GST defines Export as Zero-rated Supply. Under Section 16 of the IGST Act, 2017,

‘Zero rated supply’ means any of the following supplies of goods or services or both, namely:

a) export of goods or services or both; or

b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Export of Goods:-As per IGST Act Section 2(5) Export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.

1. Refund procedure under GST for Export of Goods:-

The registered person making zero rated supply can claim refund under either of two option as specified below:-

1. Supply of Goods under Bonds or LUT without payment of IGST and claim refund of unutilized Input Tax Credit. (As per Rule 89 of CGST Rule, 2017).

2. Supply of Goods on payment of IGST and claim refund of IGST paid on goods or services. (As per Sec 54 of CGST ACT, 2017 and Rule 96 of CGST Rule, 2017).

2. Amendment in Calculation of Refund for Input taxes, on Zero Rated Supplies made without payment of taxes (via CGST RULE,2020):-

As per Notification No. 16/2020–Central Tax, dated 23rd March, 2020, Central Government make amendment in CGST rule (Third Amendment) for refund of Input Tax paid on Zero Rated Supply of Goods or Services.

3. Rule for refund calculation before Amendment (CGST RULE, 2017):-

As per provisions of sub rule (4) of rule 89 of the Central goods and service tax Rules, 2017

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

Where, –

a) “Refund amount” means the maximum refund that is admissible;

b) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

c) 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, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;

d) “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;

4. Rule post Amendment (CGST RULE, 2020):-

In the said rules, in rule 89, in sub-rule (4), for clause (C), the following clause shall be substituted, namely:-

(C) “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;‟

5. Decoding the New Rule for Substituting Definition of Zero Rate Supply:-

1. Under CGST rule, 2020, only calculation for Zero Rated Supply value of Goods has been changed.

2. New Rule will be applicable on Refund claim for Input tax on Zero Rated Supply i.e., when we export under LUT or Bond Without payment of Taxes.

3. Under Old rule, Zero rated Supply value for calculation of refund amount was the actual value of sale made by Exporter.

4. However, Under New rule, Value of Zero rated Supply, Actual value of Export of Goods or 1.5 Times of Supplies value of same made in Domestic Market by Supplier or 1.5 Times of the value of like goods sold in domestic market by other (If supplier is 100% Export oriented), Whichever is less.

5. In addition, Domestic value of Exported goods is to be self-declare by the Exporter only, while filling RFD-01 for claiming refund under Rule 89.

6. Practical Example on amended Rule for refund calculation:-  

1. When Exporter sale the Similar product in Domestic Market:

Example: – Exporter Radhe Krishna ltd.  dealing in Handcraft item and sale this item in foreign and domestic market both. For Export, Price of Product is Rs.5000 and for domestic, it is valued at Rs.4000.

Then for claiming refund for Input goods or services, used in making Handicraft Item, value of Zero rate Supply of handicraft item will lower of Rs.5000 or 1.5 Time of Rs.4000  i.e. Rs.6000.

Then the Value of Export in this case will be Rs.5000 for Refund of Input under rule 89, sub-rule 4, Clause (c
) of CGST Rules, 2020.

2. When Exporter only sale the product in foreign markets(i.e.100% Export Oriented):-

Example:- Radhe Krishna ltd. 100% Export Oriented dealing in Dhoop Sticks. They export it at price of Rs.100/Per Kilogram and Sita Ram Enterprises sell same Dhoop Sticks in Domestic Market at Rs.60/Per Kilogram.

Then Value to be taken for calculation of Refund on Export of Goods will be Lower of Rs.100 or 1.5 times of Rs.60 i.e. Rs.90.

This lead to reduction in value of refund amount for exporter, if they sale their product more than 150% of Domestic Price of Product Exported.

Author can be reached at manishkalwani1996@gmail.com

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