GST (Goods and Services Tax) is an indirect tax introduced in India on 01.07.2017, designed to streamline the indirect taxation system in India. As a comprehensive tax, GST replaced many indirect taxes like VAT, excise duty and service tax in India. It is applied at every stage of the production and distribution chain, ensuring that tax is paid only on the value added at each stage. One of the key features of GST is the availability of tax credits for taxes paid on inputs. By simplifying compliance, GST helps alleviate the overall tax burden on both consumers and businesses. Its seamless the ease of doing business while promoting a more transparent and efficient tax structure across the country.
EXPORT OF GOODS AND SERVICES UNDER GST-IMPLICATIONS AND REFUND PROVISIONS
Export, the term refers to trading/supplying of goods and services beyond the domestic borders of a country. It encompasses the exchange of products, services, and resources between nations, typically involving international markets and the global economy.
Under GST, export of goods and services is deemed as ‘inter-state supplies’ and will be treated as ‘zero-rated supply’. ‘Zero-rated supply’ makes the entire supply tax free. In nut-shell, there will be no tax burden either at the input stage or at the final output stage.
GST Implications on the Exports of Goods and Services
As we know, ‘goods’ being tangible in nature can easily be deemed to be exported as and when it crosses the territorial borders of India. Export of ‘Goods’ defined under section 2(5) of the IGST Act. However, ‘services’ being intangible, export of services has a different treatment. ‘Export of Services’ defined under section 2(6) of the IGST Act. Definition of both the terms are defined as under:-
‘Export of Goods’ means taking goods out of India to a place outside India.
‘Export of Services’ means a supply of service satisfying all the following conditions as under: -.
- The Supplier of Service is Located in India.
- The Receiver of Service is Located outside India.
- The Place of Supply of Service is outside India.
- The Supplier Receives the Payment in Convertible Foreign Exchange or India Rupee when Permitted by RBI.
- The Supplier and the Receiver of Service should not be the Establishment of a Distinct Person.
Exports Options available to the Exporters
An exporter is facilitated with the following two types of export options: -.
- Export of goods/ services with payment of IGST
(Section 16(3) (b) of the IGST Act read with rule 96 of the CGST Act)
- Export of goods/ services without payment of IGST (under Bond/ Letter of Undertaking) & (Section 16(3) (a) of the IGST Act read with rule 96A of the CGST Act).
The export of goods and services is considered as a zero-rated supply.
GST Refund
The concept of refund in the parlance of GST is crucial for a taxpayer as it facilitates trade by releasing blocked funds for working capital, expansion, and modernization of existing business. Under the GST regime, there is a standardized form for making any refund claim. The claim and sanctioning procedure are primarily online and time-bound, which is a marked departure from the earlier time-consuming and cumbersome process. A cliam for GST refund may be arise on account of various reasons which is mandated by section 54 of the CGST Act, 2017 and the same is mentioned below:
- Export of goods or services.
- Supplies to SEZs units and developers by a specified class.
- Supply of goods regarded as Deemed Exports.
- Refund of taxes on purchase made by UN or embassies etc. Under section 55 of CGST Act, 2017.
- Refund arising on account of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court.
- Refund of accumulated Input Tax Credit on account of inverted rate structure;
- Finalisation of provisional assessment.
- Refund of pre-deposit in appeal.
- Tax paid in excess/by mistake.
- Refund of tax paid in wrong head under Section 77 of CGST Act, 2017 & Section 19 of IGST Act, 2017 (treating the supply as intra-State supply which is subsequently held as inter-State supply and vice versa).
- Refund on account of any other reasons.
- Refund of excess cash balance in the electronic cash ledger.
Time Limit for Claiming Refund
Any person claiming a refund of any tax, interest, if any, paid on such tax or any other amount paid by him shall have to apply for such refund before the expiry of 2 years from the ‘relevant date’ However, no time limit is applicable on GST refund in case where refund of excess balance in the electronic cash ledger.
Here, relevant date means the period for which the claim has been filed. According to section 54 of the CGST Act, 2017 relevant date in the case of export of goods and services is mentioned as under:-.
- In the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of-
- Receipt of payment in convertible foreign exchange in Indian rupees wherever permitted by the Reserve Bank of India, where the supply of services had been completed prior to the receipt of such payment.
- Issue of invoice, n in advance prior to the date of issue of the invoice.
Now, we will explore in this article the refund of ITC paid on Exports of Goods and Services without payment of IGST.
