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February 28, 2025

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GST on Exported Services Without Consideration: Key Insights

GST on Services Exported but Consideration Not Received: What You Should Know

Discussing today's India, the Indian Govt is very proud as we all know, that it wants to raise the output of the quality of exports from India as portrayed by the Make in India policy. As per reports, the Government has always been attentive to making industry-friendly policies when it comes to spreads since the consideration is received in foreign currency. Under the pre-GST regime, excisable goods were permissible to be exported without payment of duty in terms of rule 19 of the Central Excise Rules, 2002. Along similar lines but without any binding precedent, section 16 is positioned in the Integrated Goods and Service Tax Act, 2017 ('IGST Act'). This article summarizes the authors' learning from a deep dive into many aspects involved in neutralizing GST on export of services in India and conditions for export of goods under GST for the reader's attention.

Procedure for Making Zero-rated Supply for GST on Export

Zero-rated supply Supplies quantified in section 16 of the IGST Act are called 'zero-rated supplies' notwithstanding the normal export of services GST. Zero-rated supply is not one where exemption is issued underneath section 6 of the IGST Act.

So, zero-rated supply is a moniker for supplies procured in section 16 of the IGST Act: Export of goods is defined under Section 2(5) of the IGST Act, which situations that "export of goods" with its grammatical variations and cognate expressions, means taking goods out of India to a place outdoor India. The export of goods would be treated as inter-state supply in accordance with Section 7(5)(a) of the IGST Act. Under Section 16 of the IGST Act, the following are pickled as zero-rated supplies as well.

An exporter who aims to export goods without payment of IGST is required to furnish LUT. LUT has to be applied on the common portal in Form RFD-11; besides, the same will be valid for the entire Financial Year.

LUT is to be furnished prior to undertaking the export of goods. However, the Central Board of Indirect Taxes ('CBIC') vide circular no. 125/44/2019, dated November 18, 2019, has explained that the substantive benefit of zero-rated supply may not be denied where the exporter is overdue in furnishing LUT. Accordingly, LUT may be admitted on an ex post facto basis, taking into account the facts and circumstances of the case.

In addition to the invoice, the exporter is required to file a Transport bill in Form SB-I. The shipping bill is required to be issued in four copies. It is related to note that the exporter is required to export the goods within 3 months from the date of the tax invoice. In case the belongings are not exported within such time, Rule 96A (1) of the Central Goods Besides Service Tax Rules, 2017 ('CGST Rules') provides that tax along with interest at 18 percent is required to be paid within 15 days from the end of this 3 months period or such further period as may be permissible by the Commissioner.

Refunds

Section 54 of the CGST Act, read through Rule 96 of the CGST Rules, provides the mechanism for claiming a refund on the version of the export of goods. As discussed earlier, the exporter has the option to export goods under LUT, or he may export goods on payment of IGST.

Hence, the refund provisions for each scenario are as follows: A. Export of goods under LUT Section 54(3)(i) of the CGST Act offers that a registered person may claim a refund of unutilized input tax credit ('ITC') for zero-rated supply made without a sum of tax. The refund application may be made for each tax period. The said section comes with some restrictions, which are enumerated below:

1. Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to spread duty

2. Provided also that no refund of the input tax credit shall be allowed if the supplier of GST on export of services or both rewards of drawback in respect of central tax or claims refund of the united tax paid on such supplies.

Certain Issues in Amendments in the Refund Formula:

It is pertinent to note that the restriction placed in Rule 89(4)(c) of the CGST Rules on the value of spread of goods maximum to 1.5 times the value of like goods sold internally is inserted vide Notification No 16/2020-Central Tax dated March 23, 2020. There were no such restrictions cited earlier. To expect that an export price greater than 50 percent of the domestic price is an unwarranted restraint on export assistance that is deserved and earned by exporters.

The calculation of 1.5 times the value of the transfer of goods is applicable in the numerator only. In the numerator, the actual spread value of goods is required to be added to the total adjusted turnover. Hence, this would further lessen the net refund amount to the exporter and is clearly a retrograde step.

It is worthwhile to acknowledge that the said sub-rule has been 'substituted' vide Notification No 16/2020-Central Tax dated March 23, 2020. In other words, the old rule has been swapped with the new rule. Therefore, one needs to interpret whether the said substitution can extend this restriction to rebates yet to be filed for past exports and thereby be surveying.

It is deeply concerning if the said restriction is put on to refund claims filed after March 2020 which are affected to past period, i.e., before March 2020

Also, prices are dynamic, particularly in present market conditions, to expect exporters to comply with this constraint when domestic supplies are nil, negligible, or even intermittent.

Should we Export Goods Under LUT or on Payment of IGST?

Every registered person is required to analyze, looking at their nature and quantum of procurements, as to whether to spread goods on payment of IGST or under LUT. If a registered person has the majority of export materials compared to domestic supplies, ideally, ITC would accumulate in such a case. So, in such cases, it would be prudent to make a spread on payment of IGST and claim the refund of the amassed ITC in cash.

Similarly, if a registered person is required to discharge his tax liability in cash, i.e., after utilizing his full ITC at the end of the tax, it is advisable for him to export goods under LUT. It is opposite to note that the IGST payment is made at the time of filing GSTR-3B and the same may be made by utilizing ITC.

Accordingly, unlike the constraint of claiming the refund of capital goods for unutilized ITC, no such restriction is applicable for the refund of IGST paid on the export of things. Hence, the ITC of capital goods also gets discharged if the exporter chooses an option to make the transfer of goods on payment of IGST.

Conclusion

Exports are invigorated, and domestic taxes and levies will not be disseminated. To this end, rebates, in addition to refunds of unutilized credits, are options available in the IGST Act to neutralize the effect on exports. Repatriation of export proceeds is the litmus test of export that deserves this impetus. As in all encouragement schemes that benefit some transactions, it is only fair to enforce conditions to monitor compliance with the underlying premise for extending such help.

Exporters are expected to shoulder the burden of compliance. Although the Government seems to have a great understanding of automating processes, trade needs to play its part and contend in the world arena on quality and customer care to grow India's share of global exports. GST law joins hands with other regulations to give a boost.

FAQs

1. What if export proceeds are not received under GST?

In case the exporter does not realize the export incomes within the prescribed time limit, the amount of compensation to the extent of non-realization of sale earnings has to be deposited along with the applicable notice within thirty days of the expiry of the said period.

2. Is GST applicable on export of services?

Export of goods and services are zero regarded under GST.

3. What happens if an export payment is not received?

Non-fulfillment of spread obligations may result in legal actions underneath the Customs Act, including the possibility of goods being seized, salvage proceedings initiated, or cancellation of benefits obtained under the scheme.

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