Deemed Exports under EOU
The 100% Export Oriented Units (EOU) are set on par with DTA under the GST regime. They were given step motherly treatment on many aspects. Whether this was done with an intention to dissuade the EOUs or without realizing the consequences is not known. This article attempts to discuss one such issue.
The GST law permits the exporters to seek refund on the accumulated ITC under two ways:
i. Under LUT – the refund of inputs and input services that have gone into the export supplies are eligible for refund. But the ITC on capital goods cannot be sought as refund under this scheme.
ii. On payment of IGST under the claim of rebate – the Input Credit pool comprising of inputs, input services and capital goods can be made use of for making payment of IGST on the export supplies and the same will be refunded in cash under this scheme.
As provided under Sec 147 of CGST Act, 2017 certain supplies as notified under Notification No.48/2017-CT dt 18.10.2017 were declared as deemed exports and the above benefits were made applicable for EOUs also. Notification No.48/2017-CT dt 18.10.2017 details the procedure to be followed in claiming the said benefit. Rule 89 of CGST Rules, 2017 as amended states that the said refund can be applied either by the supplier DTA or the recipient EOU. The detailed procedure has been given vide Circular No.14/14/2017-GST dt.06.11.2017 for procurement of goods from DTA by an EOU. In the absence of provision for online filing of these deemed export refunds, the manual filing and processing of these claims has been given under Circular Nos.17/17/2017-GST dt.15.11.2017 and 24/24/2017-GST dt.21.12.2017
Circular No.172/04/2022-GST dt.06.07.2022 was issued in order to clarify certain issues, inter-alia have clarified on the point of refund claimed by the recipient of supplies regarded as deemed exports as under:
1. Whether the Input Tax Credit (ITC) availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports would be subjected to provisions of Section 17 of the CGST Act, 2017 :
The refund in respect of deemed export supplies is the refund of tax paid on such supplies. However, the recipients of deemed export supplies were facing difficulties on the portal to claim refund of tax paid due to requirement of the portal to debit the amount so claimed from their electronic credit ledger. Considering this difficulty, the tax paid on such supplies, has been made available as ITC to the recipients vide Circular No. 147/03/2021-GST dated 12.03.2021 only for enabling them to claim such refunds on the portal. The ITC of tax paid on deemed export supplies, allowed to the recipients for claiming refund of such tax paid, is not ITC in terms of the provisions of Chapter V of the CGST Act, 2017. Therefore, the ITC so availed by the recipient of deemed export supplies would not be subjected to provisions of Section 17 of the CGST Act, 2017.
2. Whether the ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports is to be included in the “Net ITC” for computation of refund of unutilised ITC under rule 89(4) & rule 89 (5) of the CGST Rules, 2017:
The ITC of tax paid on deemed export supplies, allowed to the recipients for claiming refund of such tax paid, is not ITC in terms of the provisions of Chapter V of the CGST Act, 2017. Therefore, such ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports is not to be included in the “Net ITC” for computation of refund of unutilised ITC on account of zero-rated supplies under rule 89(4) or on account of inverted rated structure under rule 89(5) of the CGST Rules, 2017. (Emphasis supplied)
3. The above clarifications make the below very clear:
i. EOU can make purchases of any goods against procurement certificate in Form A, whether the ITC on such purchases is available to the EOU in the normal course or not, in case the same are required for authorised operations of such EOUs and subsequently refund under deemed exports can be claimed subject to the other conditions and procedures. Here it is made clear that the purchases are not subject to Section 17 of CGST Act, 2017 in order to judge their eligibility, as the same are allowed only and only for the sake of claiming the deemed exports benefit. This certainly gives an opportunity to an EOU to indulge in purchasing the goods on which the ITC is otherwise not available as per Sec 17 of CGST Act, 2017, but are required for undertaking their authorised operations. The examples can be motor vehicles, works contracts resulting in immovable property, canteen procurements etc.
ii. The ITC on such purchases made against the procurement certificate/Form A are reflected in the Electronic Credit Ledger (ECL) only for the purposes of making a debit at the time of filing the refund for deemed exports and it is not ITC in terms of Chapter V of the CGST Act, 2017. Thereby it is not to be put to use for discharging output tax liability.
Now the question arises that in case of rejection of the refund filed for deemed exports, when the ITC debited from ECL in respect of the purchases made against the procurement certificate/Form A is given as re-credit, what should the assessee do with such ITC? The option of going in for an appeal to bring the refund to a logical conclusion is dependent on the appetite of the assessee to go in for further litigation and such decision is taken considering the commercial viability of the ITC amount and the cost of litigation. In case the assessee decides not to litigate further, whether such ITC is good enough for making use for discharging output tax liability? If the same is to be written off, under which provision of law? In case the same is used for discharging output tax liability, what can be the consequences? In case such ITC is on purchases on which the ITC is otherwise barred under Sec 17 of CGST Act, 2017, what would be the recourse?
The revenue cannot allege suppression to deny such ITC and no such issues were taken up as on date as per the data available in public domain. But in case such ITC needs to be written off voluntarily and if not done, will that be a violation of the amendments made vide Notification No.14/2022-CT dt.05.07.2022 read with Circular No.170/02/2022-GST dt.06.07.2022 and GSTN Advisory dt.02.09.2022, wherein there is a mandate to report ineligible ITC in the GSTR-3B.
The issue is utmost importance for the EOUs and an urgent clarification is needed at the earliest from CBIC.
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