Recent Amendments in refund Provisions: As inserted by Notification No. 16/2020 dated 23rd March, 2020.
Brief Understanding of Provisions
As per Section 16(1) of IGST Act, 2017, exports of goods or services or both and supplies of goods or services or both to SEZ are zero rated supplies. This means that there is no burden of tax on the supplies which qualify as Zero rated supplies. Further, As per Section 2(5) of IGST Act,2017 “Export of goods” means taking goods out of India to a place outside India. Once the supply is treated as export of goods, there are two options to claim refund in respect of such supply:-
1. He may supply good or services or both under bond or a letter of undertaking (LUT), without payment of integrated tax and claim refund of unutilised input tax credit in accordance with Section 54 of the CGST Act;
2. He may export the good or services by utilising the input tax credit and claim the refund of such tax paid on such goods or services or both supplied in accordance with Section 54 of the CGST Act.
Change in Definition of “Turnover of zero-rated supply of Goods”: The definition of “Turnover of zero-rated supply of goods” in rule 89(4) clause (C) has been substituted. The new definition states that “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 letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;‟.
This means that the value of turnover of zero-rated supply of goods in case of without payment of tax has been capped up to maximum of 1.5 times of the value of like goods domestically supplied respectively.
Example:
Value of Goods exported: Rs.10,000
Value of goods domestically supplied: Rs. 4,000
Then for the purpose of refund calculation turnover of zero-rated supply of goods exported would be 150% of Rs. 4,000 i.e. 6,000 or Rs. 10,000 whichever is less i.e. Rs. 6,000.
Comments: As the definition of exports of goods has been discussed above, there are no basis in the Act to substantiate such modifications made in the rules thereunder. There are various cases in which products are exported at much higher value than sold in the domestic market. If the turnover of zero-rated supply of goods will be considered less than the actual value of exports, this will tantamount to refund amount becoming relatively lower which will eventually increase the actual cost of the goods sold for the supplier as the balance ITC accumulated in the electronic credit ledger will not available for any further refund.
Recovery of Refund if Export of goods proceeds are not realised:
Rule 96B has been inserted and is reproduced below
“96B. Recovery of refund of unutilised input tax credit or integrated tax paid on export of goods where export proceeds not realised. –(1) Where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, in India within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period, the person to whom the refund has been made shall deposit the amount so refunded, to the extent of nonrealisation of sale proceeds, along with applicable interest within thirty days of the expiry of the said period or, as the case may be, the extended period, failing which the amount refunded shall be recovered in accordance with the provisions of section 73 or 74 of the Act, as the case may be, as is applicable for recovery of erroneous refund, along with interest under section 50: Provided that where sale proceeds, or any part thereof, in respect of such export goods are not realised by the applicant within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), but the Reserve Bank of India writes off the requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall not be recovered. (2) Where the sale proceeds are realised by the applicant, in full or part, after the amount of refund has been recovered from him under sub-rule (1) and the applicant produces evidence about such realisation within a period of three months from the date of realisation of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the applicant to the extent of realisation of sale proceeds, provided the sale proceeds have been realised within such extended period as permitted by the Reserve Bank of India.”
This rule states that if sale proceeds in respect of exports are not received within the time prescribed under Foreign Exchange Management Act, 1999 then refund paid to applicant needs to be deposited back along with interest under section 50 within 30 days of expiry of such period. In case the applicant fails to deposit such amount, recovered shall be initiated under section 73 or 74 of the CGST Act.
If such sale proceeds are received with in extended time allowed by RBI and taxpayer produces evidence about such realisation within 3 months from such realisation to proper officer, the amount so recovered shall be refunded back by proper officer to the applicant.
Comments: Since there is no condition of realisation of export proceeds in respect of goods as per the definition of export of goods, such notification has overpowered the GST Act. Moreover, there is no such condition specified under section 54 of the CGST Act which deals with the provisions relating to refund.
3. New Undertaking to Form GST RFD-01: A new undertaking to Form RFD-01 has been inserted which is produced hereunder:
“I hereby undertake to deposit to the Government the amount of refund sanctioned along with interest in case of non-receipt of foreign exchange remittances as per the proviso to section 16 of the IGST Act, 2017 read with rule 96B of the CGST Rules 2017.”
Section 16 “Zero-rated supply” contains three sub-sections only and there are no proviso in section 16 of IGST act, 2017. Since reference in the undertaking has been made to proviso which does not exists in the Act, this makes this declaration invalid.
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As per Central Tax Notification 16/2020, the turnover declared for zero rated value of exports should be 1.5 times of the value of similar product sold in domestic market (or) the actual value of export whichever is less. Understand that dept., is seeking a Declaration from the refund applicant to process the claim application. The Notification given by the Board does not hold any format attached. I request the experts or regular refund applicants, who has such declaration format, to share the same over here.