Zero rated Supplies as defined under Section 16 of the IGST Act, 2017 are eligible for refund under GST. Zero rated supplies include Exports, Supplies to SEZ developer or units. Exports and Supplies to SEZ developer or units can be made without payemnt of tax under Letter of Undertaking (“LUT”). However, Deemed Exports are not coverede by Section 16 of IGST Act, rather, such transactions have been carved out specifically to provide refund to certain categories of persons who are indirectly supporting exports or are covered by schemes of Customs.
Section 147 of the Central Goods and Services Tax Act, 2017 provides that the Government may, on the 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. Inline with the powers given, following supplies were notified as Deemed Exports vide Notification No.48/2017-Central Tax, dated 18-10-2017:
For the purpose of this Notificaiton, certain terms were also defined in the Explanation:
1.”Advance Authorisation” means an authorisation issued by the Director General of Foreign Trade under Chapter 4 of the Foreign Trade Policy 2015-20 for import or domestic procurement of inputs for physical exports.
2. Export Promotion Capital Goods Authorisation means an authorisation issued by the Director General of Foreign Trade under Chapter 5 of the Foreign Trade Policy 2015-20 for import of capital goods for physical exports.
3. “Export Oriented Unit” means an Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-Technology Park Unit approved in accordance with the provisions of Chapter 6 of the Foreign Trade Policy 2015-20.
Thus, while we have seen what constitute Deemed Export, let us examine the refund provisions thereof.
Refund to Deemed Exporters
Rule 89 of the CGST Rules, 2017 has been amended vide Notification No. 47/2017- Central Tax dated 18-10-2017 to allow either the recipient or supplier of such supplies to claim refund of tax paid thereon. As per Rule 89, in respect of supplies regarded as deemed exports, the refund application may be filed by,—
(a)Â Â Â Â the recipient of deemed export supplies; or
(b)Â Â Â Â the supplier of deemed export supplies in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund.
While in the former case, the recepient is usually the person making exports, the latter relates to person making the deemed exports. In case such refund is sought by the supplier of deemed export supplies, the documentary evidences as specified in notification No. 49/2017- Central Tax dated 18.10.2017 are also required to be furnished which includes an undertaking that the recipient of deemed export supplies shall not claim the refund in respect of such supplies and shall not avail any input tax credit on such supplies. Similarly, in case the refund is filed by the recipient of deemed export supplies, an undertaking shall have to be furnished by him stating that refund has been claimed only for those invoices which have been detailed in statement 5B for the tax period for which refund is being claimed and that he has not availed input tax credit on such invoices. The recipient shall also be required to declare that the supplier has not claimed refund with respect to the said supplies. The procedure regarding procurement of supplies of goods from DTA by Export Oriented Unit (EOU)/Electronic Hardware Technology Park (EHTP) Unit/Software Technology Park (STP) Unit/Bio-Technology Parks (BTP) Unit under deemed export as laid down in Circular No. 14/14/2017-GST dated 06.11.2017 needs to be complied with.
Deemed Exports cannot be made under LUTÂ
As one can observe that since the provisions relating to Deemed Exports have been specifically introduced under a seperate notificaiton, the benefit of supply without payment of tax under LUT as extended to such suppliers. They shall pay full tax as applicable and shall then claim refund of taxes paid.
Deemed Exporter is not a supplier under Notification No. 40/2017
It is also pertinent to note that deemed exporter is different from the supplier who has been given exemption vide Notificaiton No. 40/2017-CT (Rate) dated 23-10-2017.  In the said Notificaiton, exemption has been granted to the intra-State supply of taxable goods by a registered supplier to a registered recipient for export, from so much of the central tax leviable thereon under section 9 of the said Act, as is in excess of the amount calculated at the rate of 0.05 per cent., subject to fulfilment of certain conditions. Thus, the Notificaiton does not provide for the refund of taxes paid on inputs in such cases. Notification No. 40/2017-CT(Rate) is an exemption notificaiton issued under Section 11 of the CGST Act. 2017 and thus, is merely providing exemption to the output tax. The option may or may not be availed by the supplier and/or the recipient and the goods may be procured at the normal applicable tax rate.
Refund to supplier under Notification No. 40/2017-CT(Rate)Â
However, it has been clarified vide Circular No. 125/44/2019-GST dated 18/11/2019 that the supplier who supplies goods at the concessional rate is also eligible for refund on account of inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act. It may also be noted that the exporter of such goods can export the goods only under LUT/bond and cannot export on payment of Integrated tax. It is also clarified that the exporter will be eligible to take credit of the tax @ 0.05%/