PROLOGUE
It is well known to business fraternity and tax professional community, that the indirect tax reforms were introduced in India by 101st Amendment to Constitution of India. Consequently, several indirect taxes subsumed in the Goods and Service Tax regime. The concept was one country, one tax and one market. The field of legislation for levying tax on sale of goods under Entry 54 of List II of seventh Schedule of Constitution was restricted to sale of alcoholic liquor for human consumption and petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel excluding the sale in the course of interstate trade or commerce or sale in the course of international trade or commerce.
Earlier, field of legislation to levy excise duty for all products manufactured in India except alcoholic liquor for human consumption and opium, Indian hemp, narcotic drugs and narcotics, was in List I of VII th Schedule to Constitution of India. After the amendment field of legislation was restricted only to (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel; and (f) tobacco and tobacco products. However, the Article 279(5) provides that GST Council will recommend the date on which goods and service tax will be levied on supply of (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel will. This levy shall be addition to the tax on sale of (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel as provided in Item 54 of List II of Seventh Schedule of Constitution of India, Consequently, from the date recommended by Council,(a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel will bear central excise duty, GST and Sales Tax thereby fueling the consumer price index. Now, at present, States are levying sales tax and Center is levying excise duty.
The field of legislation for tax on sale of newspapers and advertisement published therein and field of legislation tax on service i.e service tax, as contained in Item 92 and 92C respectively of List I of Seventh Schedule of Constitution were deleted by the 101st Amendment to Constitution of India.
Article 246A was inserted by 101st Amendment to Constitution of India. Consequently, the Parliament and every State Legislature is empowered to make laws with respect to goods and service tax. The States, however, were not provided with power to make laws with respect to goods and service tax in respect of supply which takes place in inter-state trade or commerce or in international trade. The powers under Article 245 and 246 were retained and because of non obstante clause in Article 246A which means the powers in Article 246A are additional and there is no scope of repugnancy of Article 245 or 246 vis a vis Article 246A.
Article 366(12-A) defines “goods and service tax” as tax on supply of goods and/or service except alcoholic liquor for human consumption.
Pertinent to know that in view Entry 54 read with Article 366(12A) read with Item 84 of List I, Parliament can levy goods and service tax on supply of goods and services, Parliament can also levy Excise Duty on, and State can levy sales tax on sale of (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel and alcoholic liquor for human consumption. It also means that Parliament can levy Excise Duty, inter alia, on tobacco, goods and service tax can be levied, inter alia, on tobacco by Parliament and State Legislature.
Hence (a) petroleum crude; (b) high speed diesel; (c) motor spirit (commonly known as petrol); (d) natural gas; (e) aviation turbine fuel and Tobacco shall not be subsumed in GST and will be independently levied.
The provision of Integrated Goods and Service Tax Act 2017 is under Article 269A. Explanation to Article 269A(1) makes the supply of goods or services in the course of import into territory of India deemed to be in the course of interstate trade or commerce. Consequently, all provision of levy of tax on supply of goods and services in the course of interstate trade or commerce in IGST Act shall be applicable to imports,
Custom Duty on Imports and Export are not subsumed in GST. Consequently, Import Duty and GST both will be levied on the value of imports.
IMPORTS:
Definitions of import of goods and services are contained in section 2(10) and (11) of IGST Act;
2(10) ‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;
2(11) ‘‘import of services” means the supply of any service, where––
(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India;
As per Section 7(2) supply of goods till the goods cross custom frontiers of India, is treated as interstate sale.
As per section 7(4) the supply of services imported in territory of India is treated as interstate supply.
As per section 13 the place of supply of services shall be the location of recipient of services, except as provided in section 13(3) to (13).
Thus all imports and supply of imported goods till they cross custom frontiers of India are Inter State sale and thus liable to IGST, on reverse charge basis. It is available for adjustment as ITC under section 16 read with section 2 (62) which provides that “input tax” in relation to a registered person, and includes under clause (a) the integrated goods and services tax charged on import of goods, but those who do not have outward GST liability will have double jeopardy inasmuch as, he will have to pay custom duty and in addition IGST. Hitherto, such person had only to pay custom duty.
It may appear that the supply is from foreign non taxable territory, then how can India levy tax on supply from non taxable territory. Answer appears to be that provision of Article 245(2) protects and provides that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial jurisdiction.
