Export Refund Under GST

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1 ICAI, Hyderabad 25 th June, 2018 Export Refund Under GST by CA Manindar K Partner M/s SBS and Company LLP manindar@sbsandco.com

2 Coverage Zero Rated Supplies Detailed Analysis of Section 54 Types of Export Refunds under GST Procedural Aspects relating to Refund claims Interest for delayed Refunds Credit of Amount Rejected as Refund Claims Export of Goods upon Payment of IGST Export of Services upon Payment of IGST Export of Goods/services under BOND/LUT Export of Goods/Services to SEZ Refund if any for Supplies to Merchant Exporter Refund for Deemed Exports 2

3 3 Zero Rated Supplies

4 Zero-Rated Supplies 16. (1) zero rated supply means any of the following supplies of goods or services or both, namely: (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. (2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. (3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely: (a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilized input tax credit; or (b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder. 4 manindar@sbsandco.com

5 Zero-Rated Supplies Following supplies are zero-rated: Export of goods or services Supplies to SEZ unit or SEZ developer Section 2(5) of IGST Act, 2017 defines Export of Goods to mean taking goods out of India to a place outside India Section 2(6) of IGST Act, 2017 defines Export of Service to mean any service when Supplier of service is located in India Recipient of service is located outside India Place of supply of service is outside India Payment for such service has been received in CFE Supplier and recipient of service are not mere establishments of distinct persons 5

6 Zero-Rated Supplies Input tax credit can be availed for zero-rated supplies not withstanding that such supply is an exempt supply A registered person making zero-rated supplies shall be eligible to claim refund of ITC either of the following options; Supply the goods or services under bond/lut without payment of integrated tax and claim refund of ITC Supply the goods or services by paying integrated tax and claim refund of such tax 6

7 Zero-Rated Supplies Case Study#1: Mr. X of Delhi is having 20 years of rich experience in the field of aeronautical engineering. He has been appointed as a technical consultant by Transworld Aviation FZE, UAE. The services are mainly undertaken by using electronic means viz. , video conferencing etc. Payment is made in CFE. Mr. X is having negligible expenditure in the form of internet services in order to provide these services. He does not have any intention to claim refund of GST paid on internet services. Does Mr. X is required to register, execute Bond/LUT in order to export these services? 7

8 Zero-Rated Supplies Section 16 mandates the requirement of Bond/LUT only when the exporter intends to claim refund. IGST Act, 2017 unconditionally provides that a service is zero-rated if it exported in terms of section 2(6). Rule 96A of CGST Rules, Refund of integrated tax paid on export of goods or services under bond or Letter of Undertaking.- Any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest specified under sub-section (1) of section 50 within a period of - (a) fifteen days after the expiry of three months, 2[or such further period as may be allowed by the Commissioner,] from the date of issue of the invoice for export, if the goods are not exported out of India; or (b) fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange. 8

9 Zero-Rated Supplies Para 4 of Circular No. 37/11/2018-GST: 4. Exports without LUT: Export of goods or services can be made without payment of integrated tax under the provisions of rule 96A of the Central Goods and Services Tax Rules, 2017 (the CGST Rules). Under the said provisions, an exporter is required to furnish a bond or Letter of Undertaking (LUT) to the jurisdictional Commissioner before effecting zero rated supplies. A detailed procedure for filing of LUT has already been specified vide Circular No. 8/8/2017 GST dated 4th October, It has been brought to the notice of the Board that in some cases, such zero rated supplies have been made before filing the LUT and refund claims for unutilized input tax credit have been filed In this regard, it is emphasized that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case. 9

10 Zero-Rated Supplies Para 5 of Circular No. 37/11/2018-GST: 5.1 It has been reported that the exporters have been asked to pay integrated tax where the goods have been exported but not within three months from the date of the issue of the invoice for export. In this regard, it is emphasized that exports have been zero rated under the Integrated Goods and Services Tax Act, 2017 (IGST Act) and as long as goods have actually been exported even after a period of three months, payment of integrated tax first and claiming refund at a subsequent date should not be insisted upon. In such cases, the jurisdictional Commissioner may consider granting extension of time limit for export as provided in the said sub-rule on post facto basis keeping in view the facts and circumstances of each case. The same principle should be followed in case of export of services. Though the Rule 96A is mandating the requirement of Bond/LUT prior to export without payment of IGST, the same was insisted under Section 16, only for the purposes of claiming refund. No demand shall be insisted upon if the goods or services are ultimately exported. 10

