Section 77: refund where tax was paid under the wrong head
A place of supply error creates two liabilities and one refund. The refund is available, without interest, if the sequence is followed.
Section 77 of the CGST Act, with Section 19 of the IGST Act, provides that where a registered person has paid central and state tax on a transaction subsequently held to be an inter state supply, or integrated tax on a transaction subsequently held to be an intra state supply, he shall be refunded the amount so paid on payment of the correct tax, and no interest is payable on the correct tax so paid. Rule 89(1A) prescribes the application, and Circular 162/18/2021-GST clarifies the relevant date for limitation.
The mechanism
Pay the correct tax first. The refund of the wrongly paid tax follows the payment of the correct tax, not the other way round.
No interest is payable on the correct tax paid, which is the substantive relief in the provision and is frequently overlooked by officers computing interest mechanically.
The refund application is made under Rule 89(1A), and Circular 162/18/2021-GST clarifies that the two year period runs from the date of payment of the correct tax, with a specific position for cases where the correct tax was paid before the rule was notified.
The expression subsequently held includes a determination by the taxpayer itself on its own examination, and is not confined to a departmental or judicial holding.
Where it is needed most
Bill to ship to transactions and Section 10(1)(b) errors, where the recipient's location and the delivery location differ.
Services where the place of supply turns on the location of immovable property, the location of performance, or the recipient's registered address.
Works contracts executed in a state where the taxpayer is not registered.
Intermediary and export of services characterisation disputes, where a supply treated as an export is later treated as domestic, or the reverse.
The practical sequence
Quantify the exposure both ways before acting: the correct tax payable, and the wrongly paid tax refundable.
Pay the correct tax with a covering letter identifying it as a payment under Section 77 read with Section 19 of the IGST Act, so the interest relief is on record.
File the refund application under Rule 89(1A) promptly, computing the relevant date from the payment of the correct tax.
Where a customer's credit is affected, coordinate the credit note and fresh invoice with the customer before making the change, because their credit position is the commercial consequence.
Authorities relied on
Clarified the scope of Section 77 and Section 19, the meaning of subsequently held, and the relevant date for the refund application under Rule 89(1A).
What to do on Monday
Quantify both legs before acting, and get the sequence right: correct tax first, refund second.
Record the Section 77 basis in the covering letter to preserve the interest relief.
File under Rule 89(1A) promptly and compute the relevant date from the payment of the correct tax.
Coordinate the credit note and fresh invoice with the customer before changing the head of tax.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Do we have to pay the correct tax before claiming the refund?
Yes. The refund is conditional on payment of the correct tax.
Is interest payable on the correct tax?
No. That is the express relief in Section 77, and it should be asserted in the covering letter.
Does subsequently held require a departmental order?
No. The circular clarifies that it includes the taxpayer's own determination.
What is the relevant date for limitation?
The date of payment of the correct tax, as clarified by the circular.
What happens to the customer's credit?
It must be corrected through a credit note and a fresh invoice. Coordinate before making the change.
In this cluster
- GST refunds: every category, every form, every deadline
- Export refunds: the LUT route versus the IGST route
- VKC Footsteps: why input service tax stays stuck in an inverted duty structure
- Provisional refund of ninety percent: the mechanism and how to keep it
- Replying to RFD-08: the refund rejection notice
- Deficiency memos in RFD-03 and the limitation reset problem
- Interest on delayed refunds under Section 56
- Unjust enrichment in GST refunds: when it applies, and when it does not
- SEZ supplies and refund: endorsement, authorised operations and the disputes
- Deemed exports and the refund to the recipient
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.