Zero Rated Supply U Exports Under Gst – Advanced Tax Laws and Practice Important Questions
Question 1.
Explain the concept of “Zero-rated and Exempt transaction” for the purpose of availing of input tax credit in GST law.
Answer:
“Exempt supply” means the supply of goods or services which attracts the Nil rate of tax or which are wholly exempt from tax and includes the non-taxable supply.
“Zero-rated supply” means export of goods or services or supplies made to Special Economic Zone (SEZ) developer or SEZ unit. As per section 17(2) of CGST Act, 2017 where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies, and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
Question 2.
Write a note on “Deemed Exports”.
Answer:
It means such supplies of goods as may be notified under section 147 of CGST Act, 2017 [Section 2(39) of CGST Act] As per section 147 of CGST Act, 2017, the Government may, on recommendations of the council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange if such goods are manufactured in India.
Question 3.
XYZ Education Advisory promotes the courses of foreign universities among prospective students. It has tied up with various Universities all over the world. These Universities have engaged them for promotional and marketing activities for the promotion of the courses taught by them and making the prospective students aware about the course fee and other associated costs, market intelligence about the latest educational trend in the territory, and ensuring payment of the requisite fees to the Universities if the prospective students decide upon pursuing any course promoted by the Applicant. XYZ Education Advisory receives consideration in the form of commission from the foreign University for these services rendered to prospective students. It wants to know whether the service provided to the Universities abroad would be considered “export” within the meaning of Section 2(6) of the Integrated Goods and Services Tax Act, 2017, and, therefore, a zero-rated supply under the CGST Act, 2017?
Answer:
The facts of the case are similar to the matter before Authority of Advance Ruling in the case of Global Reach Education Services Pvt. Ltd. where the West Bengal Authority for Advance Ruling has held that Section 2(6) of the Integrated Goods and Services Tax Act, 2017, reads as “export of services” means the supply of any service when – (i) the supplier of service is located in India; (it) 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 or in Indian rupees wherever permitted by the Reserve Bank of India; 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;’
It is, thus, evident from the above citation that in the case of Export of Services all the conditions as laid down under Section 2(6) of IGST Act, 2017 is to be followed in totality without any violation, and that there is no scope of partial compliance of the conditions laid down therein.
The main service provided by the applicant is facilitating the recruitment of students and the consideration is paid as commission. XYZ Education Advisory, therefore, represents the University in the territory of India and acts as its recruitment agent and not as an independent service provider. Being an intermediary service provider, the place of supply shall be determined under section 13(8)(b) of the IGST Act, 2017 and not under section 13(2) P of the IGST Act, 2017. The place of supply under the above legal framework is the territory of India. As the condition under section 2(6)(m) of the IGST Act, 2017 is not satisfied, the service provided by XYZ Education Advisory to the foreign universities does not qualify as “Export of Services”, and is, therefore, taxable under the GST Act. Pertinently, the referred Advance Ruling has also been affirmed by the Appellate AAR.
Question 4.
Mr. H is an exporter. He exports machinery out of India and pays 28% IGST. He wants to know the procedure for claim and grant of refund of IGST paid on goods exported out of India? His accountant has advised him to export machinery without payment of IGST and claim a refund of the unutilized input tax credit? Is it possible, if yes, how?
Answer:
Export on payment of Tax:
In terms of Rule 96 of the CGST Rules, shipping bills filed by an exporter of goods shall be deemed to be an application for refund of IGST tax paid on the goods exported out of India, when.
(a) person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering no. and date of shipping bills or bills of export; and (b) the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be.
In this regard, the details of the relevant export invoices in respect of export of goods contained in FORM GSTR-1 are required to be transmitted electronically by the common portal to the system designated by the Customs (“Custom System”) and said the system will revert the confirmation of export of goods.
Upon the receipt of the information regarding the furnishing of a valid return in FORM GSTR-3 or FORM GSTR-3B, the Customs System shall process the claim for refund and an amount equal to the IGST paid in respect of each shipping bill or bill of export, shall be electronically credited to the bank account of the applicant mentioned in his registration particulars and as intimated to the Customs authorities.
Further, the persons claiming refund of integrated tax paid on exports of goods or services should not have – (a) received supplies on which the benefit of Notification No. 48/2017-Central Tax, dt. 18.10.2017 or Notification No. 40/2017-Central Tax (Rate), dt. 23.10.2017 or Notification No. 41/2017-Integrated Tax (Rate), dt. 23.10.2017 has been availed; or (b) availed the benefit under Notification No. 78/2017-Customs, dt.13.10.2017 or Notification No. 79/2017-Customs, dt. 13.10.2017. Export without payment of Tax on LUT: As per Rule 96A of CGST Rules, 2017, any registered person availing the option to make a zero-rated supply of goods or services without payment of integrated tax shall furnish a bond or a Letter of Undertaking in FORM GST RFD-11 prior to execution of such supply.
