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 S
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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 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 serv
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tions, 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 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 regi
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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. In this regard it is directed that the jurisdictional Commissioner may decide
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ever, if in a State, the Commissioner of State Tax so directs, by general instruction, to exporter, the 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
Sect
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aid 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 per 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 supp
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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 available.
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 exemp
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