11 Zero-Rated Supplies Case Study#2 Xlent Resorts has provided convention services to Tech Soft Ltd (SEZ Unit) towards an annual event. As the services are supplied to SEZ (zero-rated), Xlent Resorts has not charged any GST. During Department Audit, it has been identified that convention services are not among the authorized services of Tech Soft Ltd and accordingly alleged that their services does not qualify as zero-rated supply. Accordingly, GST is demanded from Xlent Resorts. Whether Xlent Resorts is required to pay GST? 11

12 Zero-Rated Supplies Second Proviso to Rule 89 of CGST Rules, 2017: Provided further that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the (a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorized operations, as endorsed by the specified officer of the Zone; (b) supplier of services along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone; 12

13 Zero-Rated Supplies Para 2.2 of Circular No. 48/22/2018-GST: A conjoint reading of the above legal provisions reveals that the supplies to a SEZ developer or a SEZ unit shall be zero rated and the supplier shall be eligible for refund of unutilized input tax credit or integrated tax paid, as the case may be, only if such supplies have been received by the SEZ developer or SEZ unit for authorized operations. An endorsement to this effect shall have to be issued by the specified officer of the Zone. Section 26(1)(e): Exemption from service tax under Chapter-V of the Finance Act, 1994 on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone. IGST Act, 2017 is an enabling Act to grant GST exemptions that are conferred under SEZ Act, 2005 which only limits the exemption to authorized operations. Harmonious interpretation should be adopted to reconcile the inconsistencies between two legislations. 13

14 14 Detailed Analysis of Section 54 (Refund)

15 Refund of Tax {Section 54 of CGST Act, 2017} Section 54 contains 14 Sub-sections and an Explanation Snapshot of the said section Sub- Section Particulars Sub-section (1) Refund of Tax, Interest or any other amount paid in General Sub-section (2) Refund of tax paid on inward supplies received by UNO, MFIs and other notified organisations Sub-section (3) Refund of unutilised ITC relating to zero rated supplies and supplies having inverted tax structure Sub-section (4) Documentary Evidence to be submitted with refund application Sub-section (5) Processing of refund claim Sub-section (6) Provisional refund of 90% of claim amount in case of refunds due to zero-rated supplies Sub-section (7) Time limit to dispose of the claims 15

16 Refund of Tax {Section 54 of CGST Act, 2017} Sub- Section Particulars Sub-section (8) &(9) Unjust Enrichment and the exceptions Sub-section (10) Withholding of refund or Deduction of refund amount with other tax dues Sub-section (11) Withholding of Refund pending Appellate proceedings Sub-section (12) Interest for delayed sanction of Refund Sub-section (13) Refund in case of advance tax paid by Casual and Non-Resident taxable persons Sub-section (14) No refund is permissible if claim amount is less than Rs 1000/- Explanation Refund and Relevant Date to determine time limit for filing refund claim 16

17 Refund of Tax, Interest and Other Amounts Paid Sub-Section (1): Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed: Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed. Explanation.-For the purposes of this section, (1) refund includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3). 17

18 Refund of Tax, Interest and Other Amounts Paid Sub-section provides for refund of tax, interest and any other amount paid. Instances leading to refund claim includes erroneous payment of tax, excess payment on account of rate or exemption issue, export of goods or services, deemed exports Refund can be claimed by filing application within two years from the relevant date. Section 54 is not applicable to claim refund of any balance in electronic cash ledger. 18

19 Refund of Tax for UNO, MFIs etc Sub-Section (2): A specialized agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), Consulate or Embassy of foreign countries or any other person or class of persons, as notified under section 55, entitled to a refund of tax paid by it on inward supplies of goods or services or both, may make an application for such refund, in such form and manner as may be prescribed, before the expiry of six months from the last day of the quarter in which such supply was received. 19

