Refund of ITC u/r 89(4) of the CGST Rules, 2017, Goods and Services Tax - GST

[Amit Khurana]

Dear Members,

As per Rule 89(4) of Central Goods and Services Tax Rules, 2017 (CGST Rules), refund of Input Tax Credit (ITC) shall be granted as per following formula, in case of zero-rated supply of services without payment of IGST under bond or letter of undertaking (LUT) in accordance with Section 16(3) of the Integrated Goods and Services Tax Act, 2017 (IGST Act):

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted Total Turnover

Where, -

(A) “Refund amount” means the maximum refund that is admissible;

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than ITC availed for which refund is claimed under sub-rules (4A) or (4B) or both;

(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or LUT, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;

(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or LUT, calculated in the following manner, namely :-

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under Section 2(112), excluding -

(a) the value of exempt supplies other than zero-rated supplies and

(b) the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both, if any,

during the relevant period;

(F) “Relevant period” means the period for which the claim has been filed.

As per Section 2(112) of CGST Act, “turnover in State” or “turnover in Union territory” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes CGST, SGST, UTGST, IGST and cess.

In the case where an Assessee is only engaged in supply of services outside India for which payment is received by it in later months. The amount received by assessee in a particular month is always different from the amount of invoices raised by assesse. Since assessee is only providing export services, refund amount for assessee shall be calculated in the following manner:

Refund Amount = Net ITC x (Turnover of zero-rated supply of services) ÷ Adjusted Total Turnover

Here it is pertinent to note that Adjusted Total Turnover i.e. turnover in a state {Section 2(112) of CGST Act} is required to be taken in the denominator for calculating the refund amount. Adjusted total turnover means the aggregate value of all taxable supplies, intra-state exempt supplies, exports of goods or services, and inter-state supplies. In the instant case, since assesse is only providing export services, value of export of services is required to be taken to calculate adjusted total turnover.

The issue here is whether the value of export of services shall be the value of invoice raised by assessee in a particular month for export services provided by it or the value of zero-rated supply of services as per Clause(D) i.e. payments received for zero-rated supply of services during the relevant period.

It may be noted that taking the value of invoice raised for export services might give absurd & unintended results, in case of assessees where the amount received is less than value of invoice raised during any tax period, as its refund would get restricted to the extent of payment received. The said assessee would not be able to claim the said refund amount in any future tax periods. Thus, the assessee who is an 100% Export Oriented Undertaking would not be able to claim 100% refund of GST paid by it on inputs & input services received for providing export services, which is not the intention of law. The same is explained with the help of an example below:

Value of Export invoice raised in July, 2017 – 1,00,000/-

Payment received during July, 2017 – 80,000/-

ITC taken in July, 2017 – 10,000/-

Refund amount = 10000 x 80000 / 100000 = 8000/-

In the above case, though the exporter had taken ITC equivalent to INR 10000/-, but refund amount is coming to INR 8000/-. Further, exporter cannot claim refund of balance amount of INR 2000/- in any future tax period as the maximum refund amount is restricted to ITC claimed during the tax period for which refund is filed. Thus, INR 2000/- would become a cost for the said exporter.

In my view, the above is not the intention of the law. The amount of payment received for zero-rated supply of services during the relevant period shall only be considered for calculating the adjusted total turnover. This interpretation would be in line with the provisions under erstwhile Cenvat Credit Rules, 2004 with respect of refund of Cenvat credit to exporter of services.

Kindly confirm and guide as to how to proceed further in this regard?

Thanks & Regards,

Amit Khurana

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

In my opinion your method of calculation is not correct.

Your total turnover within the state or union territory is ₹ 1,00,000/-.

Total ITC availed by you is ₹ 10,000/-.

Therefore the refund amount is 1,00,000X10,000 divided by 1,00,000.

Payment received by you do not have any significance for filing the refund claim. By the above calculation myour eligible refund will be Ra. 10,000/-

[Amit Khurana]

Dear Sir,

Thank you for your reply. However, I would like to draw your attention to the definition of "Turnover of Zero-Rated Supply of Services" as mentioned in Rule 89(4):

“Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or LUT, calculated in the following manner, namely :-

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

Therefore, the actual receipts of the export of services do matter. that is the reason why the authorities ask for FIRC/BRC to ensure that the payment has been received.