In this article, we will go through the Applicable law and GST Refund procedure in case Supplies to SEZ Developer/SEZ units. This article is based on the following applicable law:
Section 16 of IGST Act 2017
Section 54 of CGST Act 2017
Rule 89 to 97A of CGST Rules 2017
Circular 17/17/2017-GST dtd 15.11.2017
Meaning of Zero Rated Supplies:-
Section 16 of IGST Act defines Zero Rated Supplies as supply of goods or services or both as:
- export of goods or services or both; or
- supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
Concept of Zero Rated Supplies:-
When a supplier supplies zero rated goods or services or both, he is not required to collect GST from the buyer of such supplies. In other words, GST will not be charged from the customer. Thus, GST will not impact the cost of such buyer even if such supplies are otherwise taxable in India.
SEZ purely supply goods/services as exports out of India. Supplies to SEZ are incentivized by allowing input tax credits of all the taxes paid by supplier on its inputs/input services to affect supplies to SEZ developer or SEZ Unit.
Section 16(2) of IGST Act 2017 allows input tax credits on all purchases made for making Zero Rated Supplies, notwithstanding that such supplies may be an exempt supply. Now, the question arises that what is the benefit of such input tax credits where all supplies are Zero rated. Answer to this question is that balance of such input tax credits can be claimed as refund from government. This is the unique benefit available on Zero Rated Supplies.
A registered person (making zero rated supplies) shall be eligible to claim refund under either of the following options, namely:–
(a) he may supply goods or services or both under bond or Letter of Undertaking, without payment of integrated tax and claim refund of unutilized input tax credit; or
(b) he may supply goods or services or both, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied.
Which option is better {either (a) or (b)}
As per sub-section 8(a) of Section 54 and Explanation to Section 54 of CGST Act 2017, refund of unutilized input tax credit is allowed only for ITC against Inputs and input services.
Refund for ITC against Capital Goods is not mentioned there. So, it can be inferred that refund of these credits not allowed.
In case, such supplier also supplies goods/services to buyers (i.e. Domestic sale) other than SEZ developer/units, and, he can consume whole of ITC against capital goods against these domestic supplies, then, it is beneficial to choose Option (a).
In case, supplier would not be able to consume his input tax credits of Capital Goods, then option (b) is better where all credits can be used to settle output tax liability.
Procedure to claim refund in both cases:
Application for refund can be filed with the same jurisdictional office (Central or State/UT) 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. This information can be found on Form REG-06 (Registration Certificate). However, in case it is missing, applicant can file such application with any of one office (i.e. either Central or State) at his liberty.
Pre-requisites to file application for refund :-
(a) Proof of Supply of Goods: Supply of goods should have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
(b) Proof of Supply of Services: Supply of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone:
Timing to claim refund
As per section 54(1), an application for refund can be moved within two years from the relevant date. However, in explanation to that section, there is no specific entry in for the meaning of ‘Relevant Date’ in case of Supplies to SEZ.
In the absence of specific provisions, general provisions are applicable. As per general provisions under that explanation, relevant date means :-
“(h) in any other case, the date of payment of tax.”
In case, where goods/services supplied under Bond/LUT, taxes are paid at the time of purchase of Inputs and Input services. So, by combined reading of this general provision and Pre-requisites to file application for refund, it can be concluded that an application for refund can be moved within two years from the date mentioned below:
(i) where goods are supplied, after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
(ii) where ‘services’ are supplied, receipt of such evidence regarding ‘receipt of services’ for authorised operations as endorsed by the specified officer of the Zone
In case, where goods/services supplied after payment of IGST on such supplies, relevant date is :
(i) Date of Payment of Tax
(ii) where goods are supplied, after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone, date of such admission/endorsement.
(iii) where ‘services’ are supplied, receipt of such evidence regarding ‘receipt of services’ for authorised operations as endorsed by the specified officer of the Zone, date of such admission/endorsement.
whichever is later….
