When a Refund Is Rejected: Re-Credit, Appeal and PMT-03

Refund Is Rejected explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Filing a refund claim debits the credit ledger. Rejecting it does not automatically put the credit back — and the route by which it returns forecloses an appeal.

Rule 89(3): where the application relates to refund of input tax credit, the electronic credit ledger is debited by the amount claimed. Rule 93(1): where a refund is not admissible, or the applicant is not entitled, the amount debited shall be re-credited to the electronic credit ledger by an order in FORM GST PMT-03. Rule 93(2): where the refund is rejected either fully or partly, the amount debited to the extent of rejection shall be re-credited by an order in PMT-03 — but only after the applicant either files an undertaking that he shall not file an appeal, or where an appeal was filed, it has been finally decided against the applicant.

The two routes back

Route 1 — accept the rejection. File an undertaking not to appeal, and the credit is re-credited through PMT-03. The credit returns to the ledger and can be used against output tax.

Route 2 — appeal. The credit stays debited until the appeal is finally decided. If the appeal succeeds, the refund is paid. If it fails, the credit is re-credited then.

The choice, and how to make it

The undertaking is the price of getting the credit back quickly. Whether to give it depends on three things.

How strong is the rejection ground? A rejection for a documentary defect that can be cured is often better re-filed than appealed — but note that a fresh application is only possible within the two-year limit from the relevant date. The relevant date →

Is the credit usable? For a business with output tax liability, re-credited credit is as good as cash. For a permanent exporter with no domestic liability, credit that cannot be utilised is not a substitute for a refund — and appealing is the only way to convert it.

What is the value? Appeal costs a 10% pre-deposit under s.107(6) on the disputed amount, plus time. For a small claim, the undertaking is usually the better economics.

The forms

RFD-01 — application, with the credit ledger debited. RFD-08 — notice proposing rejection. RFD-09 — reply, within fifteen days. RFD-06 — order sanctioning or rejecting. PMT-03 — re-credit order. RFD-01B — the refund order details, showing the debit and the sanction.

Rule 92(3) proviso: no application shall be rejected without giving the applicant an opportunity of being heard. A rejection order passed without a hearing, or without an RFD-08 notice, is defective. Rules 90 and 92 →

The common rejection grounds, and the answers

Deficiency treated as rejection. A deficiency memo under Rule 90(3) is not a rejection. It requires a fresh application. Where an officer issues an RFD-06 rejection on what is really a deficiency, the ground is wrong and the order is appealable on that basis.

Time bar. Check the relevant date for the category — the eleven starting points differ, and an officer applying the wrong one is a common error.

Unjust enrichment. Where the claim falls in s.54(8)(a) to (f), the certificate is not required and a rejection on that ground is misconceived. Section 54(8): unjust enrichment →

Formula dispute. Rule 89(4) or 89(5) computation differences — Net ITC composition, the 1.5 times cap, Adjusted Total Turnover exclusions. Answerable with the working.

GSTR-1 to shipping bill mismatch. Not a rejection ground under Rule 96 — it postpones the deemed filing date until rectified. Rule 96 →

Missing SEZ endorsement. A genuine ground, and only the SEZ entity can supply it.

Supplier non-compliance. Where credit claimed as refund is disallowed because a supplier did not file, the answer runs through s.16(2)(aa), Rule 37A and the evidence of a genuine supply. Rule 37A →

Erroneous refund: the other direction

Where a refund has been paid and is later found not to have been due, it is recovered as an erroneous refund.

Section 73, s.74 or s.74A applies, depending on the period and whether fraud, wilful misstatement or suppression is alleged, with interest under s.50.

Rule 96B is a specific instance — refund on export of goods where the proceeds are not realised. Rule 96B →

Section 74A governs FY 2024-25 onwards and merges the two limbs with differentiated penalties.

Note that an erroneous refund demand is a demand proceeding with the full protections — notice, reply, hearing, order, appeal — unlike the Rule 96B thirty-day deposit obligation, which is a voluntary step preceding it.

Key takeaways

• Rule 89(3) debits the credit ledger when the claim is filed.
• Rule 93(2): re-credit through PMT-03 only on an undertaking not to appeal, or after an appeal is finally decided against the applicant.
• Appealing preserves the claim but keeps the credit debited and costs a 10% pre-deposit.
• A deficiency memo is not a rejection — it requires a fresh application.
• Rejection requires RFD-08, a reply and a hearing.
• An erroneous refund is recovered under s.73, s.74 or s.74A with interest.

Read next

• Common Reasons for GST Refund Rejection
• Rules 90 and 92: Acknowledgement, Deficiency and Sanction
• How to File a First Appeal Under GST: APL-01
• Rule 96B: Recovery Where Export Proceeds Are Not Realised

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Refunds under GST (January 2026).