Solution to the Dilemma faced by the Recipient of Deemed exports for claiming refund !!!

CA. Heet Shah | Last updated: 15 March 2021

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Quick Summary

This article addresses a common dilemma faced by recipients of deemed exports when claiming refunds. While Circular 125/44/2019 suggests recipients must provide an undertaking not to have availed Input Tax Credit (ITC) for refunded invoices, the CGST Rules allow recipients to claim ITC. The article clarifies that this restriction primarily applies when the supplier claims the refund, not the recipient. Recipients claiming refunds must provide an undertaking confirming the refund is for specific invoices and doesn't exceed ITC availed, while also declaring the supplier hasn't claimed a refund.

Circular 125/44/2019 dated 18.11.2019 has placed a condition that the recipient of deemed export supplies shall submit an undertaking that he has not availed ITC on invoices for which refund has been claimed However while claiming a refund on deemed exports, the system requires the recipient to debit the amount claimed in Credit ledger. Thus, the question that arises is whether the recipient of deemed supply applying for refund has to claim ITC or not in order to claim a refund?

3rd proviso to Rule 89(1) of CGST Rules, 2017:

“Provided also that in respect of supplies regarded as deemed exports, the application may be filed by, -(a) the recipient of deemed export supplies; or (b) the supplier of deemed export supplies in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund”

Deemed Export Refunds: Solve Recipient s ITC Dilemma

From the above provisio it can be understood that there is no restriction on the recipient of deemed Export from availing ITC for recipient.

Therefore the restriction provided vide said circular stated above would apply only in case of a refund applied by supplier of deemed exports.

Hence in case the refund is applied by the supplier of deemed export the documentary evidence specified in notification 49/2017 dated 18.10.2017 shall include an undertaking that the recipient has not claimed the refund in respect of such supplies and shall not avail any ITC. On similar Lines if recipient of deemed export applies for refund claim the undertaking shall state that the refund claim is only for those invoices which are detailed in statement-5B for the tax period & the amount does not exceed the amount of ITC availed. The recipient shall alsi be required to declare tahth supplier has not claimed refund with respect to such supplies Further procedure regarding the procurement of goods from DTA needs to be complied by the recipient.

FAQ :

The dilemma arises from a condition in Circular 125/44/2019 requiring recipients to undertake they haven't availed ITC on invoices for which they claim a refund, conflicting with the CGST Rules which permit recipients to claim ITC.

Yes, according to the 3rd proviso to Rule 89(1) of the CGST Rules, 2017, there is no restriction on the recipient of deemed exports from availing ITC while applying for a refund.

The restriction provided in Circular 125/44/2019 primarily applies when the refund is applied for by the supplier of deemed exports, not the recipient.

When a recipient applies for a refund, they must provide an undertaking stating the refund claim is for specific invoices detailed in statement-5B, the amount does not exceed the ITC availed, and that the supplier has not claimed a refund for these supplies.

The recipient must also comply with the procedures regarding the procurement of goods from a Domestic Tariff Area (DTA).