It must be noted that import of services (not goods) for consideration not in course or furtherance of business is covered under the scope of supply u/s 7 (1)(b) of CGST Act which is applicable to IGST Act as per Section 21(i) of IGST Act.
Under the pre GST era, the import was not liable to sales tax or purchase tax as per Article 286 under any State Act. The 101st Amendment to Constitution of India amended the wordings of Article 286 by substituting “sale or purchase” with “supply of goods or services or both”. Therefore, no State can levy tax on supply of goods or services or both on supply of goods or services or both in the course of import or export. This prohibition puts restrictions on States power to levy tax under Article 246A(1).However, Article 246(2) puts restriction on State to levy tax on supply of goods or services or both in the course of interstate trade or commerce. The Export and Import are treated as Inter State supply of goods or services or both. This is evident from the Explanation to Article 269A(1) and Section 7(5) of IGST Act.
Moreover, as per section 7(2), the supply of goods imported into territory of India, till they cross custom frontiers of India, are treated as sale in the Course of interstate trade or commerce.
As per Schedule II Item 1(b) and Item 5 (f) transfer of right without transfer of title or transfer of right to use goods ( e.g. Lease of Goods ) is treated as supply of services. If goods are imported for use for any purpose (e.g. high seas exploration of oil or gas, High Seas Drilling of Wells or dredging or an y performance of any act in land mass in India) shall be treated as supply of service and liable for IGST.
Schedule I Item 4 provides that even if services are imported without consideration by a person from a related person or any other establishment outside India in course or furtherance of business shall be treated within the scope of supply.
Hence, following import transactions shall be treated as supply of goods or services or both in the course of interstate trade or commerce:
1. Import of goods or services into India from outside India;
2. Export of goods or services to territory outside India;
3. Supply of goods imported before the goods have crossed custom frontiers of India;
4. Lease of goods from foreign country for consideration in furtherance of business;
5. Services imported without consideration by a person from a related person or any other establishment outside India in course or furtherance of business;
6. Import of services for consideration not in course or furtherance of business.
Now the Section 5, first Proviso states that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.
The goods imported into India will be liable to IGST but not under IGST Act instead under section 3(7) of Customs Tariff Act. As per Taxation Laws (Amendment) Act, 2017 changes have been brought about in Customs in the wake of introduction of GST. One change is that, in addition to basic customs duty levied under section 12 of Customs Act, section 3 of Customs Tariff Act, sub-section 7 levies IGST on import of goods.
Customs Act permits goods that have entered India to be deposited in a bonded warehouse on filing ‘into-bond’ bill of entry without payment of duty. Hence, goods that have entered India will not attract liability to IGST until they reach the point – location or time – when bill of entry for home consumption is filed. In such cases, IGST is to be levied only when ex-bond bill of entry is filed or until date specified in section 15 is reached. Further, goods imported by SEZ also do not attract liability to IGST as the goods are ‘not yet’ liable to be assessed to customs duty.
It is thus clear that the import of goods or services is liable to IGST. The rate will as per the Notification 1/2017-Integrated Tax (Rate),dt. 28-06-2017 under the Integrated Goods and Service Tax Act 2017.
By Notification 1/2017-Integrated Tax (Rate),dt. 28-06-2017 in respect of receipt of service from person located in non taxable territory to any person other than non taxable online recipient, IGST shall be payable under reverse charge mechanism by any person located in the taxable territory other than non-taxable online recipient, who is in receipt of receipt of service.
As per section 5 (1) the IGST tax is payable by taxable person. Taxable person is defined in CGST Act, which is applicable to IGST Act, as per section 2(24) and 21 of IGST Act, to mean that the person who is registered or liable to be registered under section 22 or 24 of CGST Act. The section 24(i) person making interstate taxable supply is also liable to registration. Import is treated as interstate supply. The question whether the exporter in foreign country who is exporting goods to India is liable for registration and consequences of failure to get registered are attracted to exporter to India. Consequently the supplier is foreign country is made liable to registration and tax. This is evident from the fact that all imports of goods and services are made liable to recovered as reverse charge. This fastens liability fundamentally on supplier on supply from non taxable territory.
