CBIC Issued Instructions on Sanction of 90% Provisional Refund Through Risk Identification and Evaluation

In the 56th GST Council Meeting held on 3rd September, 2025, the GST Council gave the biggest gift to the exporter by providing for the sanction of 90% provisional Refund of the total refund claimed. This facility was further extended to refund applied under the Inverted Duty Structure.

Presently, Section 54(6) of the CGST Act requires the provisional refund of 90% of the total refund claimed, especially for zero-rated supplies by registered persons.  However, tax authorities often fail to comply with such provisions, causing significant delays in refund disbursement and creating liquidity issues for exporters. Therefore, to enhance the liquidity of the business, the GST Council has recommended an amendment in rule 91(2) of the CGST Rules, 2017, to provide for the sanction of 90% of the refund claimed as a provisional refund. Also, a category of persons shall be notified to whom the provisional refund shall not be granted.

Rule 91(2) was amended vide Notification No. 13/2025-Central Tax dated 17-09-2025 w.e.f. 01-10-2025.

1. Amended provisions of Rule 91(2) of CGST Rules, 2017

• As per Rule 91(2), the proper officer shall make an order to grant a provisional refund in Form GST RFD-04 within 7 days from the date of generation of the acknowledgment;

• However, such a refund shall be granted on the basis of identification and evaluation of risk by the system.

• Further, the proper officer may, for reasons to be recorded in writing, not grant a refund on a provisional basis and proceed with the order under rule 92:

2. Persons not eligible for provisional refund

• Vide notification No. 14/2025-Central Tax dated 17.09.2025, CBIC notified the category of registered persons who shall not be allowed a refund on a provisional basis for zero-rated supplies.

• As per notification No. 14/2025, the following are the notified persons:
  
  • Any person who has not undergone Aadhaar authentication under rule 10B of the Central Goods and Services Tax Rules, 2017.
  • Any person who is engaged in the supply of the following goods:
    
    • Areca nuts (080280)
    • Pan Masala (21069020)
    • Tobacco and manufactured tobacco substitutes (24)
    • Essential oils (3301)

Vide Instructions No. 06/2025-GST dated 3rd October, 2025, the CBIC issued the following instructions with respect to processing of refund claims, filed with the proper officer, on account of zero-rated supply of goods or services or both.

3. Manner of Processing of Refund Application:

While processing refund applications, the proper officer shall ensure the following points:

3.1 Provisional Refund to “Low-Risk” refund application

• After filing, the refund application shall be processed as per existing guidelines till the issuance of FORM GST RFD-02 (Acknowledgement of Refund) or FORM GST RFD-03 (Deficiency Memo), as the case may be. 

• The timeline prescribed for the issuance of FORM GST RFD-02 or FORM GST RFD-03, as the case may be, should be strictly adhered to, i.e., 15 days from the date of filing of the application.

• Categorization of refund applications as “low-risk” based on the risk score provided by the system shall be taken into account, and 90% of the refund amount claimed shall be sanctioned on a provisional basis in such cases.

• It is pertinent to note that once an acknowledgment has been issued in FORM GST RFD-02, scrutiny is not required to be done for low-risk refund applications for sanctioning of provisional refund except where the officer proceeds with the examination of the application in accordance with the provisions of rule 92, instead of the grant of refund on a provisional basis.

• For refund applications not categorised as “low-risk” by the system, refunds shall not be sanctioned on a provisional basis. In such cases, the proper officer shall proceed with a detailed scrutiny of the refund application and further action as per the extant guidelines.

3.2 Additional Conditions for granting a provisional refund 

• The statutory conditions prescribed for the grant of provisional refund, including non-eligibility of the notified category of registered persons, the requirement of non-prosecution (Rule 91(1)), shall continue to be applicable in these cases.

• Provisional refund shall 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 the matter has not attained finality.

3.3 No Adjustment or withholding of the refund from the provisional refund

• No adjustment or withholding of refund (as specified in Section 54(10) & 54(11) of the CGST Act) can be done in respect of the provisionally sanctioned amount.

• Therefore, in such cases, the proper officer, instead of granting a refund on a provisional basis, may process and sanction a refund on a final basis at the earliest and recover the amount from the amount so sanctioned. 

3.4 Refund on a case-by-case basis:

• Amendment has been made for trade facilitation; therefore, the said proviso to rule 91(2) of the CGST Rules, 2017 may be used sparingly and on a case-to-case basis so that provisional refund is not denied merely based on presumptive reason(s), initiation of routine proceedings such as scrutiny, etc.

3.5 If the Provisional Refund is higher than the final sanction refund:

• If it appears to the proper officer that the refund amount sanctioned provisionally is more than the refund amount finally found admissible, in such a case, the proper officer shall issue a show cause notice to the applicant, in FORM GST RFD-08, as is done presently.

3.6 Effective date of applicability of amended provisional refund  provisions:

Amendment in rule 91(2) of CGST Rules, 2017 has been notified vide notification No. 13/2025-Central Tax dated 17.09.2025 to come into effect from 01.10.2025. Therefore, the provisions related to risk-based sanction of provisional refund shall be applicable for all refund applications filed on or after 01.10.2025.

Refund application filed up to 30th September, 2025, shall be dealt in accordance with earlier provisions.

3.7 Provisional Refund under Inverted Duty Structure:

• The GST Council also recommended the applicability of provisional refund sanction provisions in cases where refund claims are filed on account of an inverted duty structure (IDS), similar to the provisions in place for zero-rated supplies.

• However, such an amendment will be incorporated through the forthcoming Finance Act, and States will also be required to pass the corresponding amendments in their respective legislations, which will take time.

• Therefore, as an interim measure of trade facilitation, the CBIC clarified that till this amendment in the Act is effected, refund applications filed under Inverted Duty Structure, on or after 01.10.2025, 90% of the refund amount so claimed may be similarly sanctioned on a provisional basis as provided for zero-rated supplies.

• The refund shall be processed in the same manner provided above. Further, the statutory conditions prescribed for the grant of provisional refund in case of zero-rated supplies shall equally apply in these cases.

• Functionality for the issuance of a provisional refund in case of an Inverted Duty structure has been made available by GSTN, on lines similar to the provisional refund granted on account of zero-rated supply of goods or services.

Conclusion:

Funds are considered the blood of a business, and getting early refunds will enhance the liquidity of the business and restore the faith of taxpayers in the government and tax system. However, the key factor is on which parameters the system shall classify the application as “Low Risk” or “High Risk”. Further, granting a provisional refund under the Inverted Duty Structure will ease the working capital pressures on industries affected by IDS, particularly sectors like textiles, footwear, and fertilizers.