20 Refund of Tax for UNO, MFIs etc Under the erstwhile regime, the exemptions are abinito. Under the GST regime, the exemptions are conferred by way of refund of tax paid on inward supplies received by these organizations. The time limit to claim refund is on or before six months from the last day of quarter in which supply was received. 20

21 Refund of ITC in case of Zero-Rated Supplies & Inverted Tax Structure Sub-Section (3): Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than (i) zero rated supplies made without payment of tax; (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty: Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. 21

22 Refund of ITC in case of Zero-Rated Supplies & Inverted Tax Structure Unutilized ITC can be claimed as refund in cases of zero-rated supplies and supplies involving inverted tax structure Zero-Rated Supplies includes exports and supplies to SEZ No refund is allowed if exports are subject to export duty or drawback relating to Central tax or Integrated tax is claimed. Inverted tax structure should be on account of higher tax on inputs as compared to tax on output supplies. No refund is allowed if ITC is accumulated on account of higher tax on input services. Government may on council recommendations, notify the supplies of goods or services on which refund cannot be claimed on account of inverted duty structure. Notification 5/2017-CT(Rate) and Notification 15/2017-CT(Rate) are issued in this regard 22

23 Documentary Evidence Sub-section (4): The application shall be accompanied by (a) such documentary evidence as may be prescribed to establish that a refund is due to the applicant; and (b) such documentary or other evidence (including the documents referred to in section 33) as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person Provided that where the amount claimed as refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a declaration, based on the documentary or other evidences available with him, certifying that the incidence of such tax and interest had not been passed on to any other person. 23

24 Documentary Evidence Documentary evidence includes invoices, shipping bills, FIRCs/BRCs etc In case of claims hit by unjust enrichment, evidence should also be provided to prove that the incidence of tax and interest has not been passed on. No need to submit the documents for claim amounts less than two lakhs 24

25 Processing of Refund Sub-Sections (5),(6)&(7): (5) If, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund referred to in section 57. (6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such category of registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional basis, ninety per cent. of the total amount so claimed, excluding the amount of input tax credit provisionally accepted, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by the applicant. (7) The proper officer shall issue the order under sub-section (5) within sixty days from the date of receipt of application complete in all respects. 25

26 Processing of Refund Every application for refund shall be processed within 60 days from the date of receipt of application. In case of refund of ITC on zero-rated supplies, 90% of the claim amount shall be refunded on provisional basis. 26

27 Unjust Enrichment and the Exceptions Sub-Sections (8) & (9): (8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to- (a) refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies; (b) refund of unutilised input tax credit under sub-section (3); (c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued; (d) refund of tax in pursuance of section 77; (e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or (f) the tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify. (9) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provisions of this Act or the rules made thereunder or in any other law for the time being in force, no refund shall be made except in accordance with the provisions of sub-section (8) 27

28 Unjust Enrichment and the Exceptions Refund is granted subject to satisfaction by claimant as to no unjust enrichment is involved. Otherwise, the refund claim amount shall be transferred to a fund Principle of unjust enrichment should be followed notwithstanding anything contrary in any judgment or provisions of the Act Unjust enrichment is not applicable in the following cases; Refund of tax or ITC on zero-rated supplies Refund of unutilized ITC on account of inverted tax structure Refund of tax paid on supply not provided for which invoice is not issued or refund voucher has been issued Refund of inter-state taxes paid as intra-state taxes or vice versa as provided in section 77 Tax or interest incidence borne by such class of recipients as Central Government may notify 28

29 Withholding or deducting of Refund due Sub-Section (10): (10) Where any refund is due under sub-section (3) to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may- (a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be; (b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law. Explanation. For the purposes of this sub-section, the expression specified date shall mean the last date for filing an appeal under this Act. 29

30 Withholding or deducting of Refund due Withholding or adjustment against dues is allowed only if the refund sanctioned is unutilized ITC on account of zero-rated supplies or inverted tax structure. Refund amount will be withheld pending compliance for return, tax, interest, penalty. Refund amount can be adjusted against dues towards tax, interest, penalty, fee or any other amount 30

