Understanding Refund Against Deemed Exports Under GST Laws

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CA Shruti Kabra
CA Shruti Kabra
Shruti as an Indirect tax professional has experience in Goods and Services Tax, Indirect Taxes laws advisory, compliance, and Litigation. Has advised large multi-national and Indian companies in the Automotive industry, Telecom, Hospitality, Defence and Aerospace, e-commerce, Oil & Gas, Transportation, Consumer Goods, Pharma, Information Technology, FMCG, Beverages, Real Estate, Media. Involvement has been across various industries and includes both domestic and cross-border transactions involving structuring of transactions along-with meeting and discussion with Government, Tax, and Regulatory Authorities. Represents clients before assessing/adjudicating and appellate authorities up to Tribunal.

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“Next to being shot at and missed, nothing is quite as satisfying as Tax Refund”

– F.J. Raymond

After three years of GST, it’s necessary to obtain clarity on the matter of refund on zero-rated supplies and deemed exports.

Refund” includes 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, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit (Inverted Duty Structure).

Zero Rated Supplies includes exports and supplies to SEZ developers or SEZ under Section 16 of the IGST Act. Exports of goods and services are treated as Zero-rated supply which entitles an exporter to claim a refund in terms of Section 16(3) of the IGST Act, 2017. The refund can either be claimed of the non-utilized input tax credit if exported without payment of IGST under LUT or refund of IGST paid if exported on payment of IGST.

Application for refund of tax or interest paid on exports may be made within a period of two years from the relevant date as under:

  • Refund of taxes paid under section 54(1) read with Rule 96; and 
  • Refund of unutilized ITC under Section 54(4) read with Rule 89.

It may be noted that the Deemed exports are not zero-rated supplies by default. Deemed Export refers to the manufacture of goods within India notified as deemed export; the payment for the same may or may not be in convertible foreign exchange. 

Deemed Supplies includes the following supplies by a registered person:

  • Supply of goods against Advance Authorization,
  • Supply of capital goods under EPCG Authorization,
  • Supply of goods to EOU,
  • Supply of gold by bank or PSU.

EOU includes Export Oriented Units or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-Technology Park Unit units.

The Deemed Export is depicted under Table 6C of GSTR-1 and Table 3.1(b) of GSTR-3B (Outward Taxable Supplies- Zero Rated).

The refund of unutilized Input Tax Credit (being Input and Input Services) can be claimed by receiver or supplier under Rule 89(4A) or 89(4B). In case of supplies received on which supplier has availed the benefit under notification 48/2017- CT (Advanced Authorization, EPCG, supply to EOU) may make an application for a refund under rule 89(4A) where such supplies are used for zero-rated supplies.

Refund of unutilized ITC, where:

  • the supplier has availed the benefit of Merchant trade; or
  • where the benefits of imports by EOU (i.e. Exporter who himself/herself imported any inputs/capital goods (Import by EOU) or import of goods under Advanced authorization/EPCG schemes) are availed under rule 89(4B) where such supplies are used for zero-rated supplies.

(*in case the refund is filed by the recipient of deemed export supplies, an undertaking by the supplier of deemed export supplies that he shall not claim the refund in respect of such supplies is also required to be furnished manually. Similarly, an undertaking by the recipient of deemed export supplies that he shall not claim the refund in respect of such supplies and that no input tax credit on such supplies has been availed of by him.)

It may be noted that in the case of a recipient of deemed export supplies, a refund can be claimed for ITC of other input and input services as well used in making zero-rated supplies. The application for a refund may be made in Form RFD-01 with Statement 5B.

Documents to be filed along with refund application by the supplier of deemed export

  1. Acknowledgement by Jurisdictional Tax Officer of Advance Authorization holder or EPCG Authorization holder or copy of tax invoice under which supplies have been made by the supplier, duly signed by EOU that said Deemed Export received by it.
  2. The undertaking of the recipient of deemed export that no ITC has been claimed on such supplies.
  3. The undertaking of the recipient of deemed export that he shall not avail the ITC on such supplies and supplier can claim the refund.