In terms of Notification No. 37/2017-Central Tax dated 04-10-2017, all registered persons, who intend to supply goods or services for export without payment of integrated tax shall be eligible to furnish a LUT in place of a bond except those who have been prosecuted for any offense under the CGST Act, SGST Act, IGST Act or any of the 49 existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
A self-declaration by the exporter that he has not been prosecuted is sufficient for the purposes of Notification No. 37/2017-Central Tax dated 4-10-2017. Department may verify the claim after acceptance of the LUT unless Department has any specific information otherwise regarding the prosecution. (Circular No. 8/8/2017-GST dated 4-10-2017).
The registered person (exporters) shall fill and submit FORM GST RFD-11 on the common portal. A LUT shall be deemed to be accepted as soon as an acknowledgment for the same, bearing the Application Reference Number (ARN), is generated online. No document needs to be physically submitted to the jurisdictional office for acceptance of LUT. (Circular No. 40/14/2018-GST dated 06-04-2018) Further, a LUT shall be deemed to have been accepted as soon as an acknowledgment for the same, bearing the Application Reference Number (ARN), is generated online. If it is discovered that an exporter whose LUT has been so accepted, was ineligible to furnish a LUT in place of the bond as per Notification No. 37/2017-Central Tax, then the exporter’s LUT will be liable for rejection.
In case of rejection, the LUT shall be deemed to have been rejected ab initio. (Circular No. 40/14/2018-GST dated 06-04-2018) Adding further, any person who is prosecuted for an evasion of more than ₹ 2,50,000 shall execute a Bond. The Bond shall be accompanied by Bank Guarantee for 1596 of the Bond amount. (Circular No. 8/8/2017-GST dated 04-10-2017).
The LUT facility is also extended to Supplies made to SEZ unit/developer. Where export is made without payment of tax, the exporter can claim the refund of unutilized credit by submitting Form GST RFD-01A on the common portal. Such REFUND and refund claims in respect of zero-rated supplies shall be filed for a tax period on a monthly basis. Further, a refund claim for a tax period may be filed only after filing the details in FORM GSTR-1 for the said tax period and a valid return in FORM GSTR-3B has been filed for the last tax period before the one in which the refund application is being filed.
Question 5.
Define “export of goods” and “export of services”. How are exports be treated under GST?
Answer:
The definition of “export of goods” in section 2(5) of the IGST Act has been straight taken from section 2( 18) of the Customs Act, 1962 and means taking goods out of India to a place outside India. As per section 2(6) of the IGST Act, “export of services” means the supply of any service when,
- the supplier of service is located in India;
- the recipient of service is located outside India;
- the place of supply of service is outside India;
- the payment for such service has been received by the supplier of service in convertible foreign exchange; and
- 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;
All exports are deemed as inter-State supplies. Exports of goods and services are treated as zero-rated supplies. The exporter has the option either to export under bond/Letter of Undertaking without payment of tax and claim refund of ITC or pay IGST by utilizing ITC or in cash at the time of export and claim refund of IGST paid.
Question 6.
How are supplies by and to Special Economic Zones (SEZs) treated in GST?
Answer:
There is no change in the SEZ scheme. All imports by SEZs are exempted from any duty/tax. As per section 7(5), (b) of the IGST Act, 2017, a supply of goods or services or both to or by an SEZ developer or an SEZ unit is treated to be a supply of goods or services or both in the course of inter-State trade or commerce. Further as per section 16 of IGST Act, 2017 supply of goods or services or both to an SEZ developer or an SEZ unit is considered as zero-rated supply.
Zero Rated Supply U Exports Under Gst Notes
- “Export of goods” means taking goods out of India to a place outside India.
- Exports are ZERO RATED as per section 16 of the IGST Act.
- The exporter is eligible to claim REFUND under the following situations:
a. He may export the goods upon payment of IGST and claim a refund of such tax paid; or
b. He may export the goods under a Letter of Undertaking, without payment of IGST and claim refund of unutilized ITC.
- Tourists leaving India can claim a refund of IGST paid on the supply of goods to him. These goods should be taken out of India by him.
- Concept of “Deemed Exports”
- “Export of services” means the supply of any service when,
(i) the supplier of service is located in India;
(it) the recipient of service is located outside India;
(Hi) 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 or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and recipient of service are not merely establishments of distinct persons in accordance with Explanation 1 in section 8.