TMI BlogZERO RATED SUPPLY WITH EXPORT PROCEDURES (BOND/LUT OR REFUND ROUTE) - Part-IX X X X Extracts X X X X X X X X Extracts X X X X ..... ZERO RATED SUPPLY WITH EXPORT PROCEDURES (BOND/LUT OR REFUND ROUTE) - Part-I - By: - CASanjay Kumawat - Goods and Services Tax - GST - Dated:- 17-8-2017 - - The purpose of this article is to create awareness about the most interesting concept under GST. This article deals with the concept of zero rated supply, i.e., exports of goods and/ or services and supply to SEZ. Zero rated supply [ Section 16(1) of the IGST Act, 2017 ] As per section 2 ( 23 ) of the IGST Act, 2017 , zero-rated supply shall have the meaning assigned to it in section 16 of the IGST Act, 2017 . As per section 16 of the IGST Act, 2017 , zero rated supply means any of the following supplies of goods or services or both, namely: (i) export of goods or services or both; or (ii) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit. Accordingly, if a person who is engaged in export of goods and/or services or supplies of goods and/or services to a SEZ unit or SEZ developers, then it is to be considered that such person is making Zero-rated supplies. Meaning of the terms used in this provision is as follows: 1. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2(5) of the IGST Act, 2017 , export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India; 2. As per section 2(6) of the IGST Act export of services means the supply of any service when, (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and (v) 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 . 3. As per section 2 ( 19 ) of the IGST Act, 2017 , Special Economic Zone shall have the same meaning as assigned to it in clause ( za ) of section 2 of the Special Economic Zones Act, 2005 ; 4. As per section 2 ( 20 ) of the IGST Act, 2017 , Special Economic Zone developer shall have the same meaning as assigned to it in clause ( g ) of section 2 of the Special Economic Zones Act, 2005 and includes an Authority as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in clause ( d ) and a Co-Developer as defined in clause ( f ) of section 2 of the said Act . Input tax credit of inputs/inputs services/capital goods [ Section 16(2) of the IGST Act, 2017 ] Section 16(2) of the IGST Act, 2017 , subject to the provisions of section 17(5) of the CGST Act , credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. A registered supplier of zero rated supplies can avail the credit of the inputs/input services/capital goods used for making zero rated supply. Availment of the credit of input tax would be subject to restrictions as specified in section 17(5) of the CGST Act, 2017 , i.e., motor cab, construction/WCT services, etc. Where supply is an exempted zero rated supply, then in that case also credit is available to the registered supplier notwithstanding the section 17(2) of the CGST Act, 2017 . Refund [ Section 16(3) of the IGST Act, 2017 ] A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely: (a) he may supply goods or services or both under bond or Letter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Undertaking , subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or (b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder. Accordingly, to claim refund, exporter will have two options, namely,- (a) Letter of undertaking/Bond (b) Pay IGST and claim refund (a) Letter of undertaking/Bond An exporter is required to take the letter of undertaking/Bond for export of goods and/or services without payment IGST. It will reduce the working capital requirement of the exporter. Procedure to obtain letter of undertaking/Bond and to claim the refund of unutilized input tax credit are as follows: Procedure to obtain letter of undertaking/Bond The CBEC (GST Policy Wing) vide Circular No. 4/4/2017-GST dated 07.07.2017 , has clarified as under: (i) As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 96A of the CGST Rules, 2017 , any registered person exporting goods or services without payment of integrated tax is required to furnish a bond or a Letter of Undertaking (LUT) in FORM GST RFD-11 . (ii) As per Notification No. 16/2017-Central Tax dated 01.07.2017 vide which the category of exporters who are eligible to export under LUT has been specified along with the conditions and safeguards. The following registered person shall be eligible for submission of Letter of Undertaking in place of a bond: a status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020 ; or who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year, and he has not been prosecuted for any offence under the CGST Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds two hundred and fifty lakh rupees. (iii) All exporters, not covered by the said notification, would submit bond. The procedures for submission and acceptance of bond has already been prescribed vide circular No. 2/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/2017-GST dated 4th July, 2017 . The bond shall be furnished on non-judicial stamp paper of the value as applicable in the State in which bond is being furnished. (iv) It is important to understand that whether bond to be furnished for exports is a running bond (with debit / credit facility) or a one-time bond (separate bond for each consignment / export). It is observed consignment wise bond would be a significant compliance burden on the exporters. It is directed that the exporters shall furnish a running bond, in case he is required to furnish a bond, in FORM GST RFD -11. The bond would cover the amount of tax involved in the export based on estimated tax liability as assessed by the exporter himself. The exporter shall ensure that the outstanding tax liability on exports is within the bond amount. In case the bond amount is insufficient to cover the tax liability in yet to be completed exports, the exporter shall furnish a fresh bond to cover such liability. (v) FORM RFD -11 under rule 96A of the CGST Rules requires furnishing a bank guarantee with bond. Field formations have requested for clarity on the amount of bank guarantee as a security for the bond. