Deemed Exports under GST- Complete & Detailed Analysis

Introduction

Deemed exports are to be treated similar to exports, these supplies are not zero-rated supplies by default. Thus, GST shall be applicable on all the deemed export at the point of supply. Furthermore, these Supplies cannot be made under Bond / LUT without payment of tax.

However, the supplier or the recipient of the goods can claim a refund of the tax paid on such supply. But once the refund has been claimed by the supplier, the recipient will not be eligible to claim the ITC on the same.

The process of supplying the goods (produced/manufactured in the country) on an international scale is known as Export. Such supply of goods and service contribute to the growth of an economy and thus enjoy the perk of being treated as zero-rated supplies. However, there is a certain category of supplies, as notified by the Central Government, wherein the supply is treated as an export, even if the goods do not leave the national borders. Such supply of goods is known as Deemed Exports under GST.

For Example:-

Mr. A, a registered dealer in Maharashtra who supplies his goods to an EOU dealer, who further sells the received goods to his customer in the UK. In the given instance, the supply of goods from Mr. A to the EOU is considered as Deemed export, while the supply of goods from EOU to his customer is an Export

Statutory provision

Deemed Exports

The Government may, on the recommendations of the Council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

Section 2(39) of the CGST Act, 2017 defines the term ‘deemed exports”. This would be relevant for extending refund benefit under section 54 of the CGST Act

Export of goods, in common parlance, means taking goods outside India. Such supplies are treated as zero-rated supplies under GST.  However, the Central Government may notify certain categories of supplies of goods, which would be treated as deemed exports.

This means that such supplies shall be treated as exports even if such goods are not taken outside India.

“Deemed Exports” refers to supplies of goods manufactured in India (and not services) which are notified as deemed exports under Section 147 of the CGST/SGST Act, 2017.

Deemed exports are those supplies of goods that are notified as ‘deemed exports’ where:

(a) The goods supplied do not leave India;

(b) Payment for such supplies is received in Indian Rupees/ Convertible Foreign Exchange; and

(c) Such goods are manufactured in India.

Analysis

The notified goods would be deemed to be exported, if such goods are manufactured in India although they do not leave India and payments are received in Indian rupees or convertible foreign exchange.

This section authorizes the government to notify transactions which will be declared to be deemed exports.

However, there is no section granting entitlement to refund in respect of deemed exports.

The promise by the government alone provides the necessary entitlement.

There is no section in the GST Act that authorizes deemed exports to enjoy zero rated benefit except inclusion of deemed exports within the machinery provisions for claiming refund under section 54 read with rule 89.

That all other transactions where the refunds are available such as, refunds to UIN-holders under section 55 of CGST Act, the refunds to exporters under section 16 of IGST Act, refunds in case of inverted tax-rate under section 54(3) of CGST Act, etc, are available.

Deemed exports are not zero rated supplies by default, unlike the regular exports. Hence all supplies notified as supply for deemed export will be subject to levy of taxes i.e. such supplies can be made on payment of tax and cannot be supplied under a Bond/LUT.

Further, the refund of tax paid on the supply regarded as Deemed export is admissible to either the supplier or the recipient and accordingly the application for refund has to be filed by the supplier or recipient (subject to certain conditions) of deemed export supplies, as the case may be.

Deemed Exports different from Exports-

1. Deemed exports are only applicable to goods and not services.

2. Deemed Exports cannot be made under Bonds or LUT (Letter of undertaking)

3. Goods need not be taken outside the country

4. Taxes on such supplies are required to be paid at the time of supply, however, the refund of the same can be claimed later.

5. If a refund has been claimed by the supplier then the recipient cannot claim ITC for the same.

For example:-

 Dealer ‘A’ (located in Rajasthan) sells goods to Dealer ‘B’ which is an EOU. B, in turn, sells the goods to a customer ‘C’ in Germany.

Supply by A to B is treated as deemed exports. Supply by B to C is treated as exports.

Essential conditions to qualify as Deemed Exports

• Applicable only for the supply of goods (not applicable to services).
• Goods are not required to be taken outside India.
• Such supply of goods must be notified by the Central Government as Deemed exports under Section 147 of the Central Goods and Services Tax Act, 2017 (CGST Act).
• Goods must be manufactured or produced in India.
• Payment can be received in Indian Rupees or in convertible foreign exchange.
• Such supplies cannot be made under Bond / LUT.
• The tax must be paid at the time of supply.
• Refund of tax paid on such supplies can be claimed either the supplier or the recipient.