Section 3(7) Custom Tariff Act 1975 provides that any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent as is levyable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8).By Notification 1/2017-Integrated Tax (Rate),dt. 28-06-2017 , IGST shall be paid on reverse charge basis by the recipient of the services. Thus any service supplied by any person who is located in a non-taxable territory to any person, other than non-taxable online recipient, to any person located in the taxable territory, other than non-taxable online recipient, shall be paid by importer of services. As per the provisions contained in Section 7(1) (b) of the CGST Act, 2017, import of services for a consideration whether or not in the course or furtherance of business shall be considered as a supply. This implies that import of services even for personal consumption would qualify as ‘supply’ and therefore, would be liable to tax. This would not be subject to the threshold limit for registration, as tax would be payable in case of import of services on reverse charge basis, requiring the importer of service to compulsorily obtain registration in terms of Section 24(iii) of the Act. Although import for personal purposes is included in the definition of supply, the entry 10(a) to Notification No. 9/2017-Int (Rate), dated 28.6.2017 exempts import of services under entire Chapter 99 from payment of GST. However, the GST law has ensured that persons who are not engaged in any business activities will not be required to obtain registration and pay tax under reverse charge mechanism, and in turn, requires the supplier of services located outside India, to obtain registration for the OIDAR (online information and database access and retrieval) services only. Thus, in general, import of services without consideration shall not be considered as supply. However, business test is not required to be fulfilled for import of service to be considered as supply. Thus, import of services can be considered as supply based on whether there is consideration or not and whether the service is supplied in the course or furtherance of business.
Hence, information and database access or retrieval services, when recipient is non taxable person the supplier of services shall be liable to pay tax. Thus, in respect of import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier located outside India will be responsible for payment of taxes. The service provider (or intermediary as the case may be) will be required to take a single registration for paying IGST under the Simplified Registration Scheme. Notification no.2/2017 – Integrated tax, dated 19th June 2017 has notified the Principal Commissioner of Central Tax, Bengaluru West and all the officers subordinate to him as the officers empowered to grant registration in case of online information and database access or retrieval services provided or agreed to be provided by a person located in non-taxable territory and received by a non-taxable online recipient. Either foreign supplier will have to take registration or he will have to appoint a person in India to pay GST.
The person receiving any such services i.e. OIDAR should pay the IGST to the government only if he is registered under GST as a taxable person
EXEMPTIONS: By Notification No. 18/2017 -Integrated Tax (Rate) Government exempted services imported by a unit or a developer in the Special Economic Zone for authorised operations, from the whole of the integrated tax levyable thereon under section 5 of the Integrated Goods and Service Tax Act, 2017. By Notification No. 64/2017- Customs, Government exempted all goods imported by a unit or a developer in the Special Economic Zone for authorised operations, from the whole of the integrated tax leviable thereon under sub-section (7) of section 3 of the Customs Tariff Act, 1975 (51 of 1975) read with section 5 of the Integrated Goods and Service Tax Act, 2017 (13 of 2017).
The Import of certain services are exempted as per Notification No 9/2017 (E-10)dt 28.06.2017. Entry 10 provides exemption as follows:
Services received from a provider of service located in a non- taxable territory by –
1. The Central Government, State Government, Union territory, a local authority, a governmental authority; or
2. An individual in relation to any purpose other than commerce, industry or any other business or profession;
3. An entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities;
4. A person located in a non-taxable territory:
The exemption is not applicable to –
(i) online information and database access or retrieval services received by persons specified in entry (1) or entry (2) above; or
(ii) services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in the entry.
OCEAN FREIGHT ON CIF IMPORTS IS HELD TO BE ULTRA VIRES.
The levy of reverse charge on the ocean freight in case of CIF export has been declared ultra vires by Gujarat High Court in Mohit Minerals (P) Ltd. v. UOI 2020-VIL-36-GUJ dt 23-01-2020 in SCA No.726/2018 passed by the High Court of Gujarat at Ahmedabad. However, Union of India has filed SLP before the Supreme Court and the same is pending. It has been held that no IGST is leviable on the ocean freight for the services provided by a person located in a non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. Entry 9(ii) of NN-8/2017-IT(R) and Entry 10 of NN-10/2017-IT(R) have been declared as ultra vires the IGST Act due to lack of competency Under Section 5(3) of the IGST Act, the person liable to pay tax can only be “the recipient” of supply. The term “recipient” has been defined in the CGST Act. Importer cannot be said to be the recipient of the ocean freight service in the instant case since the importer has neither availed the service of transportation of goods nor he is liable to pay consideration for such service. The foreign shipping line is engaged by foreign exporter. The importer cannot be made liable to pay tax on a mere premise that the importer is directly or indirectly recipient of service. The Court observed that it is neither an inter-State supply under Section 7 nor an intra- State supply under Section 8 of the IGST Act.
