GST Refund procedure in case of Zero Rated Supplies (Exports) under Bond/LUT

In this article, we will go through the GST refund procedure and applicable law in case of Zero rated supply of goods or services or both (in case of Exports) under Bond or Letter of undertaking (LUT). 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.

As per international taxation standards, exporting country cannot levy any tax on its’ exports (subject to some exceptions). Hence, these supplies are known as Zero Rated Supplies.

Further, to boost exports and for increment of foreign exchange reserves, such supplies are further incentivize by allowing input tax credits of all the taxes paid by such supplier on its inputs/input services to affect such Zero rated supplies.

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 unutilized 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:––

1. he may supply goods or services or both under bond or Letter of Undertaking (LUT), without payment of integrated tax and claim refund of unutilized input tax credit; or
2. 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.

There are separate benefits for each of above said options. For Example, Accumulated ITC of compensation cess can be claimed as refund under option of Bond/LUT which can not be claimed in second option unless compensation cess leviable on final product supplied. Further, accumulated ITC on Capital Goods can not be claimed in option 1, however such ITC can be claimed as refund under option 2. So, the choice of option wholly depends on circumstances of each tax payer.

Under option (1), Unutilized Input tax credits, after being utilized against any domestic supplies, can be claimed as refund. In this article, we will go through the procedure for applying for refund of such Unutilized Credit.

Procedure to claim refund of input tax credits where supply of goods or services or both made under bond or LUT:-

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.

Timing to claim refund

An application for refund can be moved within two years from the date mentioned below:-

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India; or

(ii) if the goods are exported by land, the date on which such goods pass the frontier; or

(iii) if the goods are exported by post, the date of dispatch of goods by the Post Office concerned to a place outside India; or

(iv) in case of export of services:-

• date of receipt of payment in convertible foreign exchange, where the supply of services had been completed prior to the receipt of such payment; or
• date of issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice

Restrictions for claim of Refund:-

Refund of unutilized Input tax credits (owing to Zero Rated Supplies) not allowed In the following cases:-

• Where the goods exported out of India are subjected to Export Duty.
• Where supplier of goods or services or both avails of drawback in respect of GST paid on such Outward supplies.
• If the refund amount is less than Rs 1000/- in each and every tax head
• Where applicant has been prosecuted for any offence under GST Acts or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.

Documents required for file application for refund

Process for refund starts with an application to be filed on common portal. After this, whole process to be followed manually. Following are the documents required to file application for refund:-

1. Cover Letter
   

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2. Copy of Form GST RFD-1A from the Common Portal. (This needs to be generated on Common Portal through Services Menu>>Refunds>> Refund of ITC on Export of Goods & Services without Payment of Integrated Tax)
   • Refer ⇒ User Manual -Steps to be followed at GSTIN Portal for Refund
     

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3. Copy of Proof of debit of ITC in ARN- Acknowledgement Receipt Number. (It will be auto-generated by portal after generation of GST RFD-1A).
   

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4. 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).
   

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5. Statement of calculation of eligible refund as per Rule 89(4) of CGST Rules 2017. This statement should represent valuation of all parameters of  refund formula (discussed below).
   

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6. Statement-3 containing the number and date of shipping bills or bills of export and the number and the date of the relevant export invoices, in a case where the refund is on account of export of goods, along with Copy of export invoices, shipping bills or bills of export.
   

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7. Statement-3 containing the number and date of invoices and the relevant Bank Realisation Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC), as the case may be, in a case where the refund is on account of the export of services, along with Copy of export invoices and relevant BRC or FIRC.
   

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8. 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.
   

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9. A statement declaring that:-
   1. “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.
   2. 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.
   3. We have not claimed refund of ITC accumulated against purchase of Capital Goods.”
      

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10. 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.

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11. An undertaking to pay back to the Government the amount of refund sanctioned along with interest in case it is found subsequently that the requirements of clause (c) of sub-section (2) of section 16 read with sub-section (2) of section 42 of the CGST/SGST Act have not been complied with in respect of the amount refunded.

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12. Copy of GSTR-3B for the relevant period.
    

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13. Copy of GSTR-1 for the relevant period.
    

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14. Copy of Tax Paid Challans for the relevant period.
    

