Deemed Exports under GST and Foreign Trade Policy

[Pradeep Reddy]

Introduction

Did you know that under the Goods and Services Tax (GST) regime and Foreign Trade Policy 2023 (FTP), certain transactions are treated as exports even when goods do not leave India? These transactions are known as deemed exports.

Unlike traditional exports, deemed exports cater to domestic transactions but enjoy similar benefits, such as GST refunds and duty exemptions. This article explores the concept, eligibility, and benefits of deemed exports under GST and FTP to help businesses optimize their Indirect Taxes.

What Are Deemed Exports Under GST?

Under GST, deemed exports refer to domestic transactions where goods are supplied to specific entities or for specific purposes and are considered equivalent to exports.

Key Differences Between Deemed Exports and Physical Exports

Aspect	Deemed Exports	Physical Exports
Movement of Goods	Within India	Outside India
Payment Currency	INR or Foreign Exchange	Foreign Exchange
GST Implication	GST is charged but can be claimed as a refund	GST exempt under LUT/Bond or refunded if paid
Benefits	Refund of GST, Duty Drawback, Terminal Excise Duty benefits	Zero-rated supply under GST

Eligible Transactions for Deemed Exports

As per the GST Act and Foreign Trade Policy (FTP), the following supplies qualify as deemed exports:

Under GST Law:

1. Supply of goods to holders of Advance Authorization (AA) or Export Promotion Capital Goods (EPCG) licenses.

2. Supply to Export-Oriented Units (EOUs).

3. Supply of gold by banks or Public Sector Undertakings (PSUs) to Advance Authorization holders.

Under Foreign Trade Policy:

1. Supply to AA or EPCG holders.

2. Supply to EOUs, Electronic Hardware Technology Parks (EHTP), and Software Technology Parks (STP).

3. Supply to projects financed by multilateral agencies like the Asian Development Bank (ADB) or the World Bank.

Benefits of Deemed Exports

1. Benefits Under GST Law

• GST Refund: Although suppliers charge GST on deemed exports, they can claim a refund of the same. Either the supplier or the recipient can apply for a GST refund with prior intimation to authorities.

2. Benefits Under Foreign Trade Policy

• Duty-Free Procurement: Under AA or EPCG schemes, raw materials can be sourced without customs duty or IGST.
• Duty Drawback: Refund of customs duties embedded in the raw materials used for deemed export supplies.
• Terminal Excise Duty (TED) Refund: Available for excisable goods like petroleum products.

Process to Claim GST Refund on Deemed Exports

1. GST Payment: The supplier charges GST on the invoice.

2. Intimation to GST Authorities: Both supplier and recipient must notify the GST department about the deemed export transaction.

3. Filing of Refund Application:

• Supplier or recipient submits Form GST RFD-01 for a refund.
• If the recipient claims a refund, they must confirm that they have not availed Input Tax Credit (ITC) on the supply.

1. Processing & Timelines:

• Acknowledgment is issued within 7 days if documents are complete.
• 90% of the refund is granted provisionally within 7 days.
• The final refund is processed within 60 days (interest is payable for delays beyond this period).

Illustration: Deemed Exports in Action

Case Study: ABC Ltd and XYZ Ltd

ABC Ltd, a manufacturer, supplies goods to an Export-Oriented Unit (XYZ Ltd). Let’s compare their tax strategies:

Parameter	ABC Ltd (FTP Strategy)	XYZ Ltd (GST Strategy)
Procurement of Inputs	Duty-free under AA scheme	GST paid upfront
Tax Benefit	Duty Drawback on input duties	Refund of GST paid
Excise Duty Refund	Eligible for Excise Duty refund if the goods are subject to Excise Duty (say petroleum products)	Not applicable
Refund Process	Apply under FTP	Apply under GST RFD-01

This case shows how businesses can efficiently manage working capital using FTP and GST provisions.

Conclusion

Deemed exports provide significant benefits of exports without actual cross-border movement of goods. Understanding the nuances of GST and FTP benefits can help businesses reduce their tax burden, improve cash flow, and ensure compliance.

Key Takeaways:

✅ Deemed exports provide export benefits for domestic transactions.

✅ GST refunds, duty-free procurement, and duty drawback are major advantages.

✅ Proper documentation and timely filing ensure a seamless refund process.

Have questions about deemed exports? Share your thoughts in the comments!