The payment of IGST is available for adjustment as ITC u/s 16 of CGST Act read with section 2(62)(a) against out put supply liabilities. However, when the importer is not engaged in activities liable for GST or its output supply of goods and /or services are not liable to GST, though IGST available for ITC, the importer has to bear the burden over and above IGST..
CGST Circular No. 98/17/2019 issued on 23 April 2019 has clarified the order of ITC utilisation for each tax head. Section 49A provides that ITC under the IGST shall be first utilised for any tax liability before ITC under CGST or SGST or UGST is utilised. Section 49B provides for power to the Government to frame rules for order and manner of utilization of ITC.Consequently, rule 88A has been inserted which provide. The importer can utilise the amount of Integrated Tax paid on import against the liabilities under any of the GST Acts subject to provisions of Section 49,49A and 49B and Rule 88A.
SUPPLY IN COURSE OF IMPORT:
The Article 286 provides for prohibition to State to levy tax on import of goods or services into or export of goods and services out of India. Hence, no State Government levy tax on import of goods or services into or export of goods and services out of India.
Therefore tax is provided under IGST Act in respect of import of goods or services into or export of goods and services out of India.
The provisions of section 7(2) provides that any supply of imported goods before the goods cross custom frontiers of India, shall be treated as interstate supply. Here the goods have been unloaded on the air port or sea port but have not custom frontiers India i.e Bill of Entry is not yet filed, either for home consumption or warehousing, as the case may be, and supply occurs, then in that case though goods are in the Indian Territory, the transaction shall be treated as interstate supply. This is akin to provisions of section 5(2) of the Central Sales Tax Act 1956. Here the deeming fiction is about interstate supply and not import. The term crossing custom frontiers of India is defined in section 2(ab) of CST Act 1956 shall be applicable. The Bombay High Court in The Commissioner Of Sales Tax,. vs M/S Radhasons International by judgment dt 8 February, 2019 has held that once the bill of entry is filed either for home consumption or warehousing, goods are deemed to have crossed custom frontiers of India.
Correspondingly, provisions in Schedule III of CGST Act in item 8 provides for exclusion of such transaction from the purview of intra state supply. Supply of warehoused goods to any person before clearance for home consumption and Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption are outside the ambit of CGST Act.
Schedule III under CGST Act is amended with effect from 1.2.2019 and Entry 8 has been added so as to provide that following transaction shall neither be supply of goods or services.
(a) supply of warehoused goods to any person before clearance for home consumption and
(b) supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
It appears that this Entry 8 of Schedule III is in contract to provision of section 7(2) of IGST Act. To reconcile both the Acts are different and one provision in the CGST Act does not appear to follow provisions of IGST Act except as provided in Section 21 of IGST Act. The Section 21(i) referes to scope of supply. The Section 7 of CGST refers to Scope of Supply which refers to Schedules. Whether the Schedule III overrides Section 7(2) of IGST Act is a question to be deliberated. If so, intermediary transactions shall not be liable to IGST.
As per second proviso to Rule 138A(1) provides that in case of imported goods, the person in charge of a conveyance shall also carry a copy of the bill of entry filed by the importer of such goods and shall indicate the number and date of the bill of entry in Part A of FORM GST EWB-01
EXPORTS:
Section 2 of IGST defines:
2(5) “export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;
2(6) “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 or Indian Rupees wherever permitted by Reserve Bank of India;
(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 8, Explanation 1.––provides that where an establishment in India and any other establishment outside India; then such establishments shall be treated as establishments of distinct persons.]
Condition No. (iv) and (v) are not provided in respect of export of goods..However, as per Rule 96B the Refund availed on export needs to be reversed and paid back to Government along with applicable interest, if the export proceeds in respect of exported goods are not realised within the time permitted by FEMA. But it is actually realised belated the refund reverted back shall be again refunded but interest charged at the time of reversion of refund shall not be refunded.
