The term export means sending of goods or services produced in one country to another country. The seller of such goods and services is referred to as an exporter; the foreign buyer is referred to as an importer.
Under GST, “export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India [Section 2(5) of the IGST Act, 2017] and “export of services” means the supply of any service when,–(i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8[Section 2(6) of the IGST Act, 2017].
Export is considered as “Zero Rated Supply” under GST [Section 16 of the IGST Act, 2017]. a registered person may make zero-rated supplies of goods or services or both on payment of integrated tax and claim refund of the tax so paid, or make zero-rated supplies of goods or services or both under bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilized input tax credit in relation to such zero rated supplies.
But, exporters are not getting timely refund of their tax component. A number of exporters have not been able to get the export refunds so far others have been granted refunds. The delay in exporters’ refund under the GST is becoming a serious problem with more than Rs thousand crore stuck with the Government, making many exporters, especially the smaller ones, struggle for working capital.
Accordingly, in order to overcome the causes of the delay in sanctioning of refunds, Government has taken various steps, which includes amendments in the rules, changes in the business procedures of common portal and customs automated system to address the systemic issues. Many of the errors plaguing the claims for refunds are on account of inadequate familiarisation of the exporters with the GST laws and data entry errors in the various GSTRs / forms.
Government has carried out outreach programmes by issuing guidance circulars, advisories, FAQs, advertisements etc and also provided an alternative procedure involving manual interface where the errors could not be corrected online. The efforts are beginning to show positive results. A standard operating procedure applicable to both Central and State GST has been put in place by virtue of various Circulars and clarifications issued with regard to processing of ITC refund.
GST Council, in its last meeting on 10th March 2018, has directed all States tax authorities to proactively clear refund claims. Exporting community is requested to take benefit of this fortnight and wholeheartedly come forward to get their errors rectified to enable sanction of refunds. CBIC had taken an initiative to observe a special drive refund sanction fortnight from 15th to 29th March 2018 on an all India scale for which additional staff and infrastructure had been mobilised. Special refund cells manned by experienced staff are being put in place throughout the country. Government wants to assure the exporting community that it is keen to see that all their eligible refund claims are considered and sanctioned at the earliest. In order to accomplish this task, CBIC has issued various clarifications. In this article we will discuss the clarifications issued by the CBIC.
Issue#1: Non-entertainment of physical copy of refund application by the Jurisdictional Tax Officer.
In many States, it is observed that the Jurisdictional Tax Officers are not accepting the physical copy of the refund applications along with relevant documents and in some cases, they are not giving acknowledgement to the assessee after accepting the refund application. According to Tax Officer, reason behind non-accepting is that assessee’s tax file is not reflecting in their system or refund application is not reflecting on their computer system. (Only God knows what is the logic behind this reason/excuse despite being of the fact that the same tax officers are handling other tax related matters of the same assessee.)
As per para 2.5 of the Circular No. 17/17/2017 – GST, dated 15.11.2017, it has been clarified that the registered person needs to file the refund claim with the jurisdictional tax authority to which the taxpayer has been assigned as per the administrative order issued in this regard by the Chief Commissioner of Central Tax and the Commissioner of State Tax. In case such an order has not been issued in the State, the registered person is at liberty to apply for refund before the Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented. However, in the latter case, an undertaking is required to be submitted stating that the claim for sanction of refund has been made to only one of the authorities. It is reiterated that the Central Tax officers shall facilitate the processing of the refund claims of all registered persons whether or not such person was registered with the Central Government in the earlier regime.
Further, para 4 of the above mentioned Circular, the refund application for various taxes i.e. CT / ST / UT / IT/ Cess can be filed with any one of the tax authorities and shall be processed by the said authority, however the payment of the sanctioned refund amount shall be made only by the respective tax authority of the Centre or State government.
Author’s Note : Accordingly, Jurisdictional Tax Officers must accept the refund application in physical form of the registered person without giving the baseless reasons.
Issue#2: How to get refund of GST paid in case of export of goods? Is shipping filed sufficient for claiming of refund?
Clarification: As per para 2.2 of the Circular No. 17/17/2017 – GST, dated 15.11.2017, it has been clarified that the refund of integrated tax paid on goods exported out of India is governed by Rule 96 of the CGST Rules. The shipping bill filed by an exporter shall be deemed to be an application for refund in such cases. The application shall be deemed to have been filed only when export manifest or export report is filed and the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be. Upon receipt of the information regarding furnishing of a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be, from the common portal, the system designated by the Customs shall process the claim for refund and an amount equal to the integrated tax paid in respect of such export shall be electronically credited to the bank account of the applicant. Any order regarding withholding of such refund or its further sanction respectively in PART-B of FORM GST RFD-07 or FORM GST RFD-06 shall be done manually till the refund module is operational on the common portal.