Restrictions for claim of Refund:-
Refund of tax not allowed if the refund amount is less than Rs 1000/-
Documents required to file application for refund – Option (a) Refund of Unutilized Input Tax Credits
Application for refund starts with a form GST-RFD-1A to be filed on common portal. After this, whole process to be followed manually. Following are the documents required to file application for refund:-
- Cover Letter
- Copy of Form GST RFD-1A from the Common Portal. (This needs to be generated on Common Portal through Services Menu>>Refunds>> Refund on account of Supplies to SEZ unit/SEZ Developer (without Payment of Integrated Tax))
-
Copy of Proof of debit of ITC in ARN- Acknowledgement Receipt Number. (It will be generated by portal after generation of GST RFD-1A).
- The electronic credit ledger evidencing debit of input tax credit by an amount equal to the refund so claimed. (After generation of GST RFD-1A, ITC ledger on portal will reflect debit entry).
- In case of supply of goods, a statement containing the number and date of invoices as provided in rule 46 along with the evidence regarding the endorsement specified in “Pre-requisites to file application for refund” (above)
- In case of supply of services, a statement containing the number and date of invoices, the evidence regarding the endorsement specified in “Pre-requisites to file application for refund” (above) and the details of payment, along with the proof thereof, made by the recipient to the supplier for authorised operations as defined under the Special Economic Zone Act, 2005.
- Statement -5A for calculation of eligible refund as per Rule 89(4) of CGST Rules 2017. This statement should represent valuation of all parameters of following refund formula:
Refund Amount =
( Turnover of Zero Rated Supply of Goods + Turnover of Zero Rated supply of services) x Net ITC
Adjusted Total Turnover
- Statement containing declaration under Rule 91(1) of CGST Rules declaring that the person claiming refund during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
- A statement declaring that:-
“We have not claimed refund earlier against the relevant Invoices as mentioned in application for sanction of refund in respect of accumulated ITC (unutilized input tax credits on inputs or input services) on account of ZERO Rated Supplies (or, in any other way) during the month/quarter of xxxx 20XX.
We have not claimed any other benefits like Duty Drawback or other benefits provided by Central or State Government in place of refund of accumulated ITC on account of Zero Rated Supplies.”
- In case, applicant is applying for refund with authority (Central or State) at his own liberty, an undertaking is required to be submitted stating that the claim for sanction of refund has been made to only one of the authorities.
- Copy of GSTR-3B for the relevant period.
- Copy of GSTR-1 for the relevant period.
- Copy of Tax Paid Challans for the relevant period.
- Copy of LUT/Bond acknowledgment letter.
- Statement of Input tax credits along with evidence of all purchases and input tax credits.
- Copy of Cancelled Cheque evidencing bank account details for the purpose of refund.
Calculation of Eligible Refund Amount
Following formula for calculation of eligible refund is provided under Rule 89(4).
Refund Amount =
( Turnover of Zero Rated Supply of Goods + Turnover of Zero Rated supply of services) x Net ITC
Adjusted Total Turnover
Net ITC means 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) of Rule 89 or both.
Please be noted that refund against input tax credits of Capital Goods is not available.
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 (LUT), other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both of Rule 89.
Turnover of zero-rated supply of services means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking (LUT), calculated in the following manner, namely:-
| Payments received during the relevant period for zero-rated supply of services | |
| Add: | Advance received in prior periods against Zero-rated supply of services completed during relevant period |
| Less: | Advances received during relevant period for zero-rated supply of services for which the supply of services has not been completed during the relevant period |
| Balance: | Turnover of zero-rated supply of services |
For calculation of Turnover of Zero Rated Supply of services, cash method is prescribed.
Adjusted Total turnover means the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding –
- the value of exempt supplies other than zero-rated supplies and
- the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both of Rule 89, if any,
Meaning of Turnover as per Section 2(112):
“turnover in State” or “turnover in Union territory” means the aggregate value of:
| All taxable supplies (excluding RCM purchases) | ||
| Add: | Exempt supplies made within a State or Union territory by a taxable person, | |
| Add: | Zero Rated Supply of goods | Value to be taken as per above |
| Add: | Zero Rated Supply of services | Value to be taken as per above definition |
| Add: | Inter-State supplies of goods or services or both | |
| Total Turnover as per Section 2(112) | ||
| Less: | value of exempt supplies other than zero-rated supplies | |
| Less: | the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both of Rule 89 | |
| Adjusted Total Turnover as per Rule 89(4) |
Please note that such Turnover will not include:-
- the value of inward supplies on which tax is payable by a person on reverse charge basis; and
- central tax, State tax, Union territory tax, integrated tax and cess on outward supplies.