As per section 13 the place of supply of services shall be the location of recipient of services. However, in certain circumstances as enumerated in S 13(3)to (13), place of supply shall be deemed to be as provided in each sub-section:
| Sr No. | Sub Section | Type of services | Place of supply |
| 1 | 3 | Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services: and services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services. | The location where the services are actually performed |
| 2 | 4 | services supplied to an individual, represented either as the recipient of services or a person acting on behalf of the recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services. | The place where the immovable property is located or intended to be located |
| 3 | 5 | The place of supply of services supplied by way of admission to, or organization of a cultural, artistic,sporting, scientific, educational or entertainment event, or a celebration, conference, fair, exhibition or similar events, and of services ancillary to such admission or organization | The place where the event is actually held |
| 4 | 6 | Where any services referred to in sub-section (3) or sub-section (4) or sub-section (5) is supplied at more than one location | The location in the taxable territory |
| 5 | 7 | Where the services referred to in sub-section (3) or sub-section (4) or sub-section (5) are supplied in more than one State or Union territory, | As being in each of the respective States or Union territories and the value of such supplies specific to each State or Union territory shall be in proportion to the value for services separately collected or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed |
| 6 | 8 | services supplied by
(a) banking company, or a financial institution, or a nonbanking financial company, to account holders; (b) intermediary services; (c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month. |
Location of supplier of services. |
| 7 | 9 | The place of supply of services of transportation of goods, other than by way of mail or courier, | Place of destination of such goods |
| 8 | 10 | The place of supply in respect of passenger transportation services | The place where the passenger embarks on the conveyance for a continuous journey. |
| 9 | 11 | The place of supply of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board,
|
The first scheduled point of departure of that conveyance for the journey |
| 10 | 12 | The place of supply of online information and database access or retrieval services
|
The location of the recipient of services |
The effect of this Section 13(3) to (13) is that the definition of supply of services in the course of export as contained in Section 2(6) specially clause(iii) will be qualified and thus place of supply may fall in India. Therefore, such supply shall not fulfill the definition of “export of services”. Consequently benefits such as refund u/s 54 will not be available.
As per section 7(5) when in case of supply of goods or services where supplier is located in India and the place of supply is outside India or in case of supply to or by SEZ developer or unit, are treated as interstate supply.
Exports are liable for IGST and are available for clearance without payment of IGST under LUT or Bond and exporter is entitled to refund of unutilised ITC in respect of the goods or services. From 1.4.2021 the provision for availability of clearance on payment of IGST has been restricted only to notified goods or notified taxable persons.
In respect of export of goods, there is no difficulty in determining whether it is export or not.The definition is clear and unambiguous. When the goods are taken out of India to a place outside India for consideration in the course of or furtherance of business, it will be treated as export. Hence, provisions of Section 49(5), Section 54 of CGST Act for refund and Section 16 of IGST Act for zero rated supply will apply.
In respect of supply of services, though supply of goods or services are inter state sale as per section 7(5)(a), to treat supply of service as export, five conditions under section 2(6) will have to be satisfied before it can be treated as export to attract provisions of Section 49(5), Section 54 of CGST Act for refund and Section 16 of IGST Act for zero rated supply will apply.
Export being inter state supply is liable to pay IGST.
However, the input tax credit available can be adjusted against the liability of IGST on export, and it can be done also even if the export supply is exempt supply.[Section 16(2)].
So far as the Export Invoice is required to contain all particulars, endorsements and requirements as specified for tax invoice as per section 31 read with Second Proviso to the Rule 46.
In respect of goods taken out of India for exhibition purpose such as in trade fair, Board has issued a Circular No. 108/27/2019 dated 18.07.2019 clarifying the procedure.t has been clarified Such activity except when it is covered under Schedule I of the CGST Act does not constitute supply as no consideration is involved at that point in time and consequently same cannot be considered as Zero rated supply under section 16 of the IGST Act.
DEEMED EXPORTS
Section 147 provides for 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.
This akin to pen ultimate sale under section 5(3) of CST Act.
