Contributed by CA. Puneet Oberoi
Exports is one of the most important economic activity for a country which has spectrum of impact on all sectors. For a developing economy struggling to maintain rationality in balance of payment situation, it becomes more vital. All countries work on the basic premises that duties and taxes should not be exported along with goods and services.
In the case of goods, where the exporter is non-excisable, he exports goods and then files refund with the VAT department of the input tax credit accumulated in relation to the exports. Also, he files Claim duty drawback on enhanced rates under an undertaking that rebate of excise is not being claimed. In case of excisable exporters, they file VAT refund alongwith the Excise rebate. For exports, there is option either to pay duty on exports and file rebate or to clear goods under bond and later on submit proof of exports. Intimation to the department is required to be given in ARE-1 within 24 hours. Another feature of exports is provision under CST regime regarding existing of Form “H”and same has been adopted by many state VAT Acts also. Exporters save on paying taxes on the goods which are to be exported as it is and just submit form “H” to the supplier whereupon the supplier need not charge VAT in such a case e.g. Wooden Pallets in case of manufacturer.
ZERO RATED SUPPLY UNDER GST
Setting departure from coining a zero rate, a concept of “ZERO RATE SUPPLY” has been mentioned under GST. This concept means that there would be certain supplies under GST which would carry zero tax impact. For this the definition of Zero Rated supply has been given under clause 2(111) of the revised CGST/SGST Law as:-
“zero-rated supply” means supply of any goods and/or services in terms of section 15 of the IGST Act 2016;
Similar definition of “Zero Rated Supply” has been given under the Revised Model IGST Law in section 2(29) as under:-
“zero-rated supply” shall have the meaning assigned to it under section 15;
Although in both the above definitions, the quote of section appears to be incorrect as it should have been section 16 of the IGST Act, which gives the concept of Zero Rated Supply.
Let us see what Section 16 of IGST Act, 2016 says about zero rated supply.
16(1) “zero rated supply” means any of the following taxable supply of goods
and/or services, namely –
(a) export of goods and/or services; or
(b) supply of goods and/or services to a SEZ developer or an SEZ unit.
This “means” and not “includes” only two types of supplies, Exports and supply to SEZs.
This means that there will be process to make the above two supplies with zero tax impact. To understand this process, the first thing to understand is which kind of supply is it going to be intra-state or inter-state. To resolve this, a sub-section (5) to section 3 has been inserted which says that this supply shall be treated as inter state supply of goods and/ or services:-
“3(5) Supply of goods and/or services, when the supplier is located in India and the place of supply is outside India, shall be deemed to be a supply of goods and/or services in the course of inter-State trade or commerce.”
Therefore even if the port of export or exporter is in the same state, the transaction of export will always be subjected to IGST.
Now the exporter has two options under GST as provided under sub section 3 of section 16 of IGST Act. Also an interesting sub-section 2 of 16 says that input tax credit can be accumulated for the zero rated supplies notwithstanding that such a supply is exempt. This means that even if a certain product is exempt of domestic consumption and ITC cannot be accumulated for the same, the moment those same goods/ services are exported, ITC to that extent can be accumulated.
Further, the two options provided under the IGST Act are:-
(a) a registered taxable person may export goods or services under bond, subject to such conditions, safeguards and procedure as may be prescribed in this regard, without payment of IGST and claim refund of unutilized input tax credit in accordance with provisions of section 48 of the CGST Act, 2016 read with rules made thereunder;
(b) a registered taxable person may export goods or services, subject to such conditions, safeguards and procedure as may be prescribed in this regard, on payment of IGST and claim refund of IGST paid on goods and services exported in accordance with provisions of section 48 of the CGST Act, 2016 read with rules made thereunder.
If we closely analyse these provisions, these are exactly the way exports are done under the current regime. We will have credit accumulation in our electronic credit ledger and out of that we can export goods/ services on payment of IGST at the rates generally prescribed for that product. Thereupon we can claim refund of same u/s 48 i.e. within maximum 60 days and 90% on self declaration. The second option is as currently being exercised in case the credit in electronic credit ledger is not sufficient, we may clear the goods/ services under bond. Also this option can be exercise even if we have balance in electronic credit ledger and later claim refund of input tax credit standing in our books of account. Rules are yet to be prescribed but I believe that rules for both the option will be different and it would be easier to claim refund under second option on payment of IGST.
INVOICING FOR EXPORTS
The invoice rules clearly stipulates that in case of exports, the invoice shall carry an endorsement SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST or SUPPLY MEANT FOR EXPORT UNDER BOND WITHOUT PAYMENT OF IGST and among other details shall also contain:-
(i) Name and address of the recipient,
(ii) Address of Delivery,
(iii) Name of the Country of Destination, and
(iv) Number and date of application for removal of goods for export[ARE-1]
Word of Caution for Exports Refund
Discussion of refunds u/s 48 is out of the purview of this article. However, one thing generally to be noted is that refunds for all exports before the appointed day will have to be claimed under earlier law only even if the claim for the same if filed on or after the appointed day or even if the goods or services are exported after the appointed day. This means that for all the goods removed from the factory, even if the Shipping Bill or Bill of Lading is received after the appointed day, the refund has to be claimed under the earlier law only.
The most important thing to note is that under the GST regime, all the forms are being discontinued. Henceforth, there will be no concept of obtaining supplies under form “H” from suppliers. This will put additional working capital pressures on the exporters especially the merchant exporters. To meet this end government is trying to have efficient system of refunds to the exporters. But the silver lining is that in the present regime in states where the refunds are not coming and are stuck since many years, the refunds as IGST will start coming very fast and if we go by the recent commitment of the commerce minister, within a week or two in some cases.
Views presented in this article are personal view of the author. Information presented in this article is intended for information purpose only and does not constitute any legal opinion or advice. Readers and Users are requested to seek formal legal advice prior to acting upon any of the information provided herein.