Issue#3: How to get refund of GST paid in case of supply of goods to a Special Economic Zone developer or a Special Economic Zone unit or in case of zero-rated supply of services?
Clarification: As per para 2.3 of the Circular No. 17/17/2017 – GST, dated 15.11.2017, it has been clarified that the application for refund of integrated tax paid on zero-rated supply of goods to a Special Economic Zone developer or a Special Economic Zone unit or in case of zero-rated supply of services (that is, except the cases covered in paragraph 2.2 above and para 2.4 in the said circular) is required to be filed in FORM GST RFD-01A (as notified in the CGST Rules vide notification No. 55/2017 – Central Tax dated 15.11.2017) by the supplier on the common portal and a print out of the said form shall be submitted before the jurisdictional proper officer along with all necessary documentary evidences as applicable (as per the details in statement 2 or 4 of Annexure to FORM GST RFD – 01), within the time stipulated for filing of such refund under the CGST Act.
Issue#4: How to get refund of unutilized input tax credit on inputs or input services used in making zero-rated supplies?
Clarification: As per para 2.4 of the Circular No. 17/17/2017 – GST, dated 15.11.2017, it has been clarified that the application for refund of unutilized input tax credit on inputs or input services used in making such zero-rated supplies shall be filed in FORM GST RFD-01A on the common portal and the amount claimed as refund shall get debited in accordance with sub-rule (3) of rule 86 of the CGST Rules from the amount in the electronic credit ledger to the extent of the claim. The common portal shall generate a proof of debit (ARN- Acknowledgement Receipt Number) which would be mentioned in the FORM GST RFD-01A submitted manually, along with the print out of FORM GST RFD-01A to the jurisdictional proper officer, and with all necessary documentary evidences as applicable (as per details in statement 3 or 5 of Annexure to FORM GST RFD-01), within the time stipulated for filing of such refund under the CGST Act.
Issue#5: Whether refund of input tax credit of Central Tax/State Tax allowed in cases where the supplier of goods or services or both avails of drawback in respect of Customs Duty/ Central Tax?
Clarification: As per third proviso to sub-section (3) of section 54 of the CGST Act states that no refund of input tax credit shall be allowed in cases where the supplier of goods or services or both avails of drawback in respect of central tax. Accordingly, a supplier availing of drawback only with respect to basic customs duty shall be eligible for refund of unutilized input tax credit of GST paid under the said provision.
As per para 2.4 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that a supplier availing of drawback only with respect to basic customs duty shall be eligible for refund of unutilized input tax credit of central tax / State tax / Union territory tax / integrated tax / compensation cess under the said provision. It is further clarified that refund of eligible credit on account of State tax shall be available even if the supplier of goods or services or both has availed of drawback in respect of central tax.
Issue#6: The refund claims are not being processed on account of mis-matches between data contained in FORM GSTR-1, FORM GSTR-3B and shipping bills/bills of export. How refund will be processed?
Clarification: As per para 3 of the Circular No. 37/11/2018 – GST, dated 15.03.2018
, it has been clarified that the facility of filing of Table 9 in FORM GSTR-1, an amendment table which allows for amendments of invoices/ shipping bills details furnished in FORM GSTR-1 for earlier tax period, is already available. If a taxpayer has committed an error while entering the details of an invoice / shipping bill / bill of export in Table 6A or Table 6B of FORM GSTR-1, he can rectify the same in Table 9 of FORM GSTR-1.
Further, it is advised that while processing refund claims on account of zero rated supplies, information contained in Table 9 of FORM GSTR-1 of the subsequent tax periods should be taken into cognizance, wherever applicable. Field formations are also advised to refer to Circular No. 26/26/2017 – GST dated 29th December, 2017, wherein the procedure for rectification of errors made while filing the returns in FORM GSTR-3B has been provided. Therefore, in case of discrepancies between the data furnished by the taxpayer in FORM GSTR-3B and FORM GSTR-1, the officer shall refer to the said Circular and process the refund application accordingly.
Issue#7: Is benefit of LUT allowed on ex-post facto, i.e., with retrospective action or force ?
Clarification: As per para 4.1 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case.
Issue#8: Exporters have been asked to pay integrated tax where the goods have been exported but not within three months from the date of the issue of the invoice for export? Is it valid process?
Rule 96A (1) of the CGST Rules provides that any registered person may export goods or services without payment of integrated tax after furnishing a LUT / bond and that he would be liable to pay the tax due along with the interest as applicable within a period of fifteen days after the expiry of three months or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export, if the goods are not exported out of India. The time period in case of services is fifteen days after the expiry of one year or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.
Accordingly, it has been observed that the exporters have been asked to pay integrated tax where the goods have been exported but not within three months from the date of the issue of the invoice for export.