Supplies notified as Deemed Exports under GST

 In exercise of powers conferred under Section 147 of the CGST Act, the Central Government has issued Notification no. 48/2017-Central Tax dated 18.10.2017 wherein the following categories of supply of goods has been declared as Deemed Exports: –

Description of Supply

01. Supply of goods by a registered person against Advance Authorisation i.e Supplier must be registered under GST and recipient must be an Advance Authorisation holder.

02. Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation (EPCG)

03. Supply of goods by a registered person to Export Oriented Unit(EOU)/ Electronic Hardware Technology Park Unit (EHTP) / Software Technology Park Unit (STP) / Bio-Technology Park Unit (BTP)

04. Supply of gold by a bank or Public Sector Undertaking against Advance Authorisation specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended)

The Deemed exports have also been defined under the Foreign Trade Policy 2015 – 2020 (FTP). However, the definition of deemed exports as provided by FTP differs from the definition provided under the GST law and should not be confused with, while applying GST provisions. A particular supply of goods can be deemed exports under FTP but may not qualify as deemed exports under GST.

 For the purposes of the above notification, –

1. “Advance Authorisation” means an authorisation issued by the Director General of Foreign Trade under Chapter 4 of the Foreign Trade Policy 2015-20 for import or domestic procurement of inputs on pre-import basis for physical exports.

The “Pre-import” condition means that the raw material imported under Advance Authorization is utilized to produce finished goods manufactured in India. Such imported goods are finally exported. This condition has been removed by the government recently.

2. Export Promotion Capital Goods Authorisation means an authorisation issued by the Director General of Foreign Trade under Chapter 5 of the Foreign Trade Policy 2015-20 for import of capital goods for physical exports.

3. “Export Oriented Unit” includes

 Export Oriented Unit or

 Electronic Hardware Technology Park Unit or

 Software Technology Park Unit or

 Bio-Technology Park Unit approved in accordance with the provisions   of Chapter 6 of the Foreign Trade Policy 2015-20.

 Taxability of deemed exports under GST

Deemed export supplies are not zero-rated supplies. All deemed export supplies will be subject to GST at the point of supply. Supplies cannot be made under Bond / LUT without payment of tax. Tax should be paid on such supply and then be claimed as refund.

Subject to certain conditions, Refund of tax paid can be claimed by either of the following persons:

1. Supplier of goods OR

2. Recipient of goods.

Note: The recipient is not eligible to claim the input tax credit (ITC) in case refund of tax paid is being claimed by the supplier.

Additional conditions for deemed exports to EOU/STP/EHTP/BTP

1. The EOU/ EHTP/ STP/ BTP unit must give prior intimation by filing Form A (Appended herewith) to the supplier and the jurisdictional GST officer of supplier and recipient as a recipient.

2. Form A must bear a running serial number and contain details of goods to be procured, which is pre-approved by the Development Commissioner.

3. The supplier must then supply goods under the cover of a tax invoice.

4. The tax invoice must be endorsed by the recipient. Endorsed copy of the same must be sent to the supplier and jurisdictional GST officer of supplier and recipient as a recipient.

5. Record of such goods received by EOU/ EHTP/ STP/ BTP unit must be maintained in Form B (Appended herewith).

Refund of GST paid on deemed exports:- Procedure & Documentary Evidence required

As per 3rd proviso to Rule 89(1) of CGST Rules, 2017, application for refund in case of deemed exports can either be filed by the recipient of deemed export supplies.

Alternatively,

the supplier of such deemed exports supplies can also file the refund application, in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund.

It may be noted that Notification no. 49/2017-Central tax dated 18.10.2017 also lays down the list of evidences which are required to be produced by the supplier of deemed export supplies for claiming refund.

Statements/Documents to be required with Refund Application–

Statement 5(B) under rule 89(2)(g) ( statement appended herewith)

Supplier is claiming a Refund:-

In case the supplier is claiming a refund of tax paid on deemed exports, the following details/ documents must be produced:

1. A statement containing Invoice-wise details of deemed export supplies made by the supplier.

2. Acknowledgement by jurisdiction tax officer of AA or EPCG holder that the said deemed export supplies have been received OR in case of EOU/ EHTP/ STP/ BTP/ Copy of tax invoice signed by the recipient that said deemed export supplies have been received.

3. Undertaking by the recipient that no ITC has been claimed.

4. Undertaking by the recipient that it shall not claim a refund in respect of such supplies. (Appended herewith).

5. Undertaking by the recipient that supplier may claim the refund.

Refund forms:

For obtaining a refund of tax paid on deemed exports, the supplier or recipient is required to file an application in Form GST RFD – 01 with supporting documents. Manual filing and processing of refund claims in case of deemed export supplies are permitted till the refund module is fully operational. The refund claim can be filed within two years from the date on which return relating to such deemed export supplies is furnished electronically.

