I've gotten refunds or store credit from flipkart, snapdeal, Jabong, etc. (Amazon I have got only refunds.)
When it's a faulty item that can't be replaced I always get refund and insist on it, if it's just something I ordered and didn't like I accept store credit, though maybe if you fight you can get a refund for that also. Read the terms and conditions on the site in question if you really want to know their legal stance, though it seems flexible based on how pissed off you are
The money is either credited back into the payment method, or a cheque is issued. For store credit nothing is returned.