Unutilized Input Tax Credit in case of Exports of services without payment of IGST

[Pooja Sheth]

1. Introduction:

Exports has always been considered as apple of GST’s eye. It has always been considered the area of focus whenever any government policy has to be framed. Hence, person exporting should not be burdened by domestic taxes.

Section 16 of IGST Act, 2017 deals with the concept of Zero rated supply. According to this provision zero rated supply means export of goods or services or both or supplying goods or services or both to a Special Economic Zone unit.

The concept of export of services has been broadly borrowed from the provisions of the erstwhile Service Tax Law. Under the GST regime, export of service will be treated as ‘zero-rated supplies’. Section 2(6) of IGST Act, 2017 defines the term “export of services” as under: -

Export of services means the supply of any service when, -

1. The supplier of service is located in India;
2. The recipient of service is located outside India;
3. The place of supply of service is outside India;
4. The payment for such service has been received by the supplier of service in convertible foreign exchange; and
5. The supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

Export of Services can be done either on:

1. payment of IGST or
2. without payment of IGST under Letter of Undertaking

(Letter of Undertaking in Form GST RFD 11 to be submitted with the respective jurisdictional Commissioner, binding to pay the tax along with interest)

Hence, if second option is chosen then, refund of unutilized Input Tax Credit arises. Let’s see in detail how the procedure is to get refund from Jurisdictional office.

2. Working of Eligible Refund Amount:

1. Rule 89(4) of CGST Rules, 2017 deals with the case of zero rated supply of services without payment of tax under bond or letter of undertaking in accordance with the provisions of sub section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula-

Refund amount = Turnover of Zero rated supply of Services x Net ITC

Adjusted Total Turnover

1. “Refund amount” means the maximum refund that is admissible;

2. “Net ITC” means the 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 rule (4A) or (4B) or both;

3. “Turnover of Zero rated supply of services” means value of

1. Payment received during the period for the invoices raised in earlier period or invoices raised in current period
2. Add: Invoices raised in current period for advances received in earlier period
3. Less: Advances received in current period whose supply is not completed in the current period

4. “Adjusted Total Turnover” means the turnover in a state or a union territory, as defined under clause (112) of section 2, excluding –

1. The value of exempt supplies other than zero rated supplies and
2. The turnover of supplies in respect of which refund is claimed under sub rule (4A) or (4B) or both, if any, during the relevant period;

5. “Relevant Period” means the period for which the claim has been filed. Circular 24/24/2017-GST dated 21^st December,2017 clarifies that the registered persons required to file monthly GSTR 1 can claim refund on monthly basis while those who are required to file quarterly GSTR 1 can claim quarterly refund. However, GST common portal does not give an option to file quarterly application as it gives only monthly option for selection. Meaning thereby though circular clarifies that quarterly refund application can be done by person having turnover up to 1.5 crores but GST common portal does not support.

2. Let us take an example to understand the above formula: -

(Rs in lakhs)

Month	Domestic Turnover (Invoices Raised) (a)	Export Turnover (Invoices Raised)  (b)	Payment received in Foreign Currency equivalent INR (c)	Turnover of Zero-Rated supply of Services  (d)	Adjusted Total turnover (e) = a + b	Net ITC (CGST+ SGST+ IGST) (f)	Eligible Refund Amount (g)=d*f/e
July	200	700	700	700	900	180	140
Aug	300	800	1000	800	1100	220	160
Sept	250	750	600	750	1000	200	150
Oct	200	700	1200	700	900	180	140
Nov	250	750	-	550	1000	200	110
Dec	100	800	1000	1000	900	180*	200
Total	1400	4500	4500	-	-	1160	900

                *Refer eligible refund amount note below

3. Clarification of above working: -

• Turnover of Zero Rated Supply of Services

• July: All the payments have been received against the invoices raised in the month of July itself and hence payment received during the month will be considered as turnover of Zero rated supply of services.  

• August: We have received ₹ 1000 lakhs against which invoices raised are only for ₹ 800 lakhs. Invoices amounting to ₹ 200 lakhs has not been raised in the current period. Hence applying the above formula turnover of zero rated supply will be 1000+0-200=800 lakhs Rs

• September: We have received ₹ 600 lakhs against which invoices raised are ₹ 750 lakhs. Advances of ₹ 200 lakhs which was received in earlier month for which invoices has been prepared in the current month. Hence applying the above formula turnover of zero rated supply will be 600+200-50=750 lakhs Rs

• October: We have received ₹ 1200 lakhs against which invoices raised are ₹ 700 lakhs. Advances of ₹ 50 lakhs which was received in earlier month for which invoices has been prepared in the current month. Hence applying the above formula turnover of zero rated supply will be 1200+50-550=700 lakhs Rs

• November: We have not received any amount in convertible foreign currency and invoices raised in current month whose advances are received in earlier month are ₹ 550 lakhs. Hence applying the above formula turnover of zero rated supply will be 0+550-0=550 lakhs Rs

• December: We have received ₹ 1000 lakhs against invoices of ₹ 800 crores. Hence applying the above formula turnover of zero rated supply will be 1000+0-0=1000 lakhs Rs.