GST Refund Process For Deemed Export Supplies

Rule 89 of the CGST Rules, 2017 as amended vide Notification No. 47/2017- Central Tax dated 18.10.2017 allows either the recipient or supplier of such supplies to claim refund of tax paid thereon.

certain supplies of goods have been notified as deemed export supplies vide Notification No. 48/2017-Central Tax dated 18.10.2017.

procedure and safeguards in respect of supplies to EOU / EHTP / STP / BTP units prescribed vide Circular no. 14/14/2017-GST dated 06.11.2017

Form-A

The recipient EOU / EHTP / STP / BTP unit shall give prior intimation in a prescribed proforma in “Form–A” (appended herewith) bearing a running serial number containing the goods to be procured, as pre-approved by the Development Commissioner and the details of the supplier before such deemed export supplies are made.

The said intimation shall be given to –

Step-1 (Intimation)

(a) the registered supplier;

(b) the jurisdictional GST officer in charge of such registered supplier; and

(c) its (Recipient) jurisdictional GST officer.

Step-2 (Supply of goods under tax Invoice)

(ii) The registered supplier thereafter will supply goods under tax invoice to the recipient EOU / EHTP / STP / BTP unit.

Step-3(Endorse Tax Invoice and send a copy thereof)

(iii) On receipt of such supplies, the EOU / EHTP / STP / BTP unit shall endorse the tax invoice and send a copy of the endorsed tax invoice to –

(a) the registered supplier;

(b) the jurisdictional GST officer in charge of such registered supplier; and

(c) its (Recipient) jurisdictional GST officer.

(iv) The endorsed tax invoice will be considered as proof of deemed export supplies by the registered person to EOU / EHTP / STP / BTP unit.

Maintenance of  Records

The recipient EOU/EHTP/STP/BTP unit shall maintain records of such deemed export supplies in digital form, based upon data elements contained in “Form-B” (appended herewith). The software for maintenance of digital records shall incorporate the feature of audit trail.

While the data elements contained in the Form-B are mandatory, the recipient units will be free to add or continue with any additional data fields, as per their commercial requirements. All recipient units are required to enter data accurately and immediately upon the goods being received in, utilized by or removed from the said unit.

The digital records should be kept updated, accurate, complete and available at the said unit at all times for verification by the proper officer, whenever required. A digital copy of Form – B containing transactions for the month, shall be provided to the jurisdictional GST officer, each month (by the 10th of month) in a CD or Pen drive, as convenient to the said unit.

3. The above procedure and safeguards are in addition to the terms and conditions to be adhered to by a EOU / EHTP / STP / BTP unit in terms of the Foreign Trade Policy, 2015-20 and the duty exemption notification being availed by such unit.

Recipient is claiming a Refund:-

There are cases where the supplier of deemed export supplies has availed the benefit of tax credit in respect of such supplies. In such a case, the recipient of deemed export supplies can claim the refund of ITC in respect of other inputs or input services.

Such inputs or input services are used in making zero rated supplies of goods or services. Furthermore, these supplies are other than the ones on which the supplier has already availed the benefit.

Rule 89(4A) of the CGST Rules, 2017 as amended vide Notification no. 75/2017-Central Tax dated 29.12.2017 (w.e.f 23.10.2017), the recipient of deemed export supplies can claim refund of input tax credit availed in respect of other inputs or input services used in making zero-rated supply of goods or services or both, in case of deemed export supplies on which the supplier has availed the benefit of notification No. 48/2017-Central Tax dated 18.10.2017.

Further Rule 96(9) of the CGST Rules, 2017 as amended vide Notification no. 75/2017-Central Tax dated 29.12.2017 (w.e.f 23.10.2017) also provides that the recipient of deemed export supplies on which the supplier has availed the benefit of notification No. 48/2017-Central Tax dated 18.10.2017 cannot export on payment of integrated tax. This takes place only when the supplier of deemed export supplies has already availed the benefit of tax credit.

Time Limit For Filing the Refund Claim

For obtaining refund either the recipient or supplier of deemed export supplies has to file an application in FORM GST RFD-01 through the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner before the expiry of two years from, the date on which the return relating to such deemed export supplies is to be furnished electronically.

The application has to be accompanied by a statement containing the number and date of invoices along with such other evidences as may be notified in this behalf as explained in the above said para.

Due to the non-availability of the refund module on the common portal, it has been decided by the competent authority, that the applications/documents/forms pertaining to refund claims on account of deemed export supplies shall be filed and processed manually till further orders. Circular No. 17/17/2017-GST dated 15.11.2017 and Circular no. 24/24/2017-GST dated 21.12.2017 prescribing the detailed procedure have been issued in this regard.

