Refund without payment of zero rated supply

The freight mentioned in the shipping bill is generally not included in the calculation of Adjusted Turnover for GST refund purposes. According to the latest GST rules and clarifications:

• The value of exported goods for refund calculation is determined as the lower of the Free on Board (FOB) value mentioned in the shipping bill or the value stated in the tax invoice.

• FOB value excludes freight and insurance, as opposed to the invoice value (which may include such elements for CIF or similar contracts).

• This rule was clarified through various CBIC circulars and the insertion of an explanation to Rule 89(4) of the CGST Rules.

• The adjusted total turnover is calculated based on the value of supplies in the State/Union territory, excluding exempt supplies except zero-rated supplies; this is in line with Rule 89(4)(E) and aligns with the above rule of considering the lower of invoice/FOB value.

• Since only the FOB value (excluding freight) from the shipping bill is considered, freight amounts are not included in the adjusted turnover for the GST refund formula if the FOB value is lower than the CIF/invoice value.

• This means, if the shipping bill includes freight (as in CIF), but the FOB value is available and is lower, only that FOB value—without freight—will be considered.

References from Circulars and Rule

• CBIC Circulars No. 37/11/2018-GST, 125/44/2019-GST, and 197/09/2023-GST clarify this position.

• The explanation given via Notification No. 14/2022-CT, dated 05/July/2022, under Rule 89(4), cements the rule that the lower value (between FOB/shipping bill and invoice) should be used.

• Recent court interpretations, such as the Gujarat HC’s direction in 2024, also support this methodology for refund computation.

• Since only the FOB value (excluding freight) from the shipping bill is considered, freight amounts are not included in the adjusted turnover for the GST refund formula if the FOB value is lower than the CIF/invoice value.

• This means, if the shipping bill includes freight (as in CIF), but the FOB value is available and is lower, only that FOB value—without freight—will be considered.

References from Circulars and Rule

• CBIC Circulars No. 37/11/2018-GST, 125/44/2019-GST, and 197/09/2023-GST clarify this position.

• The explanation given via Notification No. 14/2022-CT, dated 05/July/2022, under Rule 89(4), cements the rule that the lower value (between FOB/shipping bill and invoice) should be used.

• Recent court interpretations, such as the Gujarat HC’s direction in 2024, also support this methodology for refund computation.

The tax payer has mentioned the shipping bill amount in GSTR 3B.

If it is inclusive of freight, for all your transactions you consider only FOB values.

Freight is included in Adjusted Total Turnover only if it forms part of the value of the relevant zero-rated supplies under the applicable GST valuation rules. For export of goods, the shipping bill’s FOB value is generally the relevant value; freight shown separately for transport beyond the place of removal is not automatically added merely because it appears in the shipping bill. Check the export invoice and contract to establish whether the freight is part of the consideration and the value adopted for GST.

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