Top 7 Reasons for GST Refund Rejection & How to Avoid Them

Claiming a GST refund should be a smooth process—but often, taxpayers are hit with refund rejections, deficiency memos, or partial sanctions. Whether you’re filing a refund for exports, inverted duty structure, or excess cash balance, the GST refund mechanism has several compliance traps.

In this blog, we unpack the 7 most common reasons for GST refund rejections under the current regime and give you clear, actionable advice to avoid them.

🔍 Why It Gets Rejected:

One of the most frequent causes is data mismatch between:

• GSTR-1 (Invoice-level outward supply details), and
• GSTR-3B (Summary return used for payment).

For export-related refunds (without payment of tax under LUT), officers validate the turnover disclosed in GSTR-1 vs. GSTR-3B. If there’s a mismatch, it leads to partial or full rejection.

🛠️ How to Avoid It:

• Always reconcile GSTR-1 and GSTR-3B before filing.
• Ensure export invoices are reported in Table 6A of GSTR-1.
• Report accurate zero-rated supplies in Table 3.1(b) of GSTR-3B.
• Use automated reconciliation tools or platforms like Vaive.ai to validate before filing.

🔍 Why It Gets Rejected:

Refunds related to accumulated ITC are often rejected when:

• The ITC claimed includes blocked credits under Section 17(5) (e.g., food, motor vehicles).
• ITC is claimed on capital goods, which is not eligible for refund under Inverted Duty claims.

🛠️ How to Avoid It:

• Exclude blocked inputs and capital goods from the refund computation.
• Match ITC only from eligible invoices reported in GSTR-2B.
• Check the Inverted Duty Refund Formula carefully under Rule 89(5).

🔍 Why It Gets Rejected:

GST officers often reject refunds when key documents are missing:

• Shipping Bills
• Export Invoices
• Bank Realisation Certificates (BRC) or FIRC
• LUT acknowledgement (for exports without payment)

Without this documentation, refund eligibility cannot be verified.

🛠️ How to Avoid It:

• Maintain a refund filing checklist.
• Attach all mandatory documents as required under Rule 89(2).
• Use document management features in refund platforms or CRMs to avoid manual errors.

🔍 Why It Gets Rejected:

Choosing the wrong refund type on the RFD-01 portal leads to procedural rejection. Common mistakes include:

• Selecting “Export of goods with payment of tax” instead of “without payment”
• Claiming refund under wrong head (e.g., excess balance instead of accumulated ITC)

🛠️ How to Avoid It:

• Understand refund categories: Export with/without payment, Inverted Duty, Excess balance, etc.
• Refer to CBIC FAQs or Circulars like 125/44/2019-GST for clarity.
• Take assistance from GST experts or automated tools like Vaive.ai.

🔍 Why It Gets Rejected:

Refunds must be filed within 2 years from the “relevant date” as defined under Section 54 of the CGST Act. Any delay makes the claim time-barred and ineligible.

🛠️ How to Avoid It:

• Know your relevant date:
  • For exports: date of shipping bill/BRC
  • For ITC refund: end of tax period
• Set internal reminders or automate refund due dates using tools.

🔍 Why It Gets Rejected:

If your application is found defective, the officer will issue an RFD-03 memo. If you don’t rectify and refile the application within 30 days, the claim is closed.

🛠️ How to Avoid It:

• Track refund filing status regularly.
• If you get an RFD-03, refile as fresh RFD-01 within 30 days with corrected information.
• Keep detailed notes of previous communications to avoid repetition of errors.

🔍 Why It Gets Rejected:

Refunds are rejected if exports were:

• Not substantiated with actual shipping or BRC documents.
• Found to be bogus or not reported correctly in ICEGATE data.

Also, cases flagged under ITC fraud investigations or fake invoice detection are automatically put on hold.

🛠️ How to Avoid It:

• Ensure all export data matches with ICEGATE portal.
• Don’t claim refund unless shipping, invoice, and payment details are complete.
• Avoid engaging in vendors or invoices flagged under risky exporters list.

If your claim is partially or fully rejected, you have the following options:

• File RFD-05 appeal within 3 months of rejection.
• If rejection is based on factual grounds, file a rectified RFD-01 with supporting clarification.
• Use Vaive.ai to auto-draft detailed representations and appeal documents.

GST refund rejections can be prevented, not just contested. With proper reconciliations, timely filings, correct categorization, and complete documentation—you can ensure faster refunds and reduce disputes.

Vaive.ai is your AI-powered assistant built specifically for GST litigation and consultancy. If your refund has been rejected or kept on hold, we help you:

• Draft professional replies to refund rejection orders
• Respond to deficiency memos (RFD-03) with clear, structured submissions
• Generate appeal-ready documents for GST refunds
• Save time with pre-formatted, legally sound templates for refund-related notices

Whether you’re a taxpayer or a consultant, Vaive.ai simplifies the drafting process—no more guesswork or manual formatting.

📩 Contact us at info@vaive.ai or WhatsApp/call +91-9871399306