31 Withholding of Refund pending Proceedings Sub-Section (11) & (12): (11) Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine. (12) Where a refund is withheld under sub-section (11), the taxable person shall, notwithstanding anything contained in section 56, be entitled to interest at such rate not exceeding six per cent. as may be notified on the recommendations of the Council, if as a result of the appeal or further proceedings he becomes entitled to refund. 31

32 Withholding of Refund pending Proceedings Withholding of refund can be made if the following conditions are satisfied; Appeal against such refund claim is due or any other proceeding is pending under this Act Grant of refund is like to adversely affect the revenue. Interest at 6% is payable for the withholding period. 32

33 Relevant Date for Time Limit to file Refund Claim Situation Export of Goods Deemed Exports Services exported outside India Refund pursuant to a Judgment Refund on account of inverted tax structure Tax paid under Provisional assessment Refund claimed by a person other than supplier Any other case Relevant Date By Air or Sea: Date on which goods leave India By Road: Date on which goods cross the frontiers By Post: Date of despatch of goods by post office The date on which return relating to deemed exports is filed Date of receipt of CFE if services are supplied prior to payment Date of invoice if payment is already received Date of communication of such judgment From the end of financial year in which claim for refund arises The date of adjustment of such tax after final assessment Date of receipt of goods or services Date of payment of Tax 33

34 Types of Export Refunds under GST Zero-Rated Supplies under GST Refund of IGST paid on Export of Goods Refund of IGST paid on Export of Services Refund of ITC on Export of Goods and Services under bond/lut Refund of ITC/IGST paid on supplies to SEZ Refunds involved in supplies to Merchant Exporter at concessional rate Refund under deemed Exports 34

35 Refund Related to Zero-Rated Supplies Applicability of Rules Export and Supplies to SEZ under Bond/LUT Export by paying integrated tax Export by payment of integrated tax under Bond/LUT Rule 89 Rule 96 Rule 96A Refund of ITC for exports and supplies to SEZ under Bond/LUT shall be claimed by following the procedure prescribed under Rule 89 to Rule 94 Refund of Integrated tax paid for export of goods or services shall be claimed by following the procedure prescribed under Rule 96 Refund of Integrated tax paid for export of goods or services under Bond/LUT shall be claimed by following Rule 96A along with general procedure under Rule 89 to 94 to the extent applicable 35

36 Export under Bond/LUT vis-à-vis Payment of IGST Rule 89 facilitates exporters to claim refund of ITC availed on inputs and input services. ITC availed on capital goods cannot be claimed as refund if export under bond/lut is undertaken. Refund of ITC availed on capital goods can be claimed by paying IGST upon export of goods or services. Particulars Situation I Situation II Turnover of Exports 50,00,000 50,00,000 Rate of GST applicable 18% 18% ITC on Inputs 2,00,000 2,00,000 ITC on input services 1,00,000 1,00,000 ITC on capital goods 3,00,000 Nil 36

37 Rule 96-Refund of Integrated Tax Paid on Exports The shipping bill filed at the time of export shall be deemed to be an application filed for refund of integrated tax paid on goods exported outside India provided the following two conditions are satisfied; The person in charge of the conveyance carrying the export goods duly files the export manifest covering shipping bill of the exporter. The exporter should have filed a valid GSTR-3B Details of relevant export invoices as submitted in GSTR-1 shall be transmitted electronically to ICEGATE in order to confirm that goods covered by said invoices are exported. Pending filing of GSTR-1, exporters can fill the export details in table 6A of GSTR-1 Upon electronic confirmation of export of goods and filing of returns, the proper officer of Customs shall process the refund claim and the amount shall be credited to the bank account of exporter through PFMS. 37

38 Rule 96-Refund of Integrated Tax Paid on Exports The refund claim may be withheld by proper officer of Customs where a request has been received from Jurisdictional officer to withhold it in accordance with the provisions of sub-sections (10) and (11) of section 54. Where the goods are exported in violation of the provisions of Customs Act, 1962 Withholding details are communicated to applicant in Part B of Form GST RFD-07. If the applicant becomes entitled to refund later on, the same shall be allowed in Form GST RFD-06 Application for refund of integrated tax paid on services shall be undertaken in accordance with Rule 89 38

