Governments try to boost the economy, improve the balance of payments, and increase jobs. For this, the government tries to increase its exports by providing various reliefs to exporters. One of the reliefs provided by the government under the GST regime for increasing exports is Zero Rated Supply.

Introduction

Export supplies of a taxpayer registered under GST are classified as zero-rated supplies. Zero-rated supplies under GST are eligible for a refund. Taxpayers are required to furnish all details of zero-rated supplies in GSTR-1 and GSTR-3B.

What is Zero Rated Supply?

As per Section 16 of the IGST Act, zero-rated supply means:

• Export of goods or services, or both;
• Supply of goods or services, or both, to a Special Economic Zone developer
• Supply of goods or services, or both, to a Special Economic Zone unit.

The Finance Bill 2021 amended the definition of zero-rated supply to include-

• Transactions of supply to SEZ only when the said supply is for authorized operations.
• Foreign exchange remittance will be linked in case of export of goods with the refund.

Refund under Zero-Rated Supply

There are two option available with the suppliers making the Zero-rated Supplies to claim refund for the input tax paid on the goods and services :-

• The dealer can export goods or services under Bond or LUT, without paying IGST. They can then claim a refund of the accumulated Input tax credit.
• The dealer can pay IGST on supplies of goods or services. They can then claim a refund.

For example, an exporter supplies pen to Dubai and uses ink in the production of pen. The exporter has an option to claim input tax credit of the GST paid on the purchase of ink or can claim refund of Tax paid.

The dealers are provided with a flexibility to choose between any two options as per their convenience.

Amount of Refund

In case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance S.16(3) of the IGST Act, refund of ITC shall be granted as per the following formula:

Refund Amount = (Turnover of zero rated supply of Goods + Turnover of zero rated supply of services) * Net ITC / Adjusted Annual Turnover

Where,

• “Refund amount” means the maximum refund that is admissible
• “Net ITC” means ITC availed on inputs and input services during the relevant period;
• “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 Bond/LUT.
• “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under Bond/LUT, 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;
• “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under subsection (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;
• “Relevant period” means the period for which the claim has been filed.

Procedure to claim refund under Zero rated supply:

In case of Goods

There is a set procedure to claim refund under zero rated supply. In the case of refund for goods there is no need to file the FORM GST RFD-01 as the shipping bill itself is considered as the refund claim.

But there are two conditions to be satisfied by the shipping bill to be considered as the refund claim. These are as follows:

• The person exporting the goods shall file the export manifest;
• The person exporting the goods should have filed the GSTR 3 and 3B as and when needed.

If the above two conditions are fulfilled then, the refund is successfully initialized by the department.

In case of Services

In case of refund to be claimed for services the claim for refund has to be filed in form GSTR RFD – 01. For exporters of services, the following are required to be filed along with the refund claim:

• A Statement containing Number and Date of Invoices; and
• Bank Realization Certificates / Foreign Inward Remittance Certificates

In case of the supplier of goods or services to an SEZ

• A Statement containing Number and Date of Invoices; and
• Proof of Receipt of goods or services which is authorized by the specified officer of SEZ.
• Details of payment made.
• The declaration that the SEZ or developer of SEZ has not claimed the input tax credit of the taxes paid by the supplier.

Provisional Refund

The exporters and suppliers of SEZ are entitled to a 90% refund on a provisional basis. Provisional refund is granted within seven (7) days of the refund claim. The amount of provisional refund is credited directly to the claimant’s bank account. There is a condition attached to provisional refunds. The provisional refund is not granted if the applicant has been prosecuted for any offense under the GST law or earlier law within past five (5) years. The amount of tax evaded in such prosecution shall be more than Rupees Two Hundred and Fifty Lakhs (Rs. 2.5 Crores).