Calculation of refund of ITC in case of Zero-rated supply [ Rule 89(4) ] - GST Ready Reckoner - GST

Who can filed the refund claim ITC in case of Zero rated supplies [ Rule 89(4) ] A registered person who payment of Goods/services both to an SEZ developer / Unit or export of goods or services or both under bond or letter of undertaking (LUT) without payment of IGST, can make the application for refund in RFD - 01. No refund in case where refund of unutilized ITC in case of zero rated supply is not available Following cases :- No refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty, and in case where the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. Clarification in respect of section Calculation of refund of ITC in case of Zero-rated supply As per rule 89(4) of CGST Rules , In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of section 16(3) of the IGST Act, 2017, refund of input tax credit shall be granted as per the following formula Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC Adjusted Total Turnover Where, - (A) Refund amount means the maximum refund that is admissible; (B) 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 under rule 89 of CGST Rules ; omitted w.e.f. 08.10.2024 vide N.No. 20/2024-CT dated 08.10.2024 ] (C) 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 or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, [other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both under rule 89 of CGST Rules ; omitted w.e.f. 08.10.2024 vide N.No. 20/2024-CT dated 08.10.2024 ] (D) 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, calculated in the following manner, namely:- Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period; (E) Adjusted Total Turnover means the sum total of the value of- (a) the turnover in a State or a Union territory, as defined under clause (112) of section 2 , excluding the turnover of services; and (b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, [excluding- (i) the value of exempt supplies other than zero-rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both of rule 89 of CGST Rules, if any, during the relevant period. excluding the value of exempt supplies other than zero rated supplies during the relevant period subsitutied w.e.f. 08.10.2024 vide N.No. 20/2024-CT dated 08.10.2024 ] (F) Relevant period means the period for which the claim has been filed. Explanation . For the purposes of this sub-rule, the value of goods exported out of India shall be taken as (i) the Free on Board (FOB) value declared in the Shipping Bill or Bill of Export form, as the case may be, as per the Shipping Bill and Bill of Export (Forms) Regulations, 2017; or (ii) the value declared in tax invoice or bill of supply, whichever is less. Refund claimed by the recipients of supplies regarded as deemed export [ Circular No. 172/04/2022-GST 6th July, 2022 ] Issue:- Whether the ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports is to be included in the Net ITC for computation of refund of unutilised ITC under rule 89(4) rule 89 (5) of the CGST Rules, 2017. Clarification:- The ITC of tax paid on deemed export supplies, allowed to the recipients for claiming refund of such tax paid, is not ITC in terms of the provisions of Chapter V of the CGST Act, 2017 . Therefore, such ITC availed by the recipient of deemed export supply for claiming refund of tax paid on supplies regarded as deemed exports is not to be included in the Net ITC for computation of refund of unutilised ITC on account of zero-rated supplies under rule 89(4) of CGST Rules or on account of inverted rated structure under rule 89(5) of CGST Rules, 2017 . Manner of calculation of adjustment Turnover under Rule 89(4) of CGST Rules [ Circular No. 147/03//2021-GST 12th March, 2021 ] Issue:- whether the restriction on turnover of zero-rated supply of goods to 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, imposed by amendment in definition of the Turnover of zero-rated supply of goods vide Notification No. 16/2020-Central Tax dated 23.03.2020 , would also apply for computation of Adjusted Total Turnover in the formula given under Rule 89 (4) of CGST Rules, 2017 for calculation of admissible refund amount. Clarification:- it is clarified that for the purpose of Rule 89(4), the value of export/ zero-rated supply of goods to be included while calculating adjusted total turnover will be same as being determined as per the amended definition of Turnover of zero-rated supply of goods in the said sub-rule. The same can explained by the following illustration where actual value per unit of goods exported is more than 1.5 times the value of same/ similar goods in domestic market, as declared by the supplier: Illustration: Suppose a supplier is manufacturing only one type of goods and is supplying the same goods in both domestic market and overseas. During the relevant period of refund, the details of his inward supply and outward supply details are shown in the table below: Net admissible ITC = Rs. 270 All values in Rs. Outward Supply Value per unit No of units supplied Turnover Turnover as per amended definition Local (Quantity 5) 200 5 1000 1000 Export (Quantity 5) 350 5 1750 1500 (1.5*5*200) Total 2750 2500 The formula for calculation of refund as per Rule 89(4) is : Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC Adjusted Total Turnover Turnover of Zero-rated supply of goods (as per amended definition) = Rs. 1500 Adjusted Total Turnover= Rs. 1000 + Rs. 1500 = Rs. 2500 [and not Rs. 1000 + Rs. 1750] Net ITC = Rs. 270 Refund Amount = Rs. 1500*270/2500 = Rs. 162