The Procedure of Refund

i. The recipient shall give prior intimation in prescribed proforma in “Form A” (appended herewith) bearing a running serial number containing the goods to be procured, as preapproved by the Development Commissioner and the details of the supplier before deemed export supplies are made. The intimation shall be given to:-

  • Registered supplier.
  • Jurisdictional GST officer of the registered supplier.
  • Its jurisdictional GST officer.

ii. The registered supplier will thereafter supply goods under tax invoice to the recipient of EOU.

iii. On receipt of such supplies, the EOU unit shall endorse the tax invoice and send a copy of the endorsed tax invoice to: 

  • Registered supplier
  • Jurisdictional GST officer of the registered supplier
  • Its jurisdictional GST officer.

iv. The endorsed tax invoice will be considered as proof of deemed export supplies by the registered person to EOU.

v. The recipient EOU shall maintain records of such deemed export supplies in digital form, based upon data elements contained in “Form-B”. Software for maintenance of digital records shall incorporate the feature of audit trail.

vi. All recipients are required to enter data accurately and immediately upon the goods being received in, utilized by, or removed from the said unit. The digital records should be kept updated, accurate, complete, and available at said unit at all times for verification by the proper officer, whenever required. A digital copy of Form-B containing transactions for the month shall be provided to the jurisdictional GST officer each month in a CD or Pen Drive. 

Refund of tax paid on such Exports

Further Rule 96(10) clearly states that the person availing the benefit of Merchant Trade or Advance Authorization cannot avail the refund of integrated taxes paid on exports of goods or services (except for capital goods for which benefits of the EPCG Scheme is availed) since the import of such goods were made without payment of taxes.

Further, an explanation added to Section 96(10) has clarified that such limitations on Advance Authorization or Merchant trade may not apply if the registered person has paid integrated taxes on such inputs.

Time Limit 

The recipient or supplier of deemed export supplies has to file an application for refund in form RFD-01 before the expiry of two years from the relevant date, which for deemed export is two years from the date of furnishing the return.

Computation of refund amount

The GST law permits the refund of entire unutilized ITC used for such zero-rated supplies.

FAQs on Refund under Deemed Exports

  • Refund of input and input services against merchant export or deemed export may be claimed under Rule 89 (4A/4B) and provisions of Section 16(3) of the IGST Act, 2017 can’t be applied.
  • A refund of unutilized ITC of other input and input services used for the supply of such zero-rated supplies may be made under Rule 89(4A/4B) only.

Jurisprudence on Deemed Exports under Goods and Services Tax Regime

Gujarat High Court- in case of Maxim Tubes Limited- (R/Special Civil Application No. 14558 of 2018)

The pre-import condition in Foreign Trade Policy for availing the benefit of exemption from levy of integrated tax and GST compensation cess on import under the Advance Authorization Scheme is ultra vires and is to be struck down.

Facts of the Case 

In the aforesaid case, the petitioner is in the process of continuous manufacture, thus exports were manufactured from existing goods, while the goods held on availing the Advance Authorization benefit were used to manufacture subsequent goods.

In reference to FTP guidelines, ‘Pre-import condition’ means that goods have to be imported and used for the manufacture of final products to be exported, and an exemption is provided only on fulfilment of the export obligation of that particular authorization, and, accordingly, the exemption was admissible to the goods imported against such authorization.

Thus Authorities denied the exemption on pre imports for export of goods in a continuous cycle, and it would also mean that the exemption of the notification 79/ 2017 customs would not be admissible when goods manufactured were exported in anticipation of Licence/Authorization, because such would be a case of export having been made first and duty-free import against the Authorization having been made subsequently.

Decision

Para 4.27 of FTP permits exports in anticipation of authorization and permits exports towards discharge of export obligation based on the file number even before Advance Authorization being granted. This condition has not been modified and export in anticipation of authorization is permitted. This policy still exists. [Para 13.3]

While the respondents have now amended the exemption notification being Notification No.18/2015 dated 1-4-2015, by deleting condition (xii), such notification has not been given retrospective effect.

