GST on Deemed Exports

GST was introduced with much fanfare on 01st July 2017. Since then there have been series of changes proving that the original law was a half-baked one.

However, it must be appreciated that the GST Council have been quick in taking corrective measures be it in the form of extension of due dates, cutting down rates, relaxation for compliances for small taxpayers so on and so forth.

One critical aspect which was missing when the law was introduces was that the 'deemed export' transactions were not specified. This missing link brought domestic sales to export-oriented units (EOU)1 at par with normal sales transactions.

On 18th October, 2017 a Notification vide 48/2017-Central tax was issued by Central Board of Excise and Customs (CBEC) defining deemed exports. Deemed exports have been defined as -

Supply of goods by a registered person against Advance Authorisation
Supply of capital goods by a registered person against Export Promotion Capital

Goods Authorisation

Supply of goods by a registered person to Export Oriented Unit
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.

In this article we shall look at

Flow of deemed export transaction
Documents/Evidence required for undertaking deemed export transaction
Procedure for undertaking deemed export transaction

1) Flow of deemed export transaction

Deemed export transaction is different from 'Zero Rated Supplies'(Export and Sale to SEZ units). While undertaking zero rated supplies the supplier has two options-

Undertaking a transaction with payment of duty or
Undertaking a transaction without payment of duty

In option (i) the supplier has to pay tax on the supply but he shall not recover it from the customer. He can claim the refund of the same from government through GST RFD 01. GST RFD 01 can be filed only after filing of GSTR 3. Currently, as GST filings are not in-line, GSTR E1 facility has been introduced in order to enable exporters to claim refund.

This option is generally exercised if there is significant amount of unutilized input tax credit in the books of an entity.

In option(ii) the supplier has to enter into a bond or execute a letter of undertaking(LUT) when the law was introduced only specified class of exporters were allowed to take LUT route and others had to enter into a bond. However, these norms were relaxed and now all exporters and suppliers who supply to SEZ are eligible to undertake a LUT.

However, deemed exporters don't have a choice to supply undertake a LUT or execute a bond and supply goods without payment of tax.

Deemed Exporters have two options.

To levy GST on supply and collect it from the recipient. In this case, the recipient shall apply for refund.
To levy GST on supply and to not collect it from the recipient. In this case, the supplier shall apply for refund through GST RFD 01.

2) Documents/Evidence required for undertaking deemed export transaction

Transaction	Evidence required
Supply of goods by a registered person against Advance Authorisation and 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 Authorization.	Acknowledgment by the jurisdictional Tax officer of the Advance Authorisation Holder that the said deemed export supplies have been received by the said Advance Authorization
Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization	Acknowledgment by the jurisdictional Tax officer of Export Promotion Capital Goods Authorization holder that the said deemed export supplies have been received by the said Export Promotion Capital Goods Authorization holder
Supply of goods by a registered person to Export Oriented Unit	A copy of the tax invoice under which such supplies have been made by the supplier, duly signed by the recipient Export Oriented Unit that said deemed export supplies have been received by it.
All supplies mentioned above	An undertaking by the recipient of deemed export supplies that no input tax credit on such supplies has been availed of by him.
All supplies mentioned above	An undertaking by the recipient of deemed export supplies that he shall not claim the refund in respect of such supplies and the supplier may claim the refund.

3) Procedure for undertaking deemed export transaction

The following procedure and safeguards are prescribed for supplies to EOU / EHTP / STP / BTP units in terms of Notification No. 48/2017- Central Tax dated 18.10.2017:

i. The recipient EOU / EHTP / STP / BTP unit shall give prior intimation in a prescribed proforma in "Form-A" bearing a running serial number containing the goods to be procured, as pre-approved by the Development Commissioner and the details of the supplier before such deemed export supplies are made. The said intimation shall be given to -

a. the registered supplier;
b. the jurisdictional GST officer in charge of such registered supplier; and
c. its jurisdictional GST officer.

ii. The registered supplier thereafter will supply goods under tax invoice to the recipient EOU / EHTP / STP / BTP unit.

iii. On receipt of such supplies, the EOU / EHTP / STP / BTP unit shall endorse the tax invoice and send a copy of the endorsed tax invoice to -

a. the registered supplier;
b. the jurisdictional GST officer in charge of such registered supplier; and
c. its jurisdictional GST officer.

iv. The endorsed tax invoice will be considered as proof of deemed export supplies by the registered person to EOU / EHTP / STP / BTP unit.

v. The recipient EOU / EHTP / STP / BTP unit shall maintain records of such deemed export supplies in digital form, based upon data elements contained in "Form-B". The software for maintenance of digital records shall incorporate the feature of audit trail. While the data elements contained in the Form-B are mandatory, the recipient units will be free to add or continue with any additional data fields, as per their commercial requirements. All recipient units are required to enter data accurately and immediately upon the goods being received in, utilized by or removed from the said unit. The digital records should be kept updated, accurate, complete and available at the said unit at all times for verification by the proper officer, whenever required. A digital copy of Form - B containing transactions for the month, shall be provided to the jurisdictional GST officer, each month (by the 10th of month) in a CD or Pen drive, as convenient to the said unit.

The above procedure and safeguards are in addition to the terms and conditions to be adhered to by a EOU / EHTP / STP / BTP unit in terms of the Foreign Trade Policy, 2015- 20 and the duty exemption notification being availed by such unit.

1 Export Oriented Unit includes Electronic Hardware Technology Park (EHTP), Software Technology Park Unit (STPI) or Bio Technology Park Unit (BTPI)

The author is a chartered accountant by profession, the domain consultant for SahiGST and author of the book GST for Entrepreneurs (Available Free). He can also be reached at jigar.shah@skrathi.com