Clarification: As per para 5.1 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that exports have been zero rated under the Integrated Goods and Services Tax Act, 2017 (IGST Act) and as long as goods have actually been exported even after a period of three months, payment of integrated tax first and claiming refund at a subsequent date should not be insisted upon. In such cases, the jurisdictional Commissioner may consider granting extension of time limit for export as provided in the said sub-rule on post facto basis keeping in view the facts and circumstances of each case. The same principle should be followed in case of export of services.
Issue#9: Whether with respect to a refund claim, deficiency memo can be issued more than once?
Clarification: As per Rule 90 of the CGST Rules, once an applicant has been communicated the deficiencies in respect of a particular application, the applicant shall furnish a fresh refund application after rectification of such deficiencies.
As per para 6.1 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that there can be only one deficiency memo for one refund application and once such a memo has been issued, the applicant is required to file a fresh refund application, manually in FORM GST RFD-01A. This fresh application would be accompanied with the original ARN, debit entry number generated originally and a hard copy of the refund application filed online earlier. It is further clarified that once an application has been submitted afresh, pursuant to a deficiency memo, the proper officer will not serve another deficiency memo with respect to the application for the same period, unless the deficiencies pointed out in the original memo remain un-rectified, either wholly or partly, or any other substantive deficiency is noticed subsequently.
Issue#10: Is the process of furnishing self-declaration with every refund claim justified?
The facility of export under LUT is available to all exporters in terms of notification No. 37/2017- Central Tax dated 4th October, 2017, except to those who have been prosecuted for any offence under the CGST Act or the IGST Act or any of the existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees. Para 2(d) of the Circular No. 8/8/2017-GST dated 4th October, 2017, mentions that a person intending to export under LUT is required to give a self-declaration at the time of submission of LUT that he has not been prosecuted. Persons who are not eligible to export under LUT are required to export under bond.
Clarification: As per para 7.2 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that this requirement is already satisfied in case of exports under LUT and asking for self–declaration with every refund claim where the exports have been made under LUT is not warranted.
Issue#11: Whether transitional credit pertains to duties and taxes paid under the existing laws can be treated as part of ‘Net ITC’?
Refund of unutilized input tax credit is allowed in two scenarios mentioned in sub-section (3) of section 54 of the CGST Act. These two scenarios are zero rated supplies made without payment of tax and inverted tax structure. In sub-rule (4) and (5) of rule 89 of the CGST Rules, the amount of refund under these scenarios is to be calculated using the formulae given in the said sub-rules. The formulae use the phrase ‘Net ITC’ and defines the same as “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”.
Clarification: As per para 8 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that as the transitional credit pertains to duties and taxes paid under the existing laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same cannot be said to have been availed during the relevant period and thus, cannot be treated as part of ‘Net ITC’.
Issue#12: Where the refund of unutilized input tax credit on account of export of goods is claimed and the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act, refund claims are not being processed?
Clarification: As per para 9 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that the zero rated supply of goods is effected under the provisions of the GST laws. An exporter, at the time of supply of goods declares that the goods are for export and the same is done under an invoice issued under rule 46 of the CGST Rules. The value recorded in the GST invoice should normally be the transaction value as determined under section 15 of the CGST Act read with the rules made thereunder. The same transaction value should normally be recorded in the corresponding shipping bill / bill of export.
During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be sanctioned as refund.
Issue#13: Whether refund of taxes paid under existing laws allowed through FORM GST RFD-01A?
Sub-sections (3), (4) and (5) of section 142 of the CGST Act provide that refunds of tax/duty paid under the existing law shall be disposed of in accordance with the provisions of the existing law. It is observed that certain taxpayers have applied for such refund claims in FORM GST RFD-01A also.
Clarification: As per para 10 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that the field formations are advised to reject such applications and pass a rejection order in FORM GST PMT-03 and communicate the same on the common portal in FORM GST RFD-01B. The procedures laid down under the existing laws viz., Central Excise Act, 1944 and Chapter V of the Finance Act, 1994 read with above referred sub-sections of section 142 of the CGST Act shall be followed while processing such refund claims.
Furthermore, it has been brought to the notice of the Board that the field formations are rejecting, withholding or re-crediting CENVAT credit, while processing claims of refund filed under the existing laws. In this regard, attention is invited to sub-section (3) of section 142 of the CGST Act which provides that the amount of refund arising out of such claims shall be refunded in cash. Further, the first proviso to the said sub-section provides that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse and therefore, will not be transitioned into GST. Furthermore, it should be ensured that no refund of the amount of CENVAT credit is granted in case the said amount has been transitioned under GST. The field formations are advised to process such refund applications accordingly.
Issue#14: What is the filing frequency of refund applications?
