1. How are exports covered under GST?
The export of goods or services is considered as a zero-rated supply. GST is not being levied on export of any kind of goods or services. Zero rated supply means export of goods or services or both, or supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit (Section 16(1) of IGST Act, 2017). Export of goods as defined with its grammatical variations and cognate expressions, mean taking goods out of India to a place outside India (Section 2(5) of IGST Act, 2017).Export of services as defined in Section 2(6) of IGST Act, 2017 means the supply of any service when:
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with
Explanation 1 in section 8.
There is no condition to receive the payment of goods in convertible foreign exchange in case of export of goods unlike in case of export of services.However, in case of services, where the payment is received in Indian rupees, the same shall not qualify to be export of services.
Attention is invited to para A (v) Part-I of RBI Master Circular No. 14/2015-16 dated 01stJuly, 2015 (updated as on 05th November, 2015), which states that “there is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations, Notifications and Directions framed under the Foreign Exchange Management Act, 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020), all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan”.
Accordingly, the acceptance of LUT for supplies of goods to Nepal or Bhutan or SEZ developer or SEZ unit is permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with the applicable RBI guidelines. It may also be noted that the supply of services to SEZ developer or SEZ unit under LUT will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange (Circular no. 8/8/2017- GST dated 04 October 2017).
2. What are Deemed Exports?
Deemed exports are the supplies of goods that do not leave India and payment for such supplies is received either in Indian rupees or convertible foreign exchange, provided goods are manufactured in India. Section 147 of CGST Act, 2017 empowers the Central Govt. on the recommendations of the Council to notify deemed exports. All supplies notified as supply for deemed export will be subject to levy of taxes, i.e. such supplies can be made only by payment of tax.
However, the refund of tax paid on the supply regarded as deemed export is admissible to either the supplier or the recipient. The deemed exporters can either:
• To levy GST on supply and collect it from the recipient. In this case, the recipient shall apply for a refund.
• To levy GST on supply and to not collect it from the recipient. In this case, the supplier shall apply for a refund through GST RFD 01. In this case, a declaration is also required from the recipient to the effect that he does not avail any input tax credit of the same.
Categories of Supply of Goods notified as deemed exports (vide notification no. 48/2017 - Central Tax dated 18 October 2017):
a. Supply of goods by a registered person against Advance Authorisation.
b. Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation.
c. Supply of goods by a registered person to Export Oriented Unit.
d. Supply of gold by a bank or Public sector Undertaking specified in the notification No. 50/2017-Customs dated the 30th June 2017 (as amended) against Advance Authorisation.
3. How exports are made?
Exports are made under bond or under letter of undertaking.
In case of exports under bond, a general security bond is issued on an application made along with bank guarantee provided for a certain amount. The purpose of the bank guarantee is to provide security to the government in case of any non-compliances or frauds. The bond issued under GST is not separate for each consignment, but a running bond is issued so that terms and conditions are the same for each consignment.
In case of exports under letter of undertaking, a guarantee is furnished by a taxpayer that it is engaged in the export of goods and/or services or both and it satisfies all the conditions about the export of goods and services without payment of GST. It is like permission taken from the government for exporting the goods without payment of tax. Earlier, the application for the same was generally made physically on the letterhead of the company, but under the GST regime, an online application is to be submitted on the GST portal.
In case of exports underpayment of IGST, the taxpayer make exports of goods or services on payment of IGST.
4. Who are eligible for using bonds or letter of undertaking for exports?
Any registered person who has received a remittance of Rs. 1 crore or 10% of the export turnover whichever is higher in the previous financial year and who has not been prosecuted for tax evasion for an amount of more than Rs. 2.5 Crores is eligible to avail the benefit of LUTs (Notification no. 16/2017 - Central Tax dated 7 July 2017). However, the condition of inward remittance of higher of 10% or Rs. 1 crore has been relaxed vide notification no.37/2017- Central Tax dated 04 October, 2017. Now, exporters who have not been prosecuted/ prosecuted for tax evasion uptoRs. 2.50 crores can avail the benefit of LUT while those who have been prosecuted for an amount of more than Rs. 2.50 crores can apply for making exports using bonds.