Supplies referred under Rule 89(4A) include supplies received on which the supplier has availed the benefit of the Notification No. 48/2017-Central Tax dated the 18th October, 2017. (In short, these supplies are Deemed Exports)
Supplies referred under Rule 89(4B) include supplies on which prescribed Central Tax rate is 0.05% on intra-State supply of taxable goods by a registered supplier to a registered recipient for export.
Documents required to file application for refund – Option (b) Refund of IGST Paid on supply
Application for refund starts with a form GST-RFD-1A to be filed on common portal. After this, whole process to be followed manually. Following are the documents required to file application for refund:-
- Cover Letter
- Copy of Form GST RFD-1A from the Common Portal. (This needs to be generated on Common Portal through Services Menu>>Refunds>> Refund on account of Supplies to SEZ unit/SEZ Developer (with Payment of Integrated Tax))
- In case of supply of goods, a Statement-4 containing the number and date of invoices as provided in rule 46 along with the evidence regarding the endorsement specified in “Pre-requisites to file application for refund” (above).
- In case of supply of services, a Statement-4 containing the number and date of invoices, the evidence regarding the endorsement specified in “Pre-requisites to file application for refund” (above) and the details of payment, along with the proof thereof, made by the recipient to the supplier for authorised operations as defined under the Special Economic Zone Act, 2005.
- a declaration to the effect that the Special Economic Zone unit or the Special Economic Zone developer has not availed the input tax credit of the tax paid by the supplier of goods or services or both.
- Statement containing declaration under Rule 91(1) of CGST Rules declaring that the person claiming refund during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
- A statement declaring that:-
“We have not claimed refund earlier against the relevant Invoices as mentioned in application for sanction of refund in respect of Integrated Tax paid on account of ZERO Rated Supplies (or, in any other way) during the month/quarter of xxxx 20XX.”
- In case, applicant is applying for refund with authority (Central or State) at his own liberty, an undertaking is required to be submitted stating that the claim for sanction of refund has been made to only one of the authorities.
- Copy of GSTR-3B for the relevant period.
- Copy of GSTR-1 for the relevant period.
- Copy of Tax Paid Challans for the relevant period.
- Copy of Cancelled Cheque evidencing bank account details for the purpose of refund.
This is all about refund procedure in case of Supplies with or without payment of tax to SEZ Developer/SEZ Units.
Word/Excel Formats for various files required in refund application:-
- Refund-Cover letter- SEZR
- Refund-SELF declaration for Refund formula-SEZR
- Refund-Self Declaration- relevant invoices-SEZR
- Refund-SELF declaration Rule 91(1)-SEZR
- Refund-Self Declaration- Single Authority-SEZR
- Refund-Statement 4 of invoices-SEZ
- Refund-Statement 5A -SEZ
Related Article:
GST Refund procedure in case of Zero Rated Supplies (Exports) under Bond/LUT
Nice Article..
Please suggest a step to get the evidence from SEZ authorised officer
Case: Given services to SEZ units located in various states like Telangana, Maharashtra & Tamil Nadu with payment of IGST. Received declaration from SEZ units for non-claim of input credit. but how to get the evidence proof from SEZ authorised office. Whom shall we contact. please suggest
Evidence proof from SEZ authorized office should be arranged by recipient of services i.e. such SEZ unit. In this proof, authorised officer endorse the copy of invoice
Please clarify what should be done in the following case :
In statement 4 we have to give details of the invoice endorsed by SEZ. While entering the invoice no of the invoice endorsed by SEZ, only 7 digits are accepted. but in my case invoice number exceeds 6 digits.what should be done in this case?. shall i enter invoice no up to 7 digits and proceed with filling refund form?