Analysis of GST Treatment on Post-Supply Price Revisions for Export of goods with payment of IGST
In international trade, it is common for prices in export contracts to undergo revisions, both upward and downward, due to various commercial reasons such as changes in input costs, exchange rate fluctuations, or renegotiations with buyers. In the context of exports made with payment of Integrated Goods and Services Tax (IGST), such post-supply price adjustments have significant implications under the Goods and Services Tax (GST) law in India.
This article provides a comprehensive analysis of the GST impact on upward and downward revisions in prices after the supply of goods in export transactions. It explores the legal framework governing the issuance of debit and credit notes, treatment of interest, refund eligibility, and procedural requirements as per the CGST and IGST Acts, relevant rules, and recent clarifications issued through CBIC Circular No. 226/20/2024-GST dated 11th July 2024.
Upward Revision in price:
In the case of upward revision in the price of goods, the exporter shall issue a Debit Note to the foreign customer for the increase in price of the goods.
GST impact on the Debit Note:
As per Section 34(3) of the CGST Act,2017, where one or more tax invoices have been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient one or more debit notes for supplies made in a financial year containing such particulars as may be prescribed.
As per the above provisions, debit notes can be issued for an increase in the price of the goods. However, in the case of a debit note, there is no underlying supply of goods, and it is always linked to the original invoice. Hence, the debit notes take the character of the main invoice, and hence the GST would as applicable to the original invoice.
Hence, in the instant case, as the exports are made with payment of taxes, it is normal practice to raise Debit notes with payment of taxes. Rule 89(1B) of the CGST Rules,2017, provides the legal framework for claiming a refund of IGST on account of additional integrated tax paid on account of upward revision in the price of the goods. Further vide Circular No. 226/20/2024-GST dated 11/07/2024, the department has clarified the refund mechanism to be followed in the case of upward revision of prices for exports with payment of taxes.
Considering the above, the intention is very clear that where there is an upward revision in the price of the goods for exports with payment of taxes, the debit notes shall also be issued with payment of taxes.
Whether interest is applicable for the Debit Note:
As mentioned supra, section 34(3) provides the legal provisions for raising a Debit Note. Further, as per Section 34(4), any registered person who issues a debit note shall be required to disclose the said debit note in the return for the month in which the said debit note is issued.
As per the explanation to the Sections 12 and 13 of the CGST Act,2017, supply shall be deemed to have been made to the extent it is covered by the invoice.
Further, as per Section 50(1) of the CGST Act,2017, interest would be triggered only when there is a failure to pay the tax in accordance with the provisions of the Act.
As the disclosure in terms of the Debit note is required to be done only in the month in which the said debit note is issued, a view is possible that there is no failure to pay tax in terms of the debit note, and accordingly, interest would not be applicable.
Further Explanation to Sections 12 and 13 of the CGST Act,2017 also supports this view, as the supply is deemed only to the extent mentioned in the invoice. So, in the instant case, as the upward revision would not be known at the time of supply and to the extent a Debit note is issued at a later point in time for upward revision, the supply would be triggered only at the time of issuance of the debit note, and eventually, there is no question of interest.
However, contrary to the author’s view, the Government vide Circular No. 226/20/2024-GST dated 11/07/2024 has clarified that, where there is an upward revision in price of goods subsequent to exports, the exporter is required to pay additional IGST on account of the upward price revision along with applicable interest.
As the non-payment of interest could lead to denial of refund of IGST on account of revision of prices, the assessee can prudently pay IGST along with the interest for upward revision of prices and go for a refund for both IGST and interest.
Procedure for filing a refund in case of upward revision in prices:
Rule 89(1B) of the CGST Rules,2017, provides the legal framework for claiming a refund of IGST on account of additional integrated tax paid on account of upward revision in the price of the goods. To clarify the procedure to file the refund, the CBIC vide Circular No. 226/20/2024-GST dated 11/07/2024 have clarified that the registered person can file an application for refund of such additional IGST paid in FORM GST RFD-01 electronically on the common portal and such application for refunds would be processed by the jurisdictional GST officer of the concerned exporter.
As the separate category of refund in FORM GST RFD-01 is not enabled by the GSTN yet, the Company can filed an application of refund in FORM GST RFD-01 under the category “Any other” with remarks “Refund of additional IGST paid on account of increase in price subsequent to export of goods” along with the relevant documents as prescribed in clause (bb) of sub-rule (2) of rule 89 of the CGST Rules.
