Goods and Service Tax - Export of Goods & Services

[CS SANJAY MALHOTRA]

Goods and Service Tax – “Export of Goods”

GST is not the change in Tax Structure but would result in Business Transformation. One would definitely witness the Growth in Exports with the introduction of GST.

Taxes and Duties are never exported and have to be neutralised to the Exporter by way of refund or drawback so that the same may not add to the cost of goods and exports remain competitive in the International market.

Exports can be Direct Exports, Deemed Exports or Third Party Exports. “Direct Exports” refer to exports where the goods supplied are exported to any country outside India and the payment is received either in Free Foreign Exchange or in Indian Rupees through Vostro account. “Deemed Exports” refer to exports where the goods supplied do not leave India and the payment is received either in Free Foreign Exchange or in Indian Rupees. “Third Party Exports” are exports made by exporter or manufacturer on behalf of another exporter and export documents i.e. Shipping Bills shall indicate the name of both Manufacturing Exporter / Merchant Exporter.

The basic principle lying behind GST is to do away with the exemptions so that the Tax Base shall be widened thus resulting in Reduction in GST Rates.

Exports in GST Regime

Exports are Zero Rated in the present Excise, Service Tax, VAT Acts and shall continue to be zero rated in the GST Act.

“Zero Rated” supply under GST is defined as “supply of goods and / or services on which no tax is payable but credit of the input tax related to that supply is admissible. Exports shall be treated as Zero rated Supply.

“Refund” is defined under Model GST Law as refund of tax on goods / services exported out of India or on inputs or input services used in the goods / or services which are exported out of India, or refund of tax on supply of goods regarded as “deemed Exports’ or refund of unutilised input tax credit.

Time Limit for GST Refund

Section 38(1) of Model GST Law 2016 provides that the exporter claiming refund has to file application for claiming refund with TWO YEARS from the “Relevant Date” (defined at the end of article)

Refund under GST

In the present Central Excise Act, exporter of goods procure Duty Free material against CT-1, CT-3, Concessional Duty Certificates and export the goods without payment of duty under Bond. In GST Regime, all forms i.e. CT-1, CT-3 shall be done away with and the goods have to be purchased on payment of GST which is available for refund.

No refund shall be admissible if the amount is less than ₹ 1000/-

Mentioned below are the options available under GST with the exporter for availing Refund in respect of Export of Goods:

• Refund of GST paid on Input & Input Services is available under GST OR alternatively Rebate of GST is available on finished goods. (This provision is similar to the existing provision under Present Central Excise, Service Tax & VAT Act.

At present State VAT is not eligible as refund by way of “REBATE” as applicable to Central Excise. VAT paid on inputs used in the manufacture of Export goods is available as refund subject to submission of evidence of exports of goods. VAT claim is disbursed on the basis of proportionate input tax credit used in the exported goods or if exporter maintains SION (Standard Input Norms) then on the basis of same.

In the GST Regime, Exports are treated as Inter-State Supply and accordingly IGST can be levied and claimed as rebate by the Exporter. SGST is available for utilisation against IGST and accordingly the exporter can claim rebate of State Taxes also against Exports. Refund of IGST is to be granted by Centre as the said act falls under purview of Central Govt.

Important is to wait and watch what GST Council recommends in respect of Exports whether (a) to have Zero Tax rate or (b) to continue with present set of Export under Bond” / and on payment of duty for claim under rebate. 

Section 38 of Model GST law provides for Refund of unutilised accumulated on account of Exports, except on goods which are subject to Export Duty. Rule 38(4)(a) provides for refund of 80% to taxable person within the time specified and terms and conditions to be defined in GST Rules to be framed and balance 20% to be released after due verification of all the export documents. In any case the refund has to be processed within a maximum period of 90 days.

Refund on Export of Goods / Services is available to the Exporter in respect of Tax paid on Inputs, services used in the supply of goods for Export. (Section 38(6)(a) of Model GST Law)

Deemed Exports – Refund of GST

In the present environment, the supplies to EOU / Projects under International Competitive Bidding / Mega Power Plants / World Bank funded Projects are exempted against Concessional Duty Certificates, which does not exist in the GST- Model Draft Law.

GST is to be paid on supplies to above stated sectors and option is available with both i.e. supplier of goods / receiver of goods to claim back refund from Centre / State Govt. as the case may be. Refund can be claimed by supplier if furnishes evidence to GST officer that the IGST has not been collected from the recipient.

Supplies to EOU / sectors defined above on payment of duties in GST regime would impact financial outflow as the supplier may have to shell out amount of IGST in cash(where CENVAT is not available) and refund of same will be granted afterwards by the Central / State Govt. as the case may be.

Alignment with DGFT / Custom System

• IEC Code is to be filled in by exporter at the time of making application for issuance of GSTIN and is accordingly validated with the IEC system of DGFT.
• Exports shall be verified from the shipping details as available at ICEGATE (Online Import / Export system managed by Customs)
• Documents required as an evidence of Export includes: Shipping Bill / Bill of Lading / Airway Bill/ Commercial Invoice / Packing List / Transporters GR in case of Movement by Road / Bank Realisation Certificate. 
• Invoice wise sales data is to be uploaded online at the time of submission of Return for Outward supplies; GSTIN may establish linkage between ICEGATE, DGFT and GST returns to ensure sanction of valid export claims.
• E-BRC module for payment realisation in case of export of material as exists in the DGFT system can be verified online by GST officer for processing of claim. The same would reduce the transaction cost of Exporters and adds to Ease of Doing Business.

“Relevant Date ”is defined under Model GST Law as:

1. in the case of goods exported out of India where a refund of tax paid is available in respect of the goods themselves or, as the case may be, the inputs or input services used in such goods, -

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or

(ii) if the goods are exported by land, the date on which such goods pass the frontier, or

(iii) if the goods are exported by post, the date of despatch of goods by Post Office concerned to a place outside India;

(b) in the case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods, the date on which the return relating to such deemed exports is filed;

(c) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process in any place of business, the date of entry into the place of business for the purposes aforesaid;

(d) in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of -

(i) receipt of payment in convertible foreign exchange, where the supply of service had been completed prior to the receipt of such payment; or

(ii) issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice;

(e) in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of Appellate Authority, Appellate Tribunal or any Court, the date of communication of such judgment, decree, order or direction;

(f) in the case of refund of unutilized input tax credit under sub-section (2), the end of the financial year in which such claim for refund arises; and

(g) in the case where tax is paid provisionally under this Act or the rules made thereunder, the date of adjustment of tax after the final assessment thereof.

The basic principle lying behind GST is to do away with the exemptions so that the Tax Base shall be widened thus resulting in Reduction in GST Rates.

Section 38 of Model GST law provides for Refund of unutilised accumulated on account of Exports, except on goods which are subject to Export Duty. Rule 38(4)(a) provides for refund of 80% to taxable person within the time specified and terms and conditions to be defined in GST Rules to be framed and balance 20% to be released after due verification of all the export documents. In any case the refund has to be processed within a maximum period of 90 days.

Refund on Export of Goods / Services is available to the Exporter in respect of Tax paid on Inputs, services used in the supply of goods for Export. (Section 38(6)(a) of Model GST Law)

Discussions to this article

[YAGAY AND SUN]

Any challenges if you forsee in export of goods and service in GST regime, then please in your next atricle incorporate the same. We shall be thankful to you.