Exporters want GST Council to refund CGST & SGST through Drawback

Does majority of Exporters in India have to Export goods on payment of duty and follow only “Refund” route post 1.7.2017 !!!

1. Current rule 5 of CENVAT credit rules 2004 provides that where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or

(ii) service tax on output service,

and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:
Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax .

Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output service

2. Currently there is absolute clarity in the above provision whereby any eligible credit earned on inputs / input services used in export of goods or services can be utilised for payment of excise duty on goods cleared for home consumption or for payment of service tax. Thus any manufacturer exporting his goods under Bond / LUT have option to utilise credit for home consumption and need not go necessarily for refund of unutilised credit. In fact it is not possible for majority of exporters whose inputs / input services are common for goods manufactured for domestic market or export market.

There appears no explicit provision under GST Act or rules, similar to the Cenvat Credit Rule 5 mentioned above, providing for utilisation of Input Tax Credit earned on goods / services used for exports, for payment of GST on any goods or services cleared supplied in domestic market.

3. Section 16 of CHAPTER VII of IGST Act provides as under

ZERO RATED SUPPLY 16. (1) “zero rated supply” means any of the following supplies of goods or services or both, namely:––

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

(3) 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 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

4. The above provision under sub section (2) of section 16 provides for availment of ITC for making Zero rated supplies but this sub section does not provide for utilisation of ITC towards payment of GST on domestic clearances. Similarly the sub section (3) of section 16 mentioned above visualise that ITC earned on export goods will remain unutilised and hence refund mechanism is provided.

5. The above understanding mentioned at Sr.No 4 above also gets strengthened when we look in to CBEC Website published by Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS following clarification is given relating to refund of GST on export
GST (GOODS AND SERVICES TAX) Refunds
Treatment for Zero Rated Supplies One of the major categories under which, claim for refund may arise would be, on account of exports. All exports (whether of goods or services) as well as supplies to SEZs have been categorised as Zero Rated Supplies in the IGST Act. “Zero rated supply” under Section 16 of the IGST Act, 2017 means any of the following supplies of goods or services or both, namely:
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
On account of zero rating of supplies, the supplier will be entitled to claim input tax credit in respect of goods or services or both used for such supplies even though they might be non-taxable or even exempt supplies.
Every person making claim of refund on account of zero rated supplies has two options.
- Either he can export under Bond/LUT and claim refund of accumulated Input Tax Credit

- or he may export on payment of integrated tax and claim refund of thereof as per the provisions of Section 54 of CGST Act, 2017.
Thus, the GST law allows the flexibility to the exporter (which, will include the supplier making supplies to SEZ) to claim refund upfront as integrated tax (by making supplies on payment of tax using ITC)
or
export without payment of tax by executing a Bond/LUT and claim refund of related ITC of taxes paid on inputs and input services used in making zero rated supplies.

6. From the above understanding of CBEC it appears that there appears no visualisation for utilisation of ITC, earned on export goods/services, towards payment of GST on domestic supplies. Therefore exporters who are using common inputs and input services necessarily have to follow refund route as they may not be in a position to maintain separate account of ITC used for export of goods post 1.7.2017.

The above views are my personal views

Jaimini Khurjekar
Mobile No 09987005685 / 09322405685

jaimini_khurjekar jaimini_khurjekar 27/06/2017