Notification no. 48/2017-Central Tax dated 18.10.2017 wherein the following categories of supply of goods have been declared as Deemed Exports: –
Description of Supply
01. Supply of goods by a registered person against Advance Authorisation
02. Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
03. Supply of goods by a registered person to Export Oriented Unit
04. Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation
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.
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” means an 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.
Deemed export concept is applicable only when the goods in question are manufactured in India. Therefore, although where the goods are of the nature that are notified by the Government as goods which qualify as “deemed exports”, if such goods are not manufactured in India they shall not enjoy the benefit of being treated deemed export..
The export of goods or services is treated as zero rated supply. Supply of goods or services to Developer of SEZ or Unit in SEZ are also treated as zero rated supply. “Zero rated supply” is a term and that does not mean that it is NIL rated IGST is not payable. It only means that benefits of Section 16 of IGST Act will be available to transaction which fall under zero rated supply. The benefits are:
1. He is entitled to clear the goods for export without payment of IGST under Bond or LOU under Rule 96A..
2. He can claim refund of unutilisied tax credit.
3. He can pay IGST and claim refund of such tax paid.(This is discontinued wef 1.4.2021 except for notified goods or notified persons)
For Example.
“A” is manufacturer of TV Sets:
“A” Exports television less than 32” worth Rs 30,00,000.00.
IGST liability @ 18% 5,40,000.00
In first option he can execute Bond or LUT and export without payment of IGST and subsequently claim refund of ITC related to input of this products. It is difficult to give working of the ITC related to input for export when there are intra state and interstate sales also. Hence, this mode is cumbersome.
Second, option is make payment of IGST of Rs 5,40,000.00 after deducting available ITC and then claim refund of Rs 5,40,000.00 which will cover payment of IGST and ITC.
Section 49(5), Section 54 of CGST Act for refund and Section 16 of IGST Act for zero rated supply read with. Rule 89(4) ( for LOU or Bond) of the CGST Rules, 2017 as amended vide Notification No. 47/2017- Central Tax dated 18.10.2017 allows supplier of such supplies to claim refund of tax paid thereon.
Refund of tax paid on export is provided in Section 49(6) and S 54(3)(i) of CGST Act read with section 16 of IGST Act. The Relevant rules are Rule 89,96,96A and 96B.
Amendment is section 16 of IGST by Finance Act 2021 has made in definition of zero rated supply where by the supply of goods or services to SEZ developer or SEZ unit shall be treated as zero rated supply only when the same is for authorised operations. Earlier words for authorised operations was not condition precedent.
Now after amendment for exporters only one option available to the exporter that is he has clear the goods only under Bond Or LUT. The second option of paying the IGST and claim the refund has been restricted for the assesses who have been notified as class of goods or services or class of taxable persons who can export on payment of IGST and claim refund of the taxes so paid.
Consequently reading definition of Section 2(59) and 2(62), in LUT or Bond mode the ITC will not be available on the capital goods. Now determination of refund of unutilised ITC related to the export goods or services is going to be tug of war between taxable person and department. One more change is made by providing for realisation of export value of goods exported. If the amount of value of goods exported is not realised as provided as per FEMA, then exporter has to refund within 30 day of expiry of time provided for realisation as per FEMA, the amount so refunded with interest and when realisation occurs then he can claim refund again but interest paid shall not be refunded.
SPECIAL PROVISIONS FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING:
The Rule 96A. provides for special provisions for export under bond or LOU.
> Any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11
> To the jurisdictional Commissioner,
(i) binding himself to pay the tax due along with the interest within a period of —
(a) 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; or
(b) 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 [or in Indian rupees, wherever permitted by the Reserve Bank of India
> The details of the export invoices contained in FORM GSTR-1 furnished on the common portal shall be electronically transmitted to the system designated by Customs and a confirmation that the goods covered by the said invoices have been exported out of India shall be electronically transmitted to the common portal from the said system.
♦ However, where the date for furnishing the details of outward supplies in FORM GSTR-1 for a tax period has been extended, the supplier shall furnish the information relating to exports as specified in Table 6A of FORM GSTR-1 after the return in FORM GSTR-3B has been furnished and the same shall be transmitted electronically by the common portal to the system designated by the Customs:
♦ However, the information in Table 6A furnished shall be auto-drafted in FORM GSTR-1 for the said tax period
> Where the goods are not exported within the time specified in sub-rule (1) and the registered person fails to pay the amount mentioned in the said sub-rule, the export as allowed under bond or Letter of Undertaking shall be withdrawn forthwith and the said amount shall be recovered from the registered person in accordance with the provisions of section 79. (4)
> The export as allowed under bond or Letter of Undertaking withdrawn shall be restored immediately when the registered person pays the amount due.
