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Exports play a pivotal role for building an economy as it helps in influencing the level of economic growth, employment and the balance of payments. GST law provides copious benefits to exporters, however in the meanwhile we will analyse how the Indian Government has discouraged the same by modifying definition of turnover of zero-rated supply of goods.

The amended definition of “turnover of zero-rated supply of goods” is not appreciated by Trade and Industry as it discourages the exporters exporting at competitive prices & bringing foreign currency in the form of foreign exchange earnings which in turn reduces trade deficits.

Turnover of Zero-rated supply of goods is imperative to note for calculation of refund amount in case of export of goods without LUT. Prior to amendment, Rule 89(4C) of CGST Rules, 2017 read as “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.

The amended definition is reproduced below for reference: –

“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.

The Indian Government, in view of bringing stringent control over fraudulent claims of refund on account of export of goods where values of exports have been overstated, has introduced new definition of “turnover of zero-rated supply of goods” which has completely changed the dimensions of exports. In case of refund on account of export of goods, “consideration” was not a yardstick, only a shipping bill filed at the time of export was the only basis on which refund claims were sanctioned. However, w.e.f. 23rd March, 2020, by insertion of Rule 96B Realisation of consideration will play an important role (discussed later).

Analysis: –

1) The upper cap of 1.5 times of value of domestic goods is only applicable in case of “Export of Goods under LUT”. Thus, it is not applicable in case of export of services or where goods are exported without LUT on payment of GST.

2) By carefully analysing & understanding the intent of the amendment, it appears that the amendment focuses on the ‘value’ of goods or like goods. Hence, the computation of the refund and the restriction of 1.5 times has to be product specific, and not turnover specific.

3) In other words, where the value per unit charged by a supplier in global markets exceed 1.5 times the value of the same product in India, the sale value (per unit) of such goods globally shall be restricted to 1.5 times the domestic sales value per unit.

Let us understand this rule with an example: –

A Ltd. is engaged in supplying goods in India and UAE (Outside India). Following is the price structure of Mr. A. Following are the details available.

Purchase Details

Product Quantity Purchase Value GST @ 18% Total
A 10,000 50,00,000

(10,000 x 500)


(10,000 x 500 x 18%)


Sales Details of Product “A” – Domestic

Product Quantity Domestic Selling Price Sales Value GST Total
Sale in Domestic Market 7000 800 56,00,000 (7,000 x 800) 10,08,000 (7,000 x800 x 18%) 66,08,000

Let us move on to calculate adjusted total turnover for the purpose of refund claim & amount of refund claim in following independent cases: –

Sales Details of Product “A” Outside India

Case  Quantity Export Selling Price Export Value
 (a) (b) (a) x (b)
A 3000 1,100 33,00,000
B 3000 900 27,00,000
C  3000 1500 45,00,000

Calculation of Refund as below: –

Pre-Amendment Refund Calculation




Domestic Sale



Export Value


Adjusted Total Turnover [(C) = (A)+(B)] Total ITC (D) (Refer Purchase Details) Refund Claim (D x B/C)
A 56,00,000 33,00,000 89,00,000 9,00,000 3,33,708
B 56,00,000 27,00,000 83,00,000 9,00,000 2,92,771




1,01,00,000 9,00,000 4,00,990

Post Amendment Refund Calculation

Case Domestic Sale  (A) Export Value (B) Value @1.5 times [3000 units x 800 x 1.5 times](C) Lower of [(D) = (B) & (C)] Adjusted Total Turnover [(E) = (A) +( D)] Total ITC (F) (Refer Purchase Details) Refund Claim (F x D/E)
A 56,00,000 33,00,000 3600000 3300000 8900000 900000 3,33,708
B 56,00,000 27,00,000 3600000 2700000 8300000 900000 2,92,771
C 56,00,000 45,00,000 3600000 3600000 9200000 900000 3,52,174

Analysis of the above illustration: –

We can clearly see in case (C) that refund claim has been reduced due to upper cap on turnover of Zero-rated Supplies of goods to the tune of 1.5 times of domestic value of goods. Consequently, refund claim is reduced from 4,00,990/- to 3,52,174/-.

Issues in amended definition: –

> The term ‘like goods’ has not been specifically explained for the said sub-rule. Tax Authorities may take a different view with regards to like goods & may further reduce refund by reducing value of exports.

> Where supplier is totally engaged in export of goods, he has to determine domestic price of goods by checking the prices of same goods in India supplied by “similarly placed suppliers”.

> Law does not define phrase “similarly placed suppliers”. Prices charged by suppliers are always different depending upon their reputation, hold in the market, competition, quality they offer, special packaging and many other aspects. Thus, the matter under consideration is which price shall be considered as base for computing 1.5 times of domestic value. Government should have given the acceptable deviation margin arising on account of such aspects.

Realisation of Export Proceeds [Rule 96B inserted vide Notification No. 16/2020 – CT dtd. 23rd March, 2020]

As per Rule 96B(1) 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, within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period. If such amount is not realised within time-limit the sanctioned refund shall be recovered u/s 73 / 74 of CGST Act along with interest u/s 50 of CGST Act.

However, where sale proceeds, or any part thereof, in respect of such export goods are not realised by the applicant within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), but 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.

Time Limit under FEMA [Regulation 9 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2015: –

In ordinary case: The amount representing the full export value of goods / software/ services exported shall be realised and repatriated to India within nine months from the date of export.

However, where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is realised and in any case within fifteen months from the date of shipment of goods.

Extension of period: Further the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause, extend the period of nine months or fifteen months, as the case may be.

For the purpose of this regulation, the “date of export” in relation to the export of software in other than physical form, shall be deemed to be the date of invoice covering such export.

Foreign Exchange realised after recovery of refund but within extended period by RBI [Rule 96B (2)]: –

Where the sale proceeds are realised by the applicant, in full or part, after the amount of refund has been recovered from him under sub-rule (1) and the applicant produces 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.

It is quite obvious that export goods are always highly priced owing to its special packaging & other quality aspects.

Let’s say, domestic price of certain product is Rs. 30, the same product is exported at $ 5. Refund will be given by considering export turnover at 1.5 times of 30 i.e. Rs. 45, however, as per FEMA, 1999 read with Rule 96B of CGST Rules, an exporter is expected to bring value covered by invoice to India (in this example – $5) within specified time limit as per FEMA, 1999 otherwise refund sanctioned would be recovered to the extent of proceeds not realised.

Thus, it is crystal clear that genuine exporters have become victim in order to curb fraudulent bogus claims of refund arising on account of overstatement of value of export of goods.

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