The Finance Bill 2021 has proposed two major amendments in the Integrated Goods and Services Tax Act, 2017. Both the amendments relate to the provisions of section 16 of the IGST Act, 2017 concerning zero rated supply. The present article briefly explains the said amendments carried out vide Budget 2021.

Amendments to the definition of zero rated supply vide Budget 2021

The definition of zero rated supply as per section 2(23) of the IGST Act simply states that it has the same meaning as contained in section 16. Budget 2021 has come up with the proposal amending provisions of section 16.

Accordingly, the current and proposed amendments in the definition of zero rated supply as contained in section 16(1) of IGST Act is summarized hereunder-

Current provision Proposed provision
Zero rated supply means-

  • Export of goods or export of services or both; or
  • Supply of goods or supply of services or both to the SEZ developer or the SEZ unit.
Zero rated supply means-

  • Export of goods or export of services or both; or
  • Supply of goods or supply of services or both for authorized operations to the SEZ developer or the SEZ unit.

Accordingly, as per amendments, the supply of goods or services or both to SEZ developer/ SEZ unit should be for authorized operations only then the same will qualify as zero rated supply under GST.

Amendments in refund provisions connected with zero rated supply vide Budget 2021

Provisions of section 16(3) of the IGST Act covers the refund provisions with regard to zero rated supply. Entire provisions of section 16(3) are proposed to be substituted vide Budget 2021. Further, new provisions of section 16(4) are also introduced.

The proposed provisions of substituted section 16(3) are explained hereunder-

  • Refund of an unutilized input tax credit is available to the registered person undertaking zero rated supply.
  • Importantly, such refund is available only against the supply of goods or services or both is made, under bond or LUT (Letter of Undertaking), without payment of integrated tax.
  • Such refund is available as per provisions of section 54 of the CGST Act, 2017.
  • However, in the case of non-realization of sales proceeds, the registered person will have to keep the following points in mind-
    • Re-payment of the refund received under section 54 along with applicable interest.
    • The refund + interest amount should be deposited within a period of thirty days from the date time limit prescribed under the Foreign Exchange Management Act, 1999 expires.

Notably, as per current provisions, the registered person making zero rated supply is eligible to claim a refund under both the situation i.e., supply of goods or services or both on payment of integrated tax or without payment of integrated tax.

However, the proposed provisions allow refund only in case of the supply of goods or services or both without payment of integrated tax. Secondly, payment/ deposit of the refund and interest amount on non-realization of sale proceeds are proposed to be introduced for the first time.

The proposed provisions of section 16(4) are explained hereunder-

As per the newly proposed sub-section (4) to section 16, as and when required, the Government can notify availability of refund claim to the class of persons or the class of goods/ services who undertake zero rated supply on payment of integrated tax.

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One Comment

  1. B C BHAT says:

    Sir, Article is good and informative.
    Can you please elaborate what is the exact meaning of “Supply of goods or supply of services or both for authorized operations to the SEZ developer or the SEZ unit”.
    For e.g. Is the following supply of goods/services is considered as “Authorised Operation”????
    1, Canteen service – Within/From outside supply
    2. Rent-a-Cab service for pick up & drop of employees
    3. Security Service
    4. Cable operator service
    5. Cleaning & Maintenance service
    6. Gardening service
    7. Employees heath & fitness service
    8. Medical & Health service to employees
    9. Health insurance to employees/dependents
    10. Sports, Games for employees within SEZ unit
    11. Library, Books, Periodicals for employees
    12. Travel expenses to employees including LTA

    Thanks,

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