The same was countered by the petitioner on the ground that it would not be possible for the respondents to grant the benefit of the deletion of the condition of pre-import retrospectively. It, therefore, appears that the Government, even if so deems fit, may not be in a position to grant the benefit given under the notification dated 10-1-2019 retrospectively. The grievance of the petitioners for the period under consideration would, therefore, have to be addressed by the Court. [Para 49]

Accordingly, the petition was allowed. The ‘pre-import condition’ contained in paragraph 4.14 of the Foreign Trade Policy, 2015-2020 inserted vide Notification No.33/2015-2020 dated 13-10-2017 and inserted vide clause (xii) in Notification No.18/2015-Cus vide Notification No.79/2017-Cus dated 13-10-2017, are hereby struck down as being ultra vires the Advance Authorization Scheme as contained in the Foreign Trade Policy, 2015-2020 as well as the provisions of the Handbook of Procedures. Consequently, all proceedings initiated for violation of ‘pre-import condition’ would no longer survive. [Para 50].

Delhi High Court in the case of M. D. Overseas Limited Vs Union of India And Ors. – W.P.(C) 12197/2019 & C.M.No.49871/2019

It was held that the authorities can’t deny the benefit of Advance Authorization on specified units by the issue of public notice the High Court quashed the Public Notice issued by the DGFT.

Forms to be submitted under Deemed Export

FORM – A

(Intimation for procurement of supplies from the registered person by Export Oriented Unit (EOU)/Electronic Hardware Technology Park (EHTP) Unit/ Software Technology Park (STP) unit/ Bio-Technology Parks (BTP) Unit under deemed export benefits under section 147 of CGST Act,2017 read with Notification No.48/2017-Central Tax dated 18.10.2017)

(as per Circular ——- dated ———-)

Running Sr. No. of intimation and Date________________

LOP No. ———- and valid up to ——.

GSTIN ———————-

We the, M/s …………….(Name of EOU/EHTP/STP/BTP unit and address) wish to procure the Goods namely(Tariff description, Quantity and value) ————————-, as allowed under Foreign Trade Policy and Handbook of Procedures 2015-2020, and approved by Development Commissioner from M/s ———————- (Name of supplier, address and Goods & Services Tax Identification Number(GSTIN)). Such supplies on receipt would be used in the manufacturing of goods or rendering services by us. 

We would also abide by the procedure set out in Circular no. —— dated —-.

Signatures of the owner of

EOU/EHTP/STP/BTP unit or

His Authorized officer

To:

  1. The GST officer having Jurisdiction over the EOU/EHTP/ STP/BTP unit.
  2. The GST officer having Jurisdiction over the registered person intending to supply the goods.
  3. The registered person intending to supply goods to EOU/ EHTP/STP/BTP unit.

FORM – B

Form to be maintained by EOU/EHTP/STP/BTP unit for the receipt, use and removal of goods received under deemed export benefit under section 147 of CGST Act, 2017 read with Notification No. 48/2017-Central Tax dated 18.10.2017.

Name of EOU/EHTP/STP/BTP unit and address

GSTIN No.

Address of Jurisdiction GST Officer.

Disputable Issues

  • The jurisdictional officers have been issuing deficiency memos for refund applications made under Rule 89(4) with statement 3 instead statement 5B under Rule 89(4B) for goods exported against which benefits under Notification 78/ 2017 of customs (Advance Authorization) is availed being deemed export.

In our view, such a deficiency memo should not be issued since the applicant has made a refund application with the eligible amount in respect of the exports made outside India.

  • Computation of eligible refund- The law just encompasses for a refund of net ITC used for zero-rated supplies. The moot question is about inputs or inputs services used for the supply of other goods or services or held for domestic supplies as well. In such a case, there is thin ice as the law doesn’t clearly mention how to dissect the eligible share for refund calculation. However, in our view, it would be reasonable to distribute the ITC in proportion to supplies in accordance with the refund formula as discussed under Rule 89(4).

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

(The above views are strictly personal)


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