Form – A

(Intimation for procurement of supplies from the registered person by Export Oriented Unit (EOU)/Electronic Hardware Technology Park (EHTP) Unit/ Software Technology Park (STP) unit/ Bio-Technology Parks (BTP) Unit under deemed export benefits under section 147 of CGST Act, 2017 read with Notification No. 48/2017-Central Tax dated 18.10.2017)

(as per Circular ——- dated———–)

Running Sr. No. of intimation and Date                                  LOP No. ———- and

valid upto — .

GSTIN ———————-

We the, M/s ……………..(Name of EOU/EHTP/STP/BTP unit and address) wish  to procure the Goods namely(Tariff description, Quantity and value) —————-

———, as allowed under Foreign Trade Policy and Handbook of Procedures 2015-2020, and approved by Development Commissioner from M/s  —————-

—— (Name of supplier, address and Goods & Services Tax Identification Number(GSTIN)). Such supplies on receipt would be used in manufacturing of goods or rendering services by us. We would also abide by procedure set out in Circular no. —— dated —-.

Signatures of the owner of
EOU/EHTP/STP/BTP unit
or  his Authorised officer

To:

1. The GST officer having Jurisdiction over the EOU/EHTP/STP/BTP

2. The GST officer having Jurisdiction over the registered person intending to supply the

3. The registered person intending to supply goods to EOU/EHTP/STP/BTP

For the month of…………………………..

FORM- B

Form to be maintained by EOU/EHTP/STP/BTP unit for the receipt, use and removal of goods received under deemed export benefit under section 147 of CGST Act,2017 read with Notification No. 48/2017-Central Tax dated 18.10.2017.

(as per Circular——  dated)

Sr. No.	Date    of prior intim-ation given for procu-ring deemed export supplies	Details of registered person			Jurisdictional GST officer details of registered person		Invoice no. and date of registered person		Details of supplies received			Amount of GST paid by supplier				Date of sending endorsed copy of tax invoice by EOU
		Nam e	Address	GSTI N	Desig-natio n	Jurisdi-ctional Iden-tifier such as Division name/ No.	No. of Invoice	Dat e	Descri-ption	Value	Quan-tity	Centr al tax	State Tax    / Union terri-tory Tax	Integ-rated tax	Cess
1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17

–

Removal for processing			Remarks (The goods removed for processing shall be accounted in a manner that enables the verification of input-output norms, extent of waste, scrap generated etc)	Other removals/Returns				Balance in stock
Date & time of Removal	Quantity	value		Purpose of removal	Date       & time	Quantity	value	Quantity	Value
18	19	20	21	22	23	24	25	26	27

“Statement 5B [rule 89(2)(g)]

Refund Type: On account of deemed exports claimed by supplier

Sl. No.	Document details of inward supplies in case refund is claimed by Supplier				Tax paid
	Type of Document	No.	Date	Taxable Value	Integrated Tax	Central Tax	State/Union Territory Tax	Cess
1	2	3	4	5	6	7	8	9

Statement 5B [rule 89(2)(g)]

Refund Type: On account of deemed exports claimed by recipient

Sl. No.		Document details of inward supplies in case refund is claimed by recipient				Tax paid
	GSTIN of Supplier	Type of Document	No.	Date	Taxable    Value	Integrat ed Tax	Centr al Tax	State/Uni on Territory Tax	Cess
1	2	3	4	5	6	7	8	9	10
									”;

Reporting tables in GSTR-1 and GSTR-3B for Deemed Export

Supply Detail in regard of Deemed Export shall be disclosed in following tables:

(i) Table 3.1 (b) of GSTR-3B and

(ii) Table 6C of GSTR-1

Undertakings by the Recipient:-

Undertakings – If the Recipient claims refund then undertaking by the Recipient shall be –

“I hereby declare that the refund has been claimed only for those invoices which have been detailed in statement 5B for the tax period for which refund is being claimed and the amount does not exceed the amount of input tax credit availed in the valid return filed for the said tax period. I also declare that the supplier has not claimed refund with respect to the said supplies.

Undertakings by the Supplier:-

Undertakings – If the Supplier claims refund then undertaking by the Supplier shall be

“I hereby declare that the refund has been claimed only for those invoices which have been detailed in statement 5B for the tax period for which refund is being claimed. I also declare that the recipient shall not claim any refund with respect of the said supplies and also, the recipient has not availed any input tax credit on such supplies.

The author-CA (Adv.) Sikander Sachdeva, FCA is a Chartered Accountant in Practice from Delhi and  can be contacted for any suggestions, rectifications,  amendments and/or further clarifications in regard of this article at 8882370570 or via mail at [email protected]

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