39 Rule 96-Refund of Integrated Tax Paid on Exports Applicant claiming refund of integrated tax paid on export of goods or services should not have received goods from a supplier who has availed any of the following benefits Benefit of Deemed Exports Supplied goods at a concessional rate of 0.1% Availed benefits under EOU Supplier has imported any goods under EPCG, Advance Authorization schemes In all these cases, the person exporting the goods should export without payment of Integrated tax under Bond/LUT. This condition is prescribed to avoid excess claims 39

40 Rule 96 Refund-Common Errors & Rectification Following are the common errors for rectification 40 ERROR CODE MEANING RECTIFICATION MEASURES SB000 Successfully Validated Records found matching without errors SB001 Invalid SB details Amending Table 6A of GSTR-1 using Table 9A of GSTR-1 SB002 EGM not filed Exporter to approach shipping line to ensure electronic filing SB003 GSTIN Mismatch Guide Released by Amending Table 6A. Declaration from other entity of same PAN Directorate Systems that no refund is claimed against the SB. SB004 Record already received and validated Duplicate Record can be eliminated in GSTR-1 SB005 Invalid Invoice Number Clerical Error (Amend GSTR-1). Two sets maintained (Concordance Circular 5/2018-Cus dt Table) SB006 Gateway EGM not available Requesting shipping line to file supplementary EGMs electronically Circular 8/2018-Cus dt for the period July 17 to October 18. Has decided to allow officer interface by DG (sys) to rectify this error

41 Rule 96- Refund Common Errors & Rectification Difference in Export Turnover disclosed between GSTR-1 and GSTR-3B Customs policy wing would prepare a list of such exporters and share the list to GSTN. GSTN shall share the details to exporters through s. Cases where there is no short payment CA Certificate should be submitted on or before 31 st October 2018 at the Customs Office and Jurisdictional GST office. Non-submission of CA Certificate will affect future refunds. Cases where there is short payment Short payment shall be met and submit self- certified proof of payment to AC/DC of Customs. CA Certificate should also be submitted in all cases the short fall involved is more than Rs. 10 lakhs 41

42 Rule 96-Refund of Integrated Tax Paid on Exports Applicant claiming refund of integrated tax paid on export of goods or services should not have received goods from a supplier who has availed any of the following benefits Benefit of Deemed Exports Supplied goods at a concessional rate of 0.1% Availed benefits under EOU Supplier has imported any goods under EPCG, Advance Authorization schemes In all these cases, the person exporting the goods should export without payment of Integrated tax under Bond/LUT. This condition is prescribed to avoid excess claims by adjusting ITC related to domestic supplies. 42

43 Rule 96A-Refund of Integrated Tax Paid on Exports under Bond/LUT This Rule provides that any registered person availing the option to export goods or services without payment of integrated tax is required to furnish a bond or LUT in Form GST RFD-11 binding himself; To pay tax within 15 days after the expiry of three months from the date of issue of invoice for export if goods are not exported out of India To pay tax within 15 days after the expiry of one year from the date of invoice if payment for such service is not received in CFE Failure to export the goods or services or pay integrated tax within the time limit specified above will result in bond/lut being withdrawn for recovery of tax. The withdrawn bond/lut shall be restored when the registered persons pays the amount due. If the goods or services are ultimately exported, then refund can be claimed by following the procedure under Rule 96 43

44 Refund claim under Rule 89 The following exporters are covered under this rule Exporter of goods exporting under bond/lut without payment of Integrated tax Exporter of services exporting under bond/lut without payment of Integrated tax Exporter of services by paying integrated tax. In case of exports under bond/lut without payment of tax, the refund is of ITC which can be claimed as refund only after debiting an equivalent amount in electronic credit ledger. Sub-rule (4A) provides that exporter of goods is entitled to claim refund of ITC availed on input services and other inputs used in export but not inputs for which the supplier has availed the benefit of deemed exports Sub-rule (4B) provides that exporter of goods is entitled to claim refund of ITC availed on input services and other inputs used in export but not inputs for which the supplier has availed the benefit of EPCG, Advance Authorisation, Supply at concessional rate. 44

