GST Refund on Export of Goods (Updated as on 13.11.2023)
INTRODUCTION: -
The aim of Indian government is to increasing
the output and quality of export from India in pursuance to the “Make in India”
policy. Indian government also provide the many incentives to the exporters to
boost export in India and in addition to incentives, government also provide
many benefits as far GST is concerned. Like Refund of GST in export of goods or
Service.
CATEGORY OF EXPORT: -
1. Export of
goods.
·
Direct Export.
·
Deemed Export. (Will discuss in
different article).
·
Export throughout Customer. (Will
discuss in different article).
·
Export to Nepal & Bhutan. (Will
discuss in different article)
2. Export of
Service.
First, we
will look definitions: -
Goods: -
As per the section 2(52) of CGST Act, 2017
"Goods" means every kind of movable property other than money and
securities but includes actionable claim, growing crops, grass and things
attached to or forming part of the land which are agreed to be severed before
supply or under a contract of supply.
Export of Goods: -
As per the Section 2(5) of IGST Act, 2017 “Export of
goods” with its grammatical variations and cognate expressions, means taking
goods out of India to a place outside India.
From the above definition it can be seen that to
qualify supply as an export then goods must be taken out of India.
ZERO RATED SUPPLY (U/s 16 of IGST Act, 2017): -
1)
“Zero rated supply” means any of the
following supplies of goods or services or both, namely
(a)
Export of goods or services or both or
(b)
Supply of goods or services or both for
authorised operation (Inserted wide Finance Bill 2021) to a Special
Economic Zone developer or a Special Economic Zone unit.
In
Addition to this Section 147 of CGST Act, 2017 considered certain supplies as
Deemed Export, which means Deemed export also eligible for zero rated supply.
2)
Credit of input tax may be availed for
making zero-rated supplies, notwithstanding that such supply may be an exempt
supply subject to Section 17(5) of CGST Act, 2017 i.e., Negative List.
3)
A registered person making zero rated supply
shall be eligible to claim refund of unutilized input tax credit on supply of
goods or services or both, without payment of integrated tax, under bond or
Letter of Undertaking, in accordance with the provisions of section 54 of the
Central Goods and Services Tax Act or the rules made thereunder, subject to
such conditions, safeguards and procedure as may be prescribed.
Provided that the registered person making
zero rated supply of goods shall, in case of non-realization of sale proceeds,
be liable to deposit the refund so received , to the extent of non-realization
of sales proceeds, under this sub-section along with the applicable interest
under section 50 of the Central Goods and Services Tax Act within thirty days
after the expiry of the time limit prescribed under the Foreign Exchange
Management Act, 1999 for receipt of foreign exchange remittances, in such
manner as may be prescribed. (Whole Paragraph was substitute by finance Act,
2021) (Read with rule 96B of CGST Act, 2017).
Period of realization of foreign exchange as
per FEMA 1999 is as per RBI Guidelines and as per RBI foreign exchange should
be received within NINE Months from the date of Export.
4)
The Government may, on the recommendation of
the Council, and subject to such conditions, safeguards and procedures, by
notification, specify.
a)
Class of persons who may make zero rated
supply on payment of integrated tax and claim refund of the tax so paid.
b)
A class of goods or services which may be
exported on payment of integrated tax and the supplier of such goods or
services may claim the refund of tax so paid.
(Inserted
wide Finance bill 2021)
Zero-rated
supply does not mean that the goods and services have a tariff rate of ‘0%’ but
the recipient to whom the supply is made is entitled to pay ‘0%’ GST to the
supplier.
TREATMENT OF EXPORT UNDER GST LAW: -
As per the
Section 7(5) of IGST Act, 2017 Export is treated as Inter-State Supply and IGST
charge on Export.
REFUND
FOR ZERO RATED SUPPLY: -
An
Exporter dealing in Zero Rated supply under GST can claim a refund as per
following Options.
1)
Export without payment of IGST under
Bond/LUT and Claim Refund of ITC.
2)
Export with payment of IGST and Claim
Refund of IGST Paid.
However,
following specified goods cannot be exported with payment of IGST and hence
such goods can be exported compulsorily without payment of IGST under Bond or
LUT. (As per Notification No. 01/2023 – Integrated Tax_31.07.2023) (Applicable
from 01.10.2023).
WHAT IS LETTER OF UNDERTAKING & BOND UNDER GST: -
If Exporter choose option one for export, He
needs to file the Bond/LUT with the tax department stating that he shall
fulfill all the export requirements.
WHEN
BOND IS TO BE FILED UNDER GST: -
Any Registered person who has been prosecuted
for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017)
or the Integrated Goods and Services Tax Act, 2017 (13 of 2017) or any of the
existing laws in force in a case where the amount of tax evaded exceeds two hundred
and fifty lakh rupees (>250 Lakhs). (Notification No. 37/2017-Central Tax
Dt. 04th Oct, 2017) (This Notification suspend the notification No. 16/2017-Central Tax, Dt. 7th
July, 2017).
