With the NDA government promoting ‘Make in India’ and CBIC sanctioning more than 126 Million worth refund claims by March 2018, it is important for businesses to understand the concept of refund under GST. For exporters, there is a possibility of accumulation of GST credits, specifically for those who export without payment of GST. This article examines the various refund possibilities for exporters and options available for them to effectively utilize or claim refund, the accumulated tax credit, under GST.
An exporter may either export goods under a bond / Letter of Undertaking (LuT) without payment of GST and then claim refund of the unutilized tax credit or he may supply goods or services on payment of GST and then claim refund of such IGST paid on goods or services exported. Key features of both methods of export are explained hereunder:
Under the LuT option, an undertaking is required be filed with the GST officer, binding himself to pay the tax if the conditions mentioned under the GST law is not satisfied after export. Such persons shall also be eligible to avail the credit of input tax for making such export and later claim refund of the same. GST Rules provide the formula for computation of refund under LuT method for export of goods, where refund of input tax availed on inputs & input services (not Capital Goods) during the period shall be claimed. Refund of tax credit used for exports under GST shall be filed within 2 years from the date of making such export. A provisional refund of 90% of the claim shall be granted within 7 days and balance refund shall be credited within 60 days from filing the refund claim. However, sanctioning the refunds within specified timelines is yet to be a reality due to various road blocks. Documents required for the purpose of claiming refund of input tax is voluminous, which includes the statement of inputs, export invoices, BRC, input invoices, etc., considering that the frequency of claims may also be monthly.
Under the rebate option supply of goods or services for export can be made on payment of IGST. The output IGST liability can be discharged by using all available tax credits and refund of such output IGST paid on exports can be claimed. Even though the invoice shall have the GST amount shown, here the customer would not be paying it to the supplier. No separate application for refund is required to be filed by the exporters. Disclosure of invoice wise details of goods exported in the GST outward supply returns would suffice. It is also important to highlight that there is no concept of provisional refund here.
The procedure with respect to a rebate option is less complex than the procedure for refund of tax credit from practical view point. Under the rebate option, a shipping bill itself will constitute a refund application and the details of export, once disclosed in the GST returns, is expected to entail a rebate of the IGST paid, as long as there are no discrepancies in the details of export invoices disclosed. Whereas, under refund of input tax credit, separate application has to be filed with supporting documentation as prescribed. With respect to refund of input tax credit, another key challenge would be substantiating a nexus between the input tax credit with outward supplies. It would also be advisable for businesses to file rebate in cases where there is accumulation of input credit from capital goods and / or transitioned credits.
However, if volume of exports made and/or the rate of GST on the export product is high, exporters may opt to export under bond / LuT option to save the huge finance cost on IGST, which is payable upfront. Business may also adequately plan and follow both options alternatively to optimize their financial position.
Prepared by Akash Srivatsan R
Proprietor at Akash & Co, Chartered Accountants, Bengaluru
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Good article.