will provisionally receive 90% of the claimed refund amount. Once an acknowledgment in FORM GST RFD-02 is issued for a low-risk application, no further scrutiny is required solely for sanctioning the provisional refund.

This new operational procedure primarily benefits applications filed by Exporters (Zero-Rated Supplies) and, through an interim measure, manufacturers claiming refunds due to the Inverted Duty Structure (IDS). For refund applications that the system does not categorize as "low-risk," the provisional refund will not be sanctioned. Instead, the proper officer must proceed directly with a detailed scrutiny of the application. The statutory conditions for provisional refunds, including the requirement that the applicant has not been prosecuted in the past (under rule 91(1)) and the non-eligibility of certain notified persons, will continue to apply.

While the process is designed to fast-track refunds, the proper officer has the authority, based on a new proviso in rule 91(2), to deny the provisional refund on a case-by-case basis by recording reasons in writing. If denied, the officer must then proceed with a detailed examination of the application. However, the CBIC has issued a strict advisory, clarifying that this power must be used "sparingly". Provisional refund should not be denied merely based on presumptive reasons or the initiation of routine proceedings like scrutiny. This prevents the trade facilitation measure from being routinely undermined.

As a significant interim measure, the Central Government has decided to extend this 90% provisional sanction to IDS refund claims filed on or after October 1, 2025. This decision was made because the formal amendment to Section 54(6) of the CGST Act, 2017, which was recommended by the GST Council for IDS claims, will take time to be incorporated through the forthcoming Finance Act and the states will also be required to pass the corresponding amendments in their respective legislations. The processing of these IDS applications will be the same as that for zero-rated supplies. The GST Network (GSTN) has already updated its functionality to issue provisional refunds for IDS claims on similar lines.

Further, as no adjustment or withholding of refund, as provided under sub-sections (10) and (11) of section 54 of the CGST Act, can be done in respect of the provisionally sanctioned amount, therefore, in such cases, the proper officer, instead of granting refund on provisional basis, may process and sanction refund on final basis at the earliest and recover the amount from the amount so sanctioned. Also, provisional refund may not be sanctioned where, in respect of any previous refund application filed by the claimant, the issue involved is pending in an appellate forum, or where a show cause notice is issued or where an order has been passed but matter has not attained finality.

If, after a detailed scrutiny, the provisional amount is found to be more than the finally admissible amount, the proper officer will issue a show cause notice (FORM GST RFD-08) to the applicant to recover the excess amount.

(The author is the former Principal Chief Commissioner of CGST.)

EoM.