> The Board, by way of notification, may specify the conditions and safeguards under which a Letter of Undertaking may be furnished in place of a bond.
> Circular No. 26/2017- Customs dated 1st July, 2017 has clarified that the procedure as prescribed under rule 96A of the said rules requires to be followed for the export of goods from 1st July, 2017.
> By Circular No. 2/2/2017-GST 4 th July, 2017 it is stated that the acceptance of the Bond/Letter of Undertaking required to be furnished by the exporter under rule 96A of the said rules shall be done by the jurisdictional Deputy/Assistant Commissioner.
> These provisions shall apply, mutatis mutandis, in respect of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit without payment of integrated tax.
DETAILED ANALYSIS OF RULES FOR REFUND OF GST ON EXPORT.
The taxable person is entitled to refund of unutilised input tax credit in respect of zero rated supplies without payment of tax under S. 54(3) of CGST Act and S. 16(3)(a) of IGST Act, and in respect of refund of IGST paid on export, he is entitled to refund under S.16(3)(b) read with S 54 of CGST Act..
Section 54 of CGST and Section 16 of IGST r/w Rules 89 to 96B, provide for refund of GST on goods or services exported out of India. First proviso to section 54(3) at threshold provides no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty.
REFUND IN CASE OF EXPORT OF GOODS AND SERVICES:
A. Refund of GST, other than IGST paid on export of goods or services, of unutilied tax credit for goods or services, exported out of India.(Rule 89.)
The refunds, u/s 54, of unutilised ITC, which are entitled to be refunded to any person, on export of goods, except the refund of IGST, and except where export is subject to export duty, are to be granted on an application in Form GST REF 01, to be made at the end of tax period i.e. end of the period for which return is required to be furnished, before 2 years (S.54) of relevant date. The relevant date is defined in S 54. The relevant date is as follows:
For Export of Goods:
(i) In case of export by goods by sea or air, the date on which ship or air craft leaves India;
(ii) In case of export of goods by land, the date on which the goods pass frontiers of India;
(iii) In case of export of goods by Post, the date of dispatch of goods;
(iv) In case of deemed export, the date on which return for such deemed export is filed;
For Export of Services:
(i) Where services are supplied prior to receipt of consideration. the date receipt of consideration in convertible foreign exchange or Indian Rupees if permissible by RBI;
(ii) In case of advance payment of consideration, the date of issue of invoice;
Upon making an application for refund of unutilised ITC, the electronic credit register is to be debited with the amount of claim. It appears that there is no provision for reversing the debit in case, refund application is rejected for any reason.
The Rule 89(4) provides for formula for calculating the amount to be refunded.
If the claim for refund is less than two lakh Rupees, the claimant may file declaration, in lieu of documentary evidence to the effect that the claimant has not incidence of such tax claimed as refund has not been passed on to any other person.
The refund is compulsorily granted within sixty days of the date of receipt of application complete in all respect.
B. Refund of IGST paid on goods or services exported out of India.[Rule 96]
REFUND IN CASE OF EXPORT OF GOODS:
> The shipping bill filed by an exporter of goods shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India (Rule 96). [ It is not applicable to the goods exported under LUT or Bond without payment of IGST. This category will file GST-RFD-1.]Hence, no separate application is required to be filed when IGST is paid on export.
> Such application shall be deemed to have been filed only when:-
(a) the person in charge of the conveyance carrying the export goods duly files a departure manifest or an export manifest or an export report covering the number and the date of shipping bills or bills of export; and
(b) the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be;
> The details of the relevant export invoices in respect of export of goods contained in FORM GSTR-1 shall be transmitted electronically by the common portal to the system designated by the Customs and the said system shall electronically transmit to the common portal, a confirmation that the goods covered by the said invoices have been exported out of India.