45 Refund claim under Rule 89 In case of export of goods or services, the amount of ITC that is eligible for refund shall be computed as under; Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC Adjusted Total Turnover Net ITC: means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both Adjusted Total Turnover: means the turnover in a state or union territory excluding value of exempt supplies and the turnover of supplies in respect of which refund is claimed under Rule (4A) or (4B) or both during the relevant period. Relevant period is defined as the period for which refund is claimed. 45

46 Inverted Tax Structure To claim refund of ITC due to inverted tax structure, the claim shall be field under Rule 89. Supplier to Merchant Exporters can claim refund under inverted tax structure; Maximum amount that can be claimed as refund is as follows; Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services. 46

47 Supplies to SEZ This is the second type of zero-rated supply The supplier can claim refund of integrated tax paid on supplies to SEZ In cases where the supplier has taken bond/lut, then refund can be claimed of the availed ITC. Application for refund can be filed by supplier of goods only after such goods have been admitted in full in SEZ for authorized operations as endorsed by the specified officer of zone. Application filed by supplier of services along with evidence regarding receipt of services for authorized operations as endorsed by specified officer of the zone. 47

48 Supplies to Merchant Exporter Notification 40/2017-CGST(Rate) and Notification 41/2017-IGST(Rate) provides for concessional rate of GST at 0.1% for supplies to merchant exporter. The following are the conditions to be satisfied:. Both the supplier and recipient merchant exporter are registered under GST and the supplier should issue a tax invoice to the recipient. The recipient shall be registered with an Export Promotion Council or a Commodity Board Recognised by Department of Commerce The Supply Order issued by recipient shall require the corresponding supplier to supply goods at a concessional rate as per this notification. A copy of such supply order shall also be provided to the Suppliers Jurisdictional tax officer. The recipient shall export the goods within a period of 90 days from the date of issue of invoice by supplier. The recipient while exporting the goods shall indicate in shipping bill, the GSTN and tax invoice number of the supplier. When the goods are exported, a copy of shipping bill or bill of export and proof of export general manifest or export report 48 filed shall be provided by recipient to the supplier and also to the jurisdictional tax officer of such supplier.

49 Supplies to Merchant Exporter The merchant exporter who receives the goods is required to export the goods under bond/lut. He can claim refund of 0.1% tax paid on the said goods received from supplier along with input tax paid on any input services received by them in connection with this export In cases where exports are made by payment of tax, he is not eligible for refund. The supplier who supplies goods to merchant exporter at 0.1% may end up in accumulating excess ITC than his output tax. In such case he can file refund of ITC treating the case as that of inverted tax structure. 49

50 Deemed Exports Section 147 of CGST Act, 2017 empowers CG to notify certain supplies of goods which does not leave India as deemed exports. Notification 48/2017-Central Tax lists down the following transactions as deemed exports. Supply of goods by a registered person against advance authorization Supply of capital goods by a registered person against EPCG Authorisation Supply of goods by a registered person to EOU In terms of section 54, the tax paid on deemed exports shall be eligible for refund. Rule 89 provides that the refund claim can be filed either by recipient or the supplier. In order to consider the supplier s claim for refund, the recipient of deemed exports should give an undertaking that no input tax credit has been availed on the said deemed exports. 50

51 Deemed Exports Notification 49/2017-Central Tax prescribes the evidences to be submitted by supplier of deemed export for claiming refund; In case of supplies to EPCG License Holder or Advance Authorization Holder, an acknowledgment from tax officer having Jurisdiction over such EPCG or Advance Authorization holder that goods are received by such license holder In case of supplies to EOU, a copy of tax invoice issued by supplier shall be duly signed by EOU stating that deemed export supplies are received. (Procedure prescribed under Circular 14/14/2017-GST shall be followed) An undertaking by recipient of deemed exports that no input ITC is claimed. An undertaking by recipient of deemed exports that he shall not claim refund of tax paid with respect to deemed exports received by him. The supplier who is claiming refund of tax paid on deemed exports, is not required to collect the tax amount from the recipient. 51