The validity of LUT is for one financial year. For every new financial year, a fresh LUT should be applied. If any discrepancies found in the application for LUT are not corrected within the prescribed time, then the LUT will be cancelled.
The LUT’s are required to be submitted online on the GST common portal. However, a bond has to be submitted as a hard copy to the department.
5. Whether tax paid on zero-rated outward supplies can be refunded?
An exporter dealing in zero-rated goods under GST can claim a refund for zero-rated outward supplies as per the following options:
A: If Bond / LUT has been furnished:
The taxpayer is not required to make payment of taxes at the time of exports in case the bond / LUT has been furnished before exporting the goods/services. Therefore, he will not be required to claim any refund in respect of outward supply (export) of goods or services.
B: If a Bond / LUT has not been furnished:
If the taxpayer has made the payment of GST on the export of goods, then the shipping bill filed by the exporter at the time of export would itself constitute the refund claim subject to two conditions:
a) The person in charge of the conveyance carrying the export goods (Example: shipping agency) has filed an export general manifest.
b) The applicant has filed a valid return in form GSTR 3B and GSTR 1 accurately specifying all the details relating to the export of goods/services.
C: IGST is paid on export:
IGST paid on the supply of zero-rated supply of goods or services can be claimed as refund. The same is provided in section 16(3)(b) of IGST Act, 2017.
6. Whether ITC can be availed in making zero-rated supplies? Whether unutilized ITC can be claimed as a refund by the person making zero-rated supply?
ITC on inputs or capital goods are allowed to be availed for making zero-rated supply (notwithstanding that it is an exempt supply). Section 16(2) of IGST Act, 2017 provides for the same.
Unutilized ITC is eligible to be claimed as a refund by the person making zero-rated supply provided the supply of goods or services or both is made under bond or letter of the undertaking without payment of IGST (Section 16(3)(a) of IGST Act, 2017). It may be noted that the refund of the accumulated unutilized input tax credit would not be available where goods exported out of India are subjected to export duty (Proviso to Section 54(3) of CGST Act, 2017).
The exporter needs to file an application for refund on the common portal either directly or through the facilitation center notified by the GST commissioner. An export manifest or report has to be filed under the Customs Act prior to filing an application for refund.
In respect of the refund of the accumulated unutilized input tax credit on account of exports, an online application in form RFD - 01 A
is required to be filed on the common portal providing the details about:
• Turnover of zero-rated supply of goods and services
• Adjusted total turnover
• Net Input tax credit
The portal automatically calculates the maximum refund amount to be claimed on entering the details mentioned above, and after entering the details of bank accounts, we can apply for a refund.
• Manufacturer of fabrics are eligible for refund of unutilized ITC of GST paid on inputs (but not capital goods) in respect of fabrics manufactured and exported by him (Circular no. 18/18/2017- GST dated 16 November 2017).
• Under GST, the duty drawback would only be available for the customs duty paid on imported inputs or central excise paid on certain petroleum or tobacco products used as inputs or fuel for captive power generation.
• No refund of ITC shall be allowed if the supplier of goods or services or both avails of a drawback in respect of CGST or claims refund of IGST paid on such supplies (Proviso to Section 54(3) of CGST Act, 2017).
• Refund of unutilized input tax credit of central tax / State tax / Union territory tax / integrated tax shall be available to a supplier availing of drawback only with respect to basic customs duty. It is further clarified that refund of eligible credit on account of State tax shall be available even if the supplier of goods or services or both has availed of drawback in respect of central tax (Circular no. 37/11/2018-GST dated 15 March, 2018).
7. How much refund is granted to the taxpayer?
After the processing of the application of refund claim, 90% of the amount claimed as refund is credited to bank account within 7 days of the date of claim. The remaining 10% refund will be credited on due verification of documents furnished by the applicant.
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