WHEN
LUT IS TO BE FILED UNDER GST: -
All registered persons who intend to supply
goods or services for export without payment of integrated tax shall be
eligible to furnish a Letter of Undertaking in place of a bond except those who
have been prosecuted for any offence under the Central Goods and Services Tax
Act, 2017 (12 of 2017) or the Integrated Goods and Services Tax Act, 2017 (13
of 2017) or any of the existing laws in force in a case where the amount of tax
evaded exceeds two hundred and fifty lakh rupees (>250 Lakhs). (Notification
No. 37/2017-Central Tax Dt. 04th Oct, 2017) (This Notification
suspend the notification No.
16/2017-Central Tax, Dt. 7th July, 2017).
Conditions of
LUT: -
·
Goods shall
be exported within three months (3 Months) from the date of issue of the
invoice for export. (Rule 96A(1) of CGST
Act, 2017).
Registered
person making zero rated supply of goods shall, in case of non-realization of
sale proceeds, be liable to deposit the refund so received , to the extent of
non-realization of sales proceeds, under this sub-section along with the
applicable interest under section 50 of the Central Goods and Services Tax Act
within thirty days after the expiry of the time limit prescribed under the
Foreign Exchange Management Act, 1999 for receipt of foreign exchange
remittances, in such manner as may be prescribed. (Whole Paragraph was
substitute by finance Act, 2021) (Read with rule 96B of CGST Act, 2017).
Period
of realization of foreign exchange as per FEMA 1999 is as per RBI Guidelines
and as per RBI foreign exchange should be received within NINE Months
from the date of Export.
·
Foreign
payment should be received within one year (1 Year) from the date of issue of
the invoice for export. (Rule 96A(1) of CGST Act, 2017).
Validity of LUT: - The LUT shall be valid for the whole financial year in which it is tendered. However, in case the goods are not exported within the time specified in sub rule (1) of rule 96A of the CGST Rules and the registered person fails to pay the amount Mentioned in the said sub-rule, the facility of export under LUT will be deemed to have been withdrawn. If the amount mentioned in the said sub-rule is paid subsequently, the facility of export under LUT shall be restored. As a result, exports, during the period from when the facility to export under LUT is withdrawn till the time the same is restored, shall be either on payment of the applicable integrated tax or under bond with bank guarantee. (Circular No. 8/8/2017-GST Dt. 4th Oct, 2017).
Documents for LUT:- Self-declaration to the effect that the conditions of LUT have been fulfilled shall be accepted unless there is specific information otherwise. That is, self-declaration by the exporter to the effect that he has not been prosecuted should suffice for the purposes of Notification No. 37/2017- Central Tax dated 4th October, 2017. (Circular No. 8/8/2017-GST Dt. 4th Oct, 2017).
FORM OF BOND/LUT:-
FORM GST RFD-11
WHO
WILL EXECUTE BOND/LUT:-
The proprietor.
Working partner or by a person duly authorised
by such working partner.
The Managing Director or Board of Directors of
such company.
The Company Secretary.
TIME FOR ACCEPTANCE OF LUT/BOND:-
As LUT/Bond is a priori requirement for
export, including exports to a SEZ developer or a SEZ unit, the LUT/bond should
be processed on top most priority. It is clarified that LUT/bond should be
accepted within a period of three working days of its receipt along with the
self-declaration as stated in above by the exporter. If the LUT / bond is not
accepted within a period of three working days from the date of submission, it
shall deemed to be accepted. (Circular
No. 8/8/2017-GST Dt. 4th Oct, 2017).
EXPORT
OF GOODS OR SERVICE UNDER BOND OR LUT RULE 96A (OPTION 1):-
Any registered person availing the option to
supply goods or services for export without payment of integrated tax shall
furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11
to the jurisdictional Commissioner, binding himself to pay the tax due along
with the interest specified under sub-section (1) of section 50 within a period
of,
1) Fifteen
days after the expiry of three months or such further period as may be allowed
by the Commissioner from the date of issue of the invoice for export, if the
goods are not exported out of India. (I.e. Goods should be exported within
three months from the date of Export Invoice.)
2) Fifteen
days after the expiry of one year, or such further period as may be allowed by
the Commissioner, from the date of issue of the invoice for export, if the
payment of such services is not received by the exporter in convertible foreign
exchange [or in Indian rupees, wherever permitted by the Reserve Bank of
India].
Where the goods are not exported within the time specified in above rule and the registered person fails to pay the amount mentioned in the said sub-rule, the export as allowed under bond or Letter of Undertaking shall be withdrawn forthwith and the said amount shall be recovered from the registered person in accordance with the provisions of section 79 (Recovery of Tax).
The export as allowed under bond or Letter of Undertaking withdrawn in terms of above rule shall be restored immediately when the registered person pays the amount due.
Rule 96A also applied in respect of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit without payment of integrated tax.
Registered person making zero rated supply of goods shall, in case of non-realization of sale proceeds, be liable to deposit the refund so received , to the extent of non-realization of sales proceeds, under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances, in such manner as may be prescribed. (Whole Paragraph was substitute by finance Act, 2021) (Read with rule 96B of CGST Act, 2017).