52 Deemed Exports In cases where exports are undertaken by a registered person by receiving goods from a supplier claiming deemed export benefit, then the recipient exporter will be entitled to claim refund of other inputs and input services used in connection with the said export goods. {Rule 89(4A)} 52

53 53 Procedural Aspects Relating to Refund Claim

54 Interim Manual Processing of Refund Claim Rule 97A facilitates manual filing of refund claims until the GST portal is ready for electronic processing Three Circulars has been issued by CBEC clarifying various issues with regard to the processing of refund claims; Circular No. 17/17/2017 GST dated Circular No. 24/24/2017 GST dated Circular No. 37/11/2018 GST dated Circular No. 45/19/2018 GST dated The important issues addressed by these Circulars are summarized in sub-sequent slides 54

55 Procedure Involved in Refund Claims Rule 89 to 97A of CGST Rules, 2017 prescribes the procedure relating to refund claims Application for Refund shall be filed in Form GST RFD-01/01A Certificate from CA or CMA in Annexure to Form GST RFD-01 shall be taken to the effect that the incidence of tax, interest or any other amount claimed as refund has not been transferred to any other person in all cases where claim amount exceeds two lakh rupees Certificate from CA or CMA is not required if the situation is covered by section 54(8) Evidences listed in Rule 89(2) shall also be submitted Acknowledgment shall be given in Form GST RFD-02 if refund claim is complete in all aspects (Date of Filing is also mentioned in the acknowledgment) If the application is incomplete, deficiencies are communicated in Form GST RFD-03 requiring the applicant to file fresh refund claim after rectification of deficiencies 55

56 Procedure Involved in Refund Claims In case of refund of ITC relating to zero-rated supplies, provisional refund shall be granted in Form GST RFD-04 within a period not exceeding seven working days from the date of acknowledgment (Form GST RFD-02). Such provisional refund shall be granted after scrutiny of claim made, evidence submitted and prima facie satisfied that claim amount is due to applicant. Payment advice shall be issued in Form GST RFD-05 for electronic credit of claim amount provisionally sanctioned to bank account of applicant After examination of application, if the proper office is satisfied that claim amount shall be sanctioned, then the same shall be sanctioned in Form GST RFD-06 In cases where refund amount is adjusted or withheld, details of adjustment or withholding shall be given in Part A and Part B of Form GST RFD-07 respectively. 56

57 Procedure Involved in Refund Claims If proper officer is satisfied that refund claimed is not admissible or payable, then a notice in GST RFD-08 shall be issued to Applicant Applicant is required to furnish reply within 15 working days in Form GST RFD-09 After considering the reply and giving a personal hearing opportunity, the proper officer will pass the order in Form GST RFD-06 either sanctioning or rejecting the claim. Payment advice shall be issued in Form GST RFD-05 for electronic credit of refund amount to bank account of Appellant if unjust enrichment is not involved. In cases where unjust enrichment is involved, the said fact should be mentioned in the order passed in Form GST RFD-06. In such cases payment advice in Form GST RFD-05 shall be issued for credit to consumer welfare fund. 57

58 Procedure Involved in Refund Claims 58

59 Procedure Involved in Refund Claims 59

60 Procedure Involved in Refund Claims 60

61 Procedure Involved in Refund Claims 61

62 Procedure Involved in Refund Claims 62

63 Re-Credit of ITC Rejected as Refund Claims If any refund claim filed of availed ITC, the amount debited in electronic credit ledger shall be re-credited with the amount of refund claim that has been rejected. Where a deficiency memo is issued in Form GST RFD-03, the amount if any debited in electronic credit ledger shall be re-credited. Re-credit shall be issued by an order in Form GST PMT

64 Interest on Delayed Refunds Section 56 provides that if there is any delay in sanctioning refund claim beyond 60 days from the date of receipt of application complete in all aspects, interest at such rate not exceeding six percent as notified shall be paid. The notified rate of interest is 6%. (Notification 13/2017-Central Tax) The officer sanctioning refund claim shall make an order for payment of interest in payment advice in Form GST RFD-05, specifying the amount of refund delayed, the period of delay and the amount of interest payable 64

