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Export Refunds and their dependence on the Export Proceeds under the GST Legislation vis-a-vis the Pre-GST position compared.

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Export Refunds and their dependence on the Export Proceeds under the GST Legislation vis-a-vis the Pre-GST position compared.
By: Srinivasan Krishnamachari
October 5, 2019
All Articles by: Srinivasan Krishnamachari       View Profile
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BRC / FIRC for export of goods: It is clarified that the realization of convertible foreign exchange is one of the conditions for export of services.

In case of export of goods, realization of consideration is not a pre-condition.

In rule 89 (2)(c) of the CGST Rules, however a statement containing the number and date of invoices and the relevant Bank Realisation Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC) is required in case of export of services.

It is therefore clarified that insistence on proof of realization of export proceeds for processing of refund claims related to export of goods has not been envisaged in the law and should not be insisted upon. (Circular No. 37/11/2018-GST Dated the 15th March, 2018 refers )

It can therefore be reasonably inferred from the above advisory that in case of Export of services, proof of realization of export proceeds for processing refund claims will be crucial and will be insisted upon by the Department to pass such refunds.

It is a fact that there is no bar under Section 54 of the CGST Act or Section 16 of the IGST Act or the CGST Rules to suggest that if export has been made under LUT, the supplier of service subsequently cannot pay IGST and claim refund of IGST so paid.

But, the point is why would anyone like to pay IGST, unless and until one has accumulated credit to be cashed, until  the expiry of one year allowed under the Act, to await the receipt of consideration in convertible foreign exchange?

The Exporter has thereby the option to treat such supply of services as Zero rated by meeting the Bond/LUT requirement and as well be entitled to the export refund on the unutilised Input tax credit as provided under Section 16(3) (a), instead of paying   the IGST and claim export refund of taxes paid on output services in terms of Section 16(3)(b) of the IGST Act  ?

Also it would be needless to worry that in a case, where export has been made under an LUT and the refund claim for unutilised ITC has not yet been filed, the option under section 16 of the IGST Act cannot be said to have been exercised until an application for refund is filed by the exporter.

It is pertinent to note here that the GST Act does not stipulate any time limit for claiming refund of Input tax credit, related to the Export of Services, lying with the Exporter of services, unutilised.

Further, the question of filing an application for refund in terms of Section 16(3)(b) for the output services exported itself  would normally arise, only due to expiry of one year period from the date of Invoice of Export of such services, mandated by Rule 96A for failure of realisation of consideration in convertible foreign exchange, within that time.

This is not to dispute the fact that Rule 96A does not prescribe a time limit for filing of refund claim of unutilised ITC but mandates payment of IGST along with interest on the supply of services, if payment is not received within one year of the date of invoice.

It therefore goes without saying that for exports made under LUT, while the exporter is required to make payment of IGST after the expiry of one year from date of invoice if the amount of convertible foreign exchange is not received, on subsequently receiving the same, there is no bar in the exporter opting for second option under Section 16(3) (b) i.e. the refund of IGST paid on export of services, independent of having gone under option number one, at first.

Also it would be incorrect to conclude that the time limit provided under Section 54 being two years from the relevant date, an application for refund made for the IGST as and when paid with interest, will result in discrimination in the treatment under the two options provided in Section 16(3)(a) & 16(3)(b) of the IGST Act.

The reason again for the same would be that both the provisions/options under Section 16(3) operate in different spheres with slightly different conditions, as explained supra.

one governing supply of services made for exports under LUT under the presumption that the realisation aspect is met within the one year period and the claim of refund of the ensuing unutilised Input Tax Credit, under Section 16(3)(a),  flowing automatically from it, having no time limit for claim under the Act and

 the other, concerning simple payment of IGST upfront on Export supplies or with interest if paid after one year of realisation of consideration in foreign exchange, and claiming it as refund subject to conditions of the two year time limit prescribed under Section 54 , for claiming any refund under the CGST Act, independent of 16(3)(a) option.

If one reads through Article 269A, it carefully avoids equating exports to Inter-state trade or commerce while Imports are readily equated to Inter-state trade or commerce.

The reason for Article 269A refraining from deeming export to be an inter-state transaction of trade or commerce, could be that it would otherwise make it difficult for the Government to tweak in changes in subordinate Legislations to suit the needs arising from time to time, concerning the definition and scope of exports.

No doubt as per Serial No.10F of Amending Notification No.15/2018-IT (Rate) dated 26/07/2018 which amends original Notification No. 09/17 IT (Rate) dated 28/06/2017, Chapter 99 Services supplied by an establishment of a person in India to any establishment of that person outside India, are NIL, provided they are establishments of distinct persons in accordance with Explanation 1 in section 8 of the Integrated Goods and Services Tax Act, 2017.

It is ‘NIL’ provided the place of supply of the service is outside India in accordance with section 13 of Integrated Goods and Services Tax Act, 2017.

The above change unfortunately only entails reversal of ITC on Inputs including ITC on common inputs, and therefore in the opinion of the Author, this is not a very beneficial Notification.

If they are sister concerns, then they are not to be regarded as establishments of a distinct person, but of distinct persons. In the latter case, it qualifies for the Export benefits as a Zero Rated Supply and as also satisfies the pre-requisites of an Export as per the definition of Export of Service under Section 2(6) of the IGST Act. Further, a cumulative fulfillment of all the conditions of Export alone qualifies one for a Zero Rated Supply and in turn the avowed Export benefits.

Other things remaining equal if export of services are freed from any tax liability albeit conditions of export not being fully met, by simply blocking only the Input stage credits involved in those export of services by adding a suitable provision under Section 17(5) of the CGST Act, it will still bring much relief to the Export Industry.

This will help restore parity of the legal position of Law between post Negative list and post GST regimes with regard to relief from tax liability despite the non-fulfillment of certain conditions of export especially non-receipt/non-realization of foreign exchange.

Will the Government do it is the question in the minds of the Export trade?


K. Srinivasan (IRS)


By: Srinivasan Krishnamachari - October 5, 2019


Discussions to this article


Detailed write-up.

By: Ganeshan Kalyani
Dated: 06/10/2019

I agree with your views.

By: Ganeshan Kalyani
Dated: 07/10/2019


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