• Adjusted Total Turnover

Adjusted total turnover in GST has to be considered as defined under clause (112) of section 2 which is sum total of domestic as well as zero rated supplies and excludes taxes and exempt supplies. Zero rated supply here has to be considered as defined under clause (112) of section 2 which is invoice raised. Here it slightly differs from erstwhile service Tax law.

• Net Input Tax Credit

As per Definition of Input Tax which is defined under clause (62) of section 2 of CGST Act, 2017 includes all the three taxes that is integrated tax, central tax and state tax hence calculation has to be done on aggregate basis and not on individual basis.

• Eligible Refund Amount

*In the month of December, zero rated turnover exceeds adjusted total turnover. Hence, on the GST portal one will not be able to enter zero rated turnover greater than adjusted turnover. Hence entire amount of Net ITC will be eligible amount of refund. One cannot claim refund amount exceeding the available ITC for the said month.

3. Procedure of filing Refund Application: -

1. Steps for filing application on GST common Portal

1. File form GST RFD - 01A on common portal by fillip up necessary information in the form GST RFD - 01A under Statement 3A on common portal (i.e. Turnover of zero rated supply of goods and services, adjusted total turnover, net input tax credit and amount of Refund to be claimed).
2. Download offline utility of Statement 3.
3. Filing necessary information in the downloaded statement 3 (i.e. GSTIN of the assessee, return period for which refund is to be filed, export invoice details, Goods/Service and FIRC details).
4. Validating the information so filled by clicking the option "Validate & Calculate"
5. After successful validation creating JSON file by clicking the option "Create File to Upload".
6. Uploading the JSON File so created in the form GST RFD - 01A on common portal.
7. Submitting the statement uploaded.
8. Select the bank account number where refund is to be credited.
9. After completing the above steps form GST RFD - 01A is to be filed on common portal by attaching DSC
10. On successful submission Acknowledgement will be generated.

4. Documents required for filing Refund Application

List of documents required for submission of manual refund application:

1. Copy of Form GST RFD - 01A filed on common portal and acknowledgement generated.
2. Electronic credit ledger copy with the amount of refund debited
3. Copy of filed GSTR 3B
4. Copy of filed GSTR 1
5. Copy of Export Invoices
6. Copy of Statement 3 of FORM RFD-01A.
7. Invoices w.r.t. input and input services.
8. BRC or FIRC for export of services.
9. Undertaking in FORM RFD-01A.
10. Cancelled Cheque

5. Various forms under Refund: -

			Time Limit
	GST RFD 01	Application for Refund	2 years from the relevant date
	GST RFD 01A	Application for Refund (Manual)	2 years from the relevant date
	GST RFD 02		Within 15 days from filing application
	GST RFD 03	Deficiency memo	Within 15 days from filing of GST RFD-01A, if any
	GST RFD 04	Provisional Refund Order	Within 7 days from the date of GST RFD-02
	GST RFD 05	Payment Advice
	GST RFD 06	Refund Sanction/Rejection Order	Within 60 days from the date of receipt of GST RFD-01A
	GST RFD 07	Order for Complete Adjustment of Sanctioned Refund/withholding the refund
	GST RFD 08	Notice for rejection of application for refund
	GST RFD 09	Reply to show cause notice	Within 15 days from the receipt of GST RFD - 08
	GST RFD 10	Application for refund by specified persons	Within 6 months from the last day of quarter in which supply was receive
	GST RFD 11	Furnishing of Bond or Letter of Undertaking for export of goods or services	Prior to the export

6. Other Clarifications

1. Debit entry shall be made in electronic credit ledger at the time of filing a refund application
2. Acknowledgement in Form GST RFD 02 will be issued if the application is found complete in all respect
3. Bank Account details should be as per the registration data. Any change in Bank details shall first be amended in registration particulars before quoting in the application
4. BRC or FIRC details will be mandatory where refund is claimed against export of services.
5. The minimum amount of refund payable should be ₹ 1000/- or more then only application has to be done.
6. Provisional refund of 90% shall be granted within 7 days from the date of RFD – 02
7. 6% interest can be claimed if the RFD-06 has not been received within 60 days from the date of receipt of GST RFD – 01A