Daman & Diu Post-Merger GST Refund Guide

After Daman and Diu merged with Dadra and Nagar Haveli into a single Union Territory, the GST state code changed, creating transitional registration and refund issues for businesses there. This guide explains how the change affects GST registration and how affected taxpayers can claim refunds by following the transition guidelines.

Effective January 26, 2020, the Union Territory of Daman and Diu merged with Dadra and Nagar Haveli. This necessitated a unified GST state code. Consequently, the GST Council assigned state code 26 to the combined Union Territory of Dadra and Nagar Haveli and Daman and Diu, effective August 1, 2020.

Input Tax Credit Transfer

During this transitional phase, taxpayers were required to transfer their remaining Input Tax Credit (ITC) from their previous GSTIN’s electronic credit ledger to the newly issued GSTIN. This transfer was accomplished by reversing the ITC balance when submitting the final GSTR-3B form for the old GSTIN. Notification No. 10/2020-Central Tax outlines the specific procedures for this ITC transfer.

Taxpayer Challenges During Transition

Prior to the merger, taxpayers encountered difficulties when applying for refunds related to zero-rated supplies and inverted tax structures. A key issue was the absence of an available ITC balance in their old GSTINs for refund claims. Furthermore, refund claims from the new GSTINs were rejected by system validations because invoices bore the old GSTIN, making it impossible to process applications for the pre-merger period.

Refund Procedure as per Circular 168/24/2021

Circular number 168/24/2021 of the Central Goods and Service Tax Act, 2017, outlines the specific refund process:

1. Taxpayers must submit refund applications via their new GSTIN on the GST portal, selecting “Any other” as the category. The remarks section should specify the original refund category, such as “Refund of unutilised ITC on account of export of goods/services without payment of tax for the period before the merger of Daman & Diu with Dadra & Nagar Haveli.”
2. All necessary supporting documents must be included. No debit from the electronic credit ledger is required at this initial stage.
3. Upon receiving the claim, the proper officer will assess the eligible refund amount in accordance with GST law. The application will be thoroughly reviewed for completeness and eligibility. If approved, the officer will inform the applicant using Form GST DRC-03 to debit the specified amount from their electronic credit ledger.
4. Once the proper officer receives confirmation of the debit, a refund order will be issued in Form GST RFD-06, followed by the payment order in Form GST RFD-05.
5. For refund categories that do not require an ITC debit, applicants can still file under “any other” and provide the relevant reasons in the remarks section.

It is crucial that no refund claims are filed using the old GSTIN.

Frequently Asked Questions (FAQ)

What changed for GST after the Daman & Diu merger?

When Daman and Diu merged with Dadra and Nagar Haveli into one Union Territory, the GST state code for the region changed, affecting registrations and returns.

How does the merger affect GST refunds?

The change in state code created transitional issues, so refunds relating to the earlier code have to be claimed following the special transition guidelines issued for the merger.

Do businesses need a new registration after the merger?

Businesses in the merged territory had to align their registration with the new state code, following the process notified for the transition.

Where can I find the transition guidelines?

The transition guidelines were issued through official notifications and instructions covering registration migration and refund claims for the merged territory.