GST- Impact of change in definition of Turnover of Zero-rated supply of goods 

Recently, the CBIC has issued a notification no. 16/2020-Central Tax, dated 23/03/2020 whereby certain amendments have been made in CGST Rules, 2017 (‘CGST Rules’). 

Under this article, I have covered the amendment made in definition of ‘Turnover of Zero-rated supply of goods’ under Rule 89 (4) of the CGST Rules and its impact of quantum of refund.

1. Existing provisions

• The Rule 89(4) of the CGST Rules provides formula to compute the amount of refund in case of zero-rated supply of goods or services without payment tax under Bond or letter of undertaking (‘LUT’).
• The said formula is mentioned below:

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

• Further,  clause  ( c)  of Rule  89 (4) of CGST Rules  provides 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, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both

2. Amendment

• The CBIC has amended clause (c) of Rule 89 (4) which provides definition of “Turnover of Zero-rated supply of goods” and the amended definition is as under:

“(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.”

3. Impact of the amendment

• Invite litigation:

In case where the exporter does not have domestic sale of same goods or 100% export, then in such scenario, the price of “similarly placed suppliers” has to compared, which may invite litigation

• Reduction in refund amount:

The amendment in definition of “Turnover of Zero-rated supplies of goods” leads to reduction in refund amount and the same is explained by way of comparative analysis in a table below:

• Restriction in value of zero-rated supply of goods:

Due to the above amendment, the value of zero-rated supply of goods shall be limited to 1.5 times of the domestic price of such goods supplied by the same supplier (refund applicant) or similarly placed supplier.

• Reason for amendment:

The intention of Government is to check the cases relating to over invoicing of export value to claim more refund.

Although, the intention of Government is to check the instances of over invoicing of export of goods, but the amendment may lead to reduction in quantum of refund of genuine exporters (of goods) and invite litigation, if the price of “similarly placed suppliers” used for valuation of zero-rated supply of goods.

(The views expressed are strictly personal)