Section 2(107) of the CGST Act defines the term “tax period” as the period for which the return is required to be furnished. The terms ‘Net ITC’ and ‘turnover of zero rated supply of goods/services’ are used in the context of the relevant period in rule 89(4) of CGST Rules. The phrase ‘relevant period’ has been defined in the said sub-rule as ‘the period for which the claim has been filed’.
In many scenarios, exports may not have been made in that period in which the inputs or input services were received and input tax credit has been availed. Similarly, there may be cases where exports may have been made in a period but no input tax credit has been availed in the said period. The above referred rule, taking into account such scenarios, defines relevant period in the context of the refund claim and does not link it to a tax period.
Clarification: As per para 11.2 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that the exporter, at his option, may file refund claim for one calendar month / quarter or by clubbing successive calendar months / quarters. The calendar month(s) / quarter(s) for which refund claim has been filed, however, cannot spread across different financial years.
Issue#15: Whether BRC / FIRC for export of goods is mandatory?
Clarification: As per para 12 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that the realization of convertible foreign exchange is one of the conditions for export of services. In case of export of goods, realization of consideration is not a pre-condition. In rule 89 (2) of the CGST Rules, a statement containing the number and date of invoices and the relevant Bank Realisation Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC) is required in case of export of services whereas, in case of export of goods, a statement containing the number and date of shipping bills or bills of export and the number and the date of the relevant export invoices is required to be submitted along with the claim for refund. It is therefore clarified that insistence on proof of realization of export proceeds for processing of refund claims related to export of goods has not been envisaged in the law and should not be insisted upon.
Issue#16: Whether benefit of supplies merchant exporters at concessional rate is mandatory?
Notification No. 40/2017 – Central Tax (Rate), dated 23rd October 2017 and notification No. 41/2017 – Integrated Tax (Rate) dated 23rd October 2017 provide for supplies for exports at a concessional rate of 0.05% and 0.1% respectively, subject to certain conditions specified in the said notifications.
Clarification: As per para 13.1 and 13.2 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that the benefit of supplies at concessional rate is subject to certain conditions and the said benefit is optional. The option may or may not be availed by the supplier and / or the recipient and the goods may be procured at the normal applicable tax rate.
It is also clarified that the exporter will be eligible to take credit of the tax @ 0.05% /0.1% paid by him. The supplier who supplies goods at the concessional rate is also eligible for refund on account of inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act. It may also be noted that the exporter of such goods can export the goods only under LUT / bond and cannot export on payment of integrated tax. In this connection, Notification No. 3/2018-Central Tax, dated 23.01.2018 may be referred.
Issue#17: What is the requirement of invoices for processing of claims for refund? (For processing of refund claims, copies of invoices and other additional information are being insisted upon by many field formations.)
Clarification: As per para 14 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that only the specified statements would be required for processing of refund claims because the details of outward supplies and inward supplies would be available on the common portal which would be matched. Most of the other information like shipping bills details etc. would also be available because of the linkage of the common portal with the Customs system. However, because of delays in operationalizing the requisite modules on the common portal, in many cases, suppliers’ invoices on the basis of which the exporter is claiming refund may not be available on the system.
For processing of refund claims of input tax credit, verifying the invoice details is quintessential. In a completely electronic environment, the information of the recipients’ invoices would be dependent upon the suppliers’ information, thus putting an in-built check-and-balance in the system.
However, as the refund claims are being filed by the recipient in a semi-electronic environment and is completely based on the information provided by them, it is necessary that invoices are scrutinized.
A list of documents required for processing the various categories of refund claims on exports is provided in the Table below. Apart from the documents listed in the Table below, no other documents should be called for from the taxpayers, unless the same are not available with the officers electronically:
|Type of Refund||Documents |
|Export of Services with payment of tax (Refund of IGST paid on export of services)||ü Copy of FORM RFD-01A filed on common portal |
ü Copy of Statement 2 of FORM RFD-01A
ü Invoices w.r.t. input, input services and capital goods
ü BRC/FIRC for export of services
ü Undertaking / Declaration in FORM RFD-01A
|Export (goods or services) without payment of tax (Refund of accumulated ITC of IGST / CGST / SGST / UTGST / Cess)||ü Copy of FORM RFD-01A filed on common portal |
ü Copy of Statement 3A of FORM RFD-01A generated on common portal
ü Copy of Statement 3 of FORM RFD-01A
ü Invoices w.r.t. input and input services
ü BRC/FIRC for export of services
ü Undertaking / Declaration in FORM RFD-01A
Issue#18: From which date, these instruction will be applicable?
Clarification: As per para 15 of the Circular No. 37/11/2018 – GST, dated 15.03.2018, it has been clarified that these instructions shall apply to exports made on or after 1st July, 2017. It is also advised that refunds may not be withheld due to minor procedural lapses or non-substantive errors or omission.