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this regard it is directed that the jurisdictional Commissioner may decide about the amount of bank guarantee depending upon the track record of the exporter. If Commissioner is satisfied with the track record of an exporter then furnishing of bond without bank guarantee would suffice. In any case the bank guarantee should normally not exceed 15% of the bond amount. (vi) As regards LUT, it is clarified that it shall be valid for twelve months. If the exporter fails to comply with the conditions of the LUT he may be asked to furnish a bond. Exports may be allowed under existing LUTs/Bonds till 31st July 2017. Exporters shall submit the LUTs/bond in the revised format latest by 31st July, 2017. (vii) The Bond/LUT shall be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter. The exporter is at liberty to furnish the bond/LUT before Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented. However, if in a State, the Commissioner of State Tax so directs, by general instruction, to exporter, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bond/LUT in all cases be accepted by Central tax officer till such time the said administrative mechanism is implemented. Central Tax officers are directed to take every step to facilitate the exporters. Following documents are required to obtain LUT/Bond : (i) Duly Signed RFD-11 along with application to proper officer. (ii) Bond on stamp paper of ₹ 500/- and Letter of Undertaking on Plain Paper. (iii) Copy of Provisional Certificate of Registration in Form GST REG-25 . (iv) Copy of PAN Card. (v) Copy of IEC. (vi) C.A. certificate of last year export figures 2016-17. (vii) Certificate from bank for realization of foreign inward remittances. (viii) Status holder certificate (if any) one/two/three/four/five star. (ix) ID proof of witness. (x) Authorization letter of the authorized person on behalf of exporter. Treatment of unutilized input tax credit Section 54(3) of the CGST Act, 2017 , provides that- Subject to the provisions of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than (i) zero rated supplies made without payment of tax; (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council. Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty. Provided also that no refund of input tax credit shall be allowed, if 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. Accordingly, as per section 54(3) of the CGST Act, 2017 , a registered supplier can claim refund in respect to unutilized input tax credit used for making zero rated supplies made without payment of GST. It may be noted that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 54(8)(b) of the CGST Act, 2017 , the refundable amount shall be paid to the applicant, if such amount is relatable to refund of unutilized input tax credit under section 54(3) instead of being credited to the Fund. The exporter claiming refund of IGST will file an application electronically through the Common Portal, either directly or through a Facilitation Centre notified by the GST Commissioner. The application shall be accompanied by documentary evidences as prescribed in the said rules. Application for refund shall be filed only after the export manifest or an export report, as the case may be, is delivered under section 41 of the Customs Act, 1962 in respect of such goods. (b) Pay IGST and claim refund A registered supplier may supply goods or services or both on payment of IGST and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act, 2017 or the CGST Rules, 2017 . Time for payment of IGST shall be determined on the basis of provisions of time of supply of goods and/or services as described in section 12 and 13 of the CGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act, 2017. For the purpose refund, the shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed only when the person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering the number and the date of shipping bills or bills of export and the applicant has furnished a valid return. An SEZ area is considered to be a foreign territory for trade operations and duties, and is mainly set up for promoting exports. Therefore, for the purpose of claiming refund, similar provision would apply as applied to exporter. As per section 54(8)(a) of the CGST Act, 2017 , the refundable amount shall be paid to the applicant, if such amount is relatable to refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies instead of being credited to the Fund. Refund of tax paid for inputs or input services used in making supplies is available but credit of refund in respect to capital goods used may not availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. For both option (a) and (b) exporters have to provide details of GST invoice in the Shipping bill. ARE-1 which is being submitted presently shall be dispensed with except in respect of commodities to which provisions of Central Excise Act would continue to be applicable. Exemption to SEZ units or SEZ Developers for inward supplies To provide the relief from GST, the Central Government has exempted goods imported by units or developers of SEZ from IGST vide two Notifications issued under GST law and Custom law. Under GST law For Services The Central Government vide Notification No. 18/2017 -Integrated Tax (Rate), dated 05.07.2017 has exempted all services imported by a unit or a developer in the Special Economic Zone for authorised operations, from the whole of the integrated tax leviable thereon under section 5 of the Integrated Goods and Service Tax Act, 2017. Under Custom law- For Goods The Central Government vide Notification No. 64/2017- Customs, dated 05.07.2017 has exempted all goods imported by a unit or a developer in the Special Economic Zone for authorised operations, from the whole of the integrated tax leviable thereon unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (7) of section 3 of the Customs Tariff Act, 1975 read with section 5 of the Integrated Goods and Service Tax Act, 2017. Note: Author can be reached at casanjay.kumawat91@gmail.com . - Reply By AKHILESH MALOO as = We are manufacturer/exporter from Rajasthan dealing in Granite slabs. We have purchased Granite slabs for EOU unit in Tamilnadu for export purpose, EOU has raised 28% IGST invoice. My question is how we have to raise invoice to export party ?? We don't have LUT /BOND, does we have to mention IGST in our export bill ?? Dated: 19-8-2017 Reply By CASanjay Kumawat as = For the purpose of GST, IGST needs to show in the bill in the case where no LUT/Bond is there. For the purpose of collection from the export party, the export bill should be excluding of the IGST, (i,.e., export the goods and not the taxes). Dated: 19-8-2017 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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