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15. Copy of LUT/Bond acknowledgment letter.
    

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16. Statement of Input tax credits along with evidence of all purchases and input tax credits. {Format Specified by CBIC, refer below attachments}
    

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17. Copy of Cancelled Cheque evidencing bank account details for the purpose of refund.
    

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Relevant period means the period for which the claim has been filed

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Calculation of Eligible Refund Amount

Following formula for calculation of eligible refund is provided under Rule 89(4). Be noted that refund can not be claimed for the amount more than the balance remaining in Electronic Credit Ledger as on the date of application for refund. Further, following calculation should be done for each tax type separately.

Refund Amount =

( Turnover of Zero Rated Supply of Goods + Turnover of Zero Rated supply of services) x Net ITC

Adjusted Total Turnover

Where:-

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) or both.

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
=	Turnover of zero-rated supply of services

 For calculation of Turnover of Zero Rated Supply of services, cash method is prescribed to avoid mis-representation of one BRC/FIRC against multiple periods. In cash method, one BRC/FIRC will be considered for only that period for which it is issued in respect of turnover of Zero Rated Supply of services.

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:	Exports of goods	Value to be taken as per above
Add:	Exports of services	Value to be taken as per cash method
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:	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 sub rule (4A) include supplies received on which the supplier has availed the benefit of the Notification No. CGST-48/2017 dated the 18th October, 2017. (In short, these supplies are Deemed Exports)

Supplies referred under sub rule (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. CGST-R-40-2017 dtd 23.10.2017 (In short, these supplies are Merchant Exports)

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Now, Refund application can be filed for multiple tax periods

In its very positive move, GSTN has enabled the facility to file refund application for multiple tax periods w.e.f. 23rd August 2018. Now, an assessee can file refund application for more than one month/quarter in single application.

Currently, this facility has been enabled for below grounds of refund:-

1. Export of Goods & Services-Without payment of Tax
2. Supplies made to SEZ Unit/SEZ Developer-Without payment of Tax

There are certain points to keep in mind before filing refund application for multiple tax periods in single form:-

1. Multiple tax period selection should be within financial year
2. Application has to be filed chronologically for tax periods and in case refund application is not to be filed for any tax period, a declaration of `No Refund Application is to be provided.`{For eg:- April 2018 to June 2018 refund application cannot be filed till application or “No refund application declaration” is filed for any tax period prior to April 2018.}
3. As the functionality for multiple tax period has been made available, therefore to avoid duplication, the refund applications SAVED in the GST system will be purged and removed from the system in above referred grounds.

All other points are quite similar to that those are applicable to file refund application for single tax period. These are:-

1. Refund application can be filed using refund application Form GST-RFD-01A & selecting a particular tax period
2. For claiming refund, taxpayer would have to upload invoice details mandatorily in the statement template available in the refund application itself
3. The statement uploaded by taxpayers will be validated by system from the invoice data declared/provided by the taxpayer at the time of filing return for that period for which refund is claimed
4. Only after validating data from system, the taxpayer would be able to file refund application.
5. All the invoice details are to be provided in a single statement. Taxpayer is not required to upload multiple statements for different periods separately
6. After filing refund application, taxpayer would not be able to claim refund for that invoice again in some other refund application as the system will lock the invoice for which refund is claimed in one application. Also, taxpayer would not be able to amend invoice details after claiming refund
7. Taxpayer can also attach any other supporting document, if required. Four documents can be uploaded with a single refund application in pdf format. Max size allowed for a document is 5MB.
8. After filing of refund application by taxpayer, refund application, Form GST-RFD-01A along with the statement and documents uploaded shall be available to tax officer for review and processing of refund.

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Also Read : 

Clarifications on Refund issues against Exports – 15.03.2018

Refund of unutilized ITC of compensation cess-Zero Rated Supplies

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Word Formats for Statements to be filed with Refund application:-

Refund-Cover letter- ZR

Refund-SELF declaration for Refund formula-ZR

Refund-Self Declaration- relevant invoices-ZR

Refund-SELF declaration Rule 91(1)-ZR

Refund-Self Declaration- Single Authority-ZR

Refund-Statement 3 of invoices-ZR

Refund – Statement of Input tax credits-ZR