Alternate view (Without charging IGST on Debit Note):
As discussed supra, there is no underlying supply in case of Debit notes, and the supply is always linked to the original invoice, which in the instant case is the export of goods.
As per Section 16 of the IGST Act, 2017, there is an option provided to the exporter to either supply the goods with or without payment of taxes. As the debit note also partakes the character of the exports of goods, a view that emerges is that the Company can raise a debit note without GST, considering the same as exports of goods without payment of taxes, thereby avoiding the complication involved in obtaining the refund. Further, the said view is also revenue neutral, as the registered person is anyway going to utilise ITC/ pay by cash and claim the refund for the same. However, this view is not free from litigation as the same has not been legally tested.
Downward revision of price:
In case of a downward revision in price, the registered person issues a credit note, and the question arises as to whether the Company shall be required to pay back the refund received on export of goods with payment of taxes.
As per Rule 96B of the CGST Rules,2017, where the sale proceeds are not realised within the time limit allowed under FEMA, including any extension, the amount of refund to the extent of non-realisation shall be deposited with the Government along with the interest.
As per the Circular no 226/20/2024-GST, it has been clarified that in case of downward revision of prices, the supplier of goods/exporter is required to deposit the refund of the IGST received in proportion to the reduction in price of exported goods, along with applicable interest.
On the combined reading of the above provision and Circular, it is clear that once there is non realisation of sale proceeds on account of downward revision, the amount received as refund to that extent of non-realisation shall be deposited back to the Government.
However, in such a case, there will be a double impact on the registered person i.e., when the refund is first claimed, the registered person would have debited the Electronic Credit/Cash ledger, and again at the time of non -non-realisation of export proceeds, there will be a debit in the Cash/Credit ledger.
Let me explain it further with an example:
| S.N0 | Particulars | Amount in Rs |
| 1 | Adjusted and Export Turnover | 100 |
| 2 | ITC balance | 20 |
| 3 | Refund claimed on exports | 20 |
| 4 | Balance after refund | 0 |
| 5 | Export Realisation | 90 |
| 6 | Refund to be Reversed | 2 |
In the above example, there is a non-realisation to the extent of Rs.. 10. In such a case, the refund amount to the extent of Rs 2(20*10/100), shall be refunded back to the government, hence, the total amount debited plus paid back to the Government will be Rs. 20+2= Rs.22.
This results in a double impact on the registered person i.e one at the time of filing refund (Rs. 20) and another at the time of refund for non-realisation of export proceeds (Rs.. 2)
To mitigate the said double impact, the Government vide Rule 86(4B) has stated that where a registered person deposits the amount of erroneous refund sanctioned to him under Rule 96(3), aong with interest and penalty, an amount equivalent to the erroneous refund will be recredited to the electronic credit ledger in Form GST PMT-03A.
Conclusion:
The GST implications on post-supply price revisions in export contracts with payment of IGST involve a nuanced interplay of legal provisions, procedural compliance, and practical considerations. In cases of upward price revision, exporters are required to issue debit notes and pay additional IGST along with applicable interest, with the benefit of a refund available through prescribed procedures. Conversely, in cases of downward price revision leading to partial non-realisation of export proceeds, exporters are obligated to return the proportionate refund of IGST along with interest.
While the law provides clarity through specific rules and recent circulars, certain interpretational issues such as interest liability on debit notes or reclaim of refund in cases of non-realisation, still present areas of potential litigation. Hence, exporters must adopt a compliant and prudent approach, backed by proper documentation, to mitigate risks and ensure seamless refund processing under GST.
Author Bio
Brilliant breakdown of a tricky GST subject!
Post-supply price revisions in exports with IGST payment are such a grey area for many exporters, but you’ve explained it with exceptional clarity. The way you’ve linked the CGST/IGST provisions, rules, and the latest CBIC Circular makes this a practical go-to guide for both finance teams and tax consultants.
I liked how you covered both sides of the coin—upward and downward revisions—with not just the law, but also the real challenges on the ground like interest applicability, refund procedures, and the double impact in downward revisions. The example you gave makes it crystal clear.
A very relevant and timely piece—this will definitely help exporters avoid compliance pitfalls while making the most of refund provisions.
Kudos for making GST look a little less scary!