The Government vide Notification No. 39/2018–Central Tax dated 04/09/2018, amended Rule 89(4) which provides mechanism for calculation of refund amount of input tax credit in relation to zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with provisions of sub-section (3) of section 16 of the IGST Act, 2017.

The formula for calculation of quantum of input tax credit under Rule 89(4) is given as:

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

Adjusted Total Turnover :- Adjusted Total Turnover”( ATT) means the sum total of the value of- the turnover in a State (TS)

excluding the turnover of services; (TSR)

and

the turnover of zero-rated supply of services (ZS) and non-zero-rated supply of services ( NZS),

excluding-

the value of exempt supplies (E) other than zero-rated supplies (Z)

and

the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.(84AB)

Thus Adjusted Total Turnover : ATT = (TS- TSR )+{(ZS+NZS)-(Z+84AB)}

Turnover in State ( TS ) : Turnover in State”” means the aggregate value of all taxable supplies (TXS) (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 (ESS)by a taxable person, exports of goods or services or both (EX ) and inter-State supplies (ISS) of goods or services or both made from the State by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess;

Thus Turnover in State : TS = TXS+ESS+EX+ISS

Amendment has been made to Clause (E) of Rule 8(4) which deals with the definition of ‘Adjusted Total Turnover”. A comparison of the amended portion with respect to the said rule has been represented herein below:

Before the Amendment: After the Amendment:
(E) “Adjusted Total turnover” means –

the turnover in a State or a Union territory, as defined under clause (112) of section 2, 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;

E) “Adjusted Total Turnover” means

the sum total of the value of

(a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding

the turnover of services;

and

(b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding-

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

(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B)

or both, if any, during the relevant period.’.

Clause D of 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 letter of undertaking, 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;

Comments:

1. The amended definition stating “……..excluding the turnover of services…” should have been“… excluding the turnover of taxable services….” for more clarity, as we are anyways deducting the value of exempt supplies later on in the formulae, thus if the words “Turnover of services” will be read as “Total turnover of services” it will lead to double deduction of value of exempt supplies which will be illogical.

2. Basically the said amendment seeks to bring the mechanism of calculation of refund of input tax credit on account of Zero-rated supply under GST at par with Rule 5 of Cenvat Credit Rules 2004 where “Total Turnover” was calculated in the similar manner.

3. The said amendment is not retrospective and hence will be applicable from the date of issue of its notification which is September 4, 2018.

4. Since, Rule 89(5) which deals with mechanism of calculation of maximum refund amount in case of inverted duty structure and Rule 89(4) share the same definition of ‘Adjusted Total Turnover’ and no amendment has been made in Rule 89(5), this new amended definition will also be applicable in case of calculation of refund amount in case of inverted duty structure.

(Republished with Amendments. Amendments been made by CA Anita Bhadra)

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7 Comments

  1. Srijoni Ghosh says:

    what is the exact meaning of turnover of services in the definition of Adjusted Turnover? Is it only related to works contract/ job services?

  2. Taranjit singh says:

    Sir we export goods to USA and in last refund application GST department has calculated adjusted turnover on fob value means they have excluded the freight part from invoice value which has reduced the refund claim. Would like to how they can do that when freight part is also part of total transaction value and liable to pay IGST if I export after paying tax ? Pls advise how to respond ?
    Regards

  3. PRIYANKA MOHITE says:

    Regarding Gst refund under Export without payment of Taxes,

    We have two types of Export
    1.Export under LUT(without payment of taxes)
    2.Merchant Exporter and Merchant Importer based in India(for Example-goods purchase from china and sold to Dubai, i.e..goods not coming to India custom frontier)

    In above two cases we want clarification that while doing Refund Application under Export WOPT, Do we consider Merchant Export in Adjusted turnover or not ?

    Advise and if there is any notification regarding this please provide

    Please do the needful.

  4. PARVEEN MISHRA says:

    Sir
    My company export rice to outside india. my firm also sold rice in india. we purchase packing material bill to bill (i.e if 16200 bags of rice export in our invoce no -1 then we purchase 16250 bags for particular export) for export which supplier charge IGST. please suggest me what i mention adjusted turnover in refund form. (total turnover or only zero rated sale)

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