65 Important Clarifications Issued Filing of Application: Application shall be filled electronically in Form GST RFD-01A and a printout of the same shall be submitted with Jurisdiction Office. Jurisdiction Office: If the Jurisdiction of applicant is defined, the application shall be filed before the said authority. Otherwise, the application can be filed either with Centre or State authority at the choice of applicant. Debit Entry: In cases of refund of accumulated ITC, the amount claimed as refund shall be debited to Electronic Credit Ledger. This will be undertaken automatically in GST portal when Form RFD-01A is submitted. The portal will generate the proof of debit (ARN No) which shall be submitted along with the application Communications: All communications viz deficiency memo, provisional refund, notice, reply, orders shall be undertaken manually in the forms prescribed in the relevant rules. 65

66 Important Clarifications Issued Frequency of Refund claims: In case of tax payers opted for quarterly filing of GSTR-01, then refund can be claimed on quarterly basis. Exporters can claim refund claim for every month or quarter or they can file refund claim by clubbing successive calendar months/quarters. However, the clubbing cannot be spread across two financial years. Refund of Provisional ITC: As the requirement of filing GSTR-2 and GSTR-3 returns is taken away, provisional ITC shall be allowed as refund. In this regard, the claimant is required to give an undertaking to pay the claim amount back to Government along with interest if the conditions of section 16(2)(c) are not complied with. Drawback Declaration: A declaration shall be given by exporters along with refund claim that no drawback of integrated tax or central tax is claimed. This declaration is required only for claims prior to October Amendment through Table 9 of GSTR-1: If any error is committed in filling export details in table 6A, the same can be amended by filling correct details in Table 9 of GSTR-1 of subsequent months. While sanction refund claims, sub-sequent month GSTR-1 declarations can also be taken into account. 66

67 Important Clarifications Issued Refund of taxes paid under existing laws: Where claims filed for refund of CENVAT Credit under Rule 5 of CCR, 2005 under existing laws shall be processed as per the provisions of existing laws in view of the provisions of Section 142(3),(4) and(5) of CGST Act, The concerned authorities processing the refund claims should ensure that the corresponding CENVAT Credit is not transitioned into GST No Refund of Transition Credit: Refund of unutilized input tax credit is allowed in two scenarios mentioned in sub-section (3) of section 54 of the CGST Act. These two scenarios are zero rated supplies made without payment of tax and inverted tax structure. In sub-rule (4) and (5) of rule 89 of the CGST Rules, the amount of refund under these scenarios is to be calculated using the formulae given in the said sub-rules. The formulae use the phrase Net ITC and defines the same as input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. It is clarified that as the transitional credit pertains to duties and taxes paid under the existing laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same cannot be said to have been availed during the relevant period and thus, cannot be treated as part of Net ITC. 67

68 Important Clarifications Issued Refund of IGST Paid on Supplies to SEZ: Certain suppliers have not shown this turnover under Zero- Rated Supply column in GSTR-3B. As a result, the inbuilt control in GST portal is not allowing these suppliers to claim refund. It has been clarified that for the period from to , the inbuilt control in GST Portal to file RFD01 has been taken away to allow these suppliers also to claim refund. No Refund of Compensation Cess: Clarified that no refund can be claimed of the Compensation Cess Credit unless the export product is also subject to compensation cess. Bond/LUT Requirement for non-gst and Exempted Goods: Clarified that in case of zero-rated supply of non-gst and exempted goods, there is no requirement to execute Bond/LUT. 68

69 Documentary Evidence Situation Export of services with payment of tax Export of goods or services without payment of IGST Supplies to SEZ Documentation Export invoices Invoices w.r.t inputs, input services and capital goods BRC/FIRC for export of services Shipping bills and invoices Invoices w.r.t inputs and input services BRC/FIRC for export of services Invoices issued for supplies to SEZ Endorsement that goods are received for authorised operations in SEZ Proof of receipt of services for authorised operations in SEZ Proof of payment by SEZ unit or developer Declaration to the effect that SEZ unit or developer has not availed ITC. 69

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