Minimum Refund Claim
An applicant shall not be entitled for any refund if the refund amount is less than Rs. 1,000. This limit of Rs. 1,000 applies separately for each tax head i.e., CGST, SGST & IGST. Also, this limit would not apply in cases of GST refund of excess balance in the electronic cash ledger.
Provisions
Section 54 of the CGST Act, 2017 deals with the GST refund on export of goods and services. This blog outlines the specific conditions and steps involved in requesting GST refund. It also explains the crucial date used to determine the deadline for submitting a refund claim, identifies which taxes are eligible for refund, and specifies the necessary documentation that must accompany with the refund application.
Taxpayer can claim GST refund in relation to exports of goods and services by exercising any of or both the following two options.
- Refund of IGST – In case of exports on payment of IGST (Rule 96).
- Refund of accumulated Input tax credit (ITC) – In case of exports without payment of IGST but under Bond/LUT (Rule 96A).
Basically, section 54(3) of the CGST Act, 2017 speaks about GST refund of the unutilized ITC in cases such as exports, supply to SEZ units, or inverted duty structure.
Rule 89(4) of the CGST Rules, 2017 prescribes the formula for calculation of GST refund of ITC in case of exports under bond/LUT.
A Letter of Undertaking (LUT) is a crucial document under the GST framework, particularly for exporters. The taxpayer can file the LUT online through the GST common portal using Form RFD-11 which allows taxpayers to export goods or services without the immediate payment of IGST. The LUT must be filed before any export activity begins and remains valid for only one financial year. After the expiry of one-year, the taxpayer is required to submit a fresh LUT application for the subsequent year in order to continue exporting without the upfront IGST payment.
Calculation of refund amount as per rule 89(4) of the CGST Rules,2017
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover where,
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period.
(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less.
(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:- “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”;
(E) “Adjusted Total turnover” means the sum total of the value of –
- the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services and
- the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services,
[excluding the value of exempt supplies other than zero-rated supplies during the relevant period]
(F) “Relevant period” means the period for which the claim has been filed.
Steps to claim the refund of accumulated ITC and processing
- Filing of GST Returns
The exporter must file the necessary GST returns, which includes GSTR-1 i.e., details of outward supplies and GSTR-3B i.e., summary of inward and outward supplies. This ensures that all transactions related to exports are recorded.
- Refund Application
The GST refund application is filed electronically in Form RFD-01 for the claim of refund on the GST portal. In case of “Export of Goods/Services” file form RFD-01A for export without payment of tax and RFD-01B for export with payment of tax.
First and foremost, step is to file the complete details while filing the refund application such as GSTIN, period of refund, amount of accumulated ITC claimed, details of export invoices or inward supplies and additional documents such as GSTR-1 & GSTR-3B and export tax invoices. Once all the details are filled out in Form RFD-01, submit the application for refund.
- Verification of Application
After successful submission of the refund application, the same will be verified by the proper officer and if officer is satisfied with the application, they will issue RFD-02 an acknowledgment and begin the processing the refund. If the proper officer is not satisfied with application due to any discrepancies or missing details, then he/she will issue RFD-03 “deficiency memo” for clarification or additional documents. The due date of issuing RFD-02 & 03 is within 15 days of filing the refund application.
In case the proper officer is not satisfied with the filed application or requires any further clarification or additional supporting documents/information, a reasonable opportunity to be heard will be provided. In such cases, the officer will issue Show Cause Notice (SCN) in form RFD-08 outlining the specific discrepancies or additional request. Upon receipt of the SCN, applicant may submit a response, providing appropriate justifications along with supporting documents, within the due date specified in the SCN.
- Refund Payment
Once the proper officer is being fully satisfied, approved the filed refund application and issue form RFD-06 a refund sanctioned order to the taxpayer against the filed refund application and the amount will be credited to the applicant’s account within 60 days from the date of filing the application, subject to verification as the processing time is generally around 60 days. In case the proper officer is not satisfied with the refund application, the application shall be rejected, and a refund rejection order will be issued. The order will include a clear and detailed explanation of the reasons will be provided to the applicant for rejecting the filed refund application.
- Interest on delayed payment
In case where the GST refund not credited within 60 days from the date of filing refund application, then interest is payable to the taxpayer along with refund amount. The interest is provided at such rate not exceeding six percent per annum.
Conclusion
Claiming a refund of accumulated ITC involves a detailed and structured process. Ensure that all returns are filed correctly, documents are attached as per the requirements, and timelines are adhered to. Keep a check on the status of your refund application and respond promptly to any queries raised by the GST authorities.