> However, where the date for furnishing the details of outward supplies in FORM GSTR-1 for a tax period has been extended section 37 of the Act, the supplier shall furnish the information relating to exports as specified in Table 6A of FORM GSTR-1 after the return in FORM GSTR-3B has been furnished and the same shall be transmitted electronically by the common portal to the system designated by the Customs:
> However, the information in Table 6A furnished under the first proviso shall be auto-drafted in FORM GSTR-1 for the said tax period.
> Upon the receipt of the information regarding the 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 or the proper officer of Customs, as the case may be, shall process the claim of refund in respect of export of goods and an amount equal to the integrated tax paid in respect of each shipping bill or bill of export shall be electronically credited to the bank account of the applicant mentioned in his registration particulars and as intimated to the Customs authorities.
> The claim for refund shall be withheld where,-
(a) a request has been received from the jurisdictional Commissioner of central tax, State tax or Union territory tax to withhold the payment of refund due to the person claiming refund in accordance with the provisions of sub-section (10) or sub-section (11) of section 54; or
(b) the proper officer of Customs determines that the goods were exported in violation of the provisions of the Customs Act, 1962.
> Where refund is withheld in accordance with the provisions of clause (a) above the proper officer of integrated tax at the Customs station shall intimate the applicant and the jurisdictional Commissioner of central tax, State tax or Union territory tax, as the case may be, and a copy of such intimation shall be transmitted to the common portal.
> Upon transmission of the such intimation, the proper officer of central tax or State tax or Union territory tax, as the case may be, shall pass an order in Part B of FORM GST RFD-07.
> Where the applicant becomes entitled to refund of the amount withheld under clause (a) above, the concerned jurisdictional officer of central tax, State tax or Union territory tax, shall proceed to refund the amount after passing an order in FORM GST RFD-06.
> The Central Government may pay refund of the integrated tax to the Government of Bhutan on the exports to Bhutan for such class of goods as may be notified in this behalf and where such refund is paid to the Government of Bhutan, in that case the exporter shall not be paid any refund of the integrated tax.
REFUND IN CASE OF EXPORT OF SERVICES Rule 96(9).
> The application for refund of integrated tax paid on the services exported out of India shall be filed in FORM GST RFD-01 and shall be dealt with in accordance with the provisions of rule 89.
> The persons claiming refund of integrated tax paid on exports of goods or services should not have :
(a) received supplies on which the benefit has been availed, under following Notifications of the Government of India, Ministry of Finance :
(I) Notification No. 48/2017-Central Tax, dated the 18th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme or
(II) Notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017, or
(III) Notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017,
(b) availed the benefit under (except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme.)::
(I) Notification No. 78/2017-Customs, dated the 13th October, 2017, or
(II) Notification No. 79/2017-Customs, dated the 13th October, 2017 for:
> In the Explanation it is provided for the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications.
PROVISONAL REFUND:
As per Section 54(6) read with rule 91, if the claimant is not prosecuted for offence under the Act or under existing law for evasion of tax exceeding Rs 2,50,000/- in last five years of the year for which refund relates, he is entitled to provisional refund of 90 % of the claim made.
RECOVERY OF REFUNDS GRANTED:
The Rule 96B provides recovery of refund of unutilised input tax credit or integrated tax paid on export of goods where export proceeds not realised.
> Where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, in India within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period, the person to whom the refund has been made shall deposit the amount so refunded, to the extent of non-realisation of sale proceeds, along with applicable interest within thirty days of the expiry of the said period or, as the case may be, the extended period,
> If taxable person fails to deposit the amount refunded shall be recovered along with interest under section 50 in accordance with the provisions of section 73 or 74 of the Act.
> If the Reserve Bank of India writes off the requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall not be recovered.
> Where the sale proceeds are subsequently realised by the applicant, in full or part, after the amount of refund has been recovered and the applicant shall produce evidence about such realisation within a period of three months from the date of realisation of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the applicant to the extent of realisation of sale proceeds, provided the sale proceeds have been realised within such extended period as permitted by the Reserve Bank of India
REFUND CLAIM IS NOT MANDATORY:
One must keep in mind that refund is alternate to adjust ITC against GST dues. If no refund application is made or no refund granted, say within a period of two years as provided in section 54, the amount of ITC will not extinguish and the same remains available for adjustment against GST dues.
The author has made efforts to bring all statutory provisions in respect of export and import under one umbrella.
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