Period of realization of foreign exchange as per FEMA 1999 is as per RBI Guidelines and as per RBI foreign exchange should be received within NINE Months from the date of Export.
Formula: -
Section
16(3) of the IGST Act gives the option to an exporter to claim refund either as
ITC by making export without payment of tax through LUT, as below
The formula is reproduced
below Rule 89(4): -
(A)
"Refund amount" means the maximum refund that is admissible.
Zero-rated supply of
services is the aggregate of the payments received during the relevant period
for zero-rated supply of services and zero-rated supply of services where
supply has been completed for which payment had been received in advance in any
period prior to the relevant period reduced by advances received for zero-rated
supply of services for which the supply of services has not been completed
during the relevant period.
Substituted (W.E.F 23.10.2017) by Notification No. 75/2017 – Central Tax_29.12.2017.
Where,
(A)
"Refund amount" means the maximum refund that is admissible.
Zero-rated supply of
services is the aggregate of the payments received during the relevant period
for zero-rated supply of services and zero-rated supply of services where
supply has been completed for which payment had been received in advance in any
period prior to the relevant period reduced by advances received for zero-rated
supply of services for which the supply of services has not been completed
during the relevant period.
(a) the value of exempt supplies other than
zero-rated supplies and
(b) the turnover of
supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or
both, if any, during the relevant period.
Further Substituted by Notification No. 16/2020 – Central Tax_23.03.2020.
In rule 89, in sub-rule (4), for clause (C), the following clause shall be substituted, namely: -
Illustration of amended definition of Turnover of zero-rated supply of goods.
Suppose a supplier is manufacturing only one type of goods and is supplying the same goods in both domestic market and overseas. During the relevant period of refund, the details of his inward supply and outward supply details are shown in the table below:
|
Outward Supply |
Value per unit |
No of units supplied |
Turnover |
Turnover as per amended definition |
|
Local
(Quantity 5) |
200.00 |
5.00 |
1,000.00 |
1,000.00 |
|
Export
(Quantity 5) |
350.00 |
5.00 |
1,750.00 |
1500 (1.5*5*200) |
|
Total |
|
|
2,750.00 |
2,500.00 |
The formula for calculation of refund as per Rule 89(4) is:
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated
supply of services) x Net ITC ÷Adjusted Total Turnover
ISSUE ALL ABOUT:-
There are
discrepancies between the Invoice Value and value in the shipping bill/bill of
export and hence required clarity on which one should be adopted as export
value for the purpose of refund. This has been clarified in circular no.
37/11/2018-GST dated 15/Mar/2018. and further reiterated in the Master Circular
125/44/2019 dated 18/Nov/2019 that the lower of the two is to be considered in
the numerator for calculating the refund. Para 9 of circular no. 37/11/2018-GST
dated 15/Mar/2018 is reproduced below: -
Discrepancy between values of GST invoice and shipping bill/bill
of export: It has been brought to the notice of the Board that in certain cases,
where the refund of unutilized input tax credit on account of export of goods
is claimed and the value declared in the tax invoice is different from the
export value declared in the corresponding shipping bill under the Customs Act,
refund claims are not being processed. The matter has been examined and
it is clarified that the zero-rated supply of goods is effected under the
provisions of the GST laws. An exporter, at the time of supply of goods
declares that the goods are for export and the same is done under an invoice
issued under rule 46 of the CGST Rules. The value recorded in the GST invoice
should normally be the transaction value as determined under Page 5 of 8 section
15 of the CGST Act read with the rules made thereunder. The same transaction
value should normally be recorded in the corresponding shipping bill / bill of
export.
Whereas this clarification has created further ambiguity amongst
the taxpayers and the tax officers on two matters: -
Explanation.: - For the purposes of this sub-rule, the
value of goods exported out of India shall be taken as
(i)
The Free on Board (FOB) value declared in the Shipping Bill or Bill of
Export form, as the case may be, as per the Shipping Bill and Bill of Export
(Forms) Regulations, 2017. OR
(ii) The value declared in tax invoice or bill of
supply.
whichever is less.
However, the
second question on which value to be considered as export value for the purpose
of the calculation of Adjusted Total Turnover – whether the value determined in
the numerator as ‘Turnover of Zero-rated supply of goods or the value as
declared in the returns filed for the relevant period – remained unanswered.
Examples: -
EXPORT OF GOODS WITH PAYMENT OF IGST RULE 96 (OPTION 2):-
The shipping bill filed by an exporter of
goods shall be deemed to be an application for refund of integrated tax paid on
the goods exported out of India and such application shall be deemed to have
been filed only when,
1) The
person in charge of the conveyance carrying the export goods duly files a
departure manifest or an export manifest or an export report covering the
number and the date of shipping bills or bills of export.
2) The applicant has furnished a valid return in FORM GSTR-3B.
3) The
details of the relevant export invoices in respect of export of goods contained
in FORM GSTR-1 shall be transmitted electronically by the common portal
to the system designated by the Customs and the said system shall
electronically transmit to the common portal, a confirmation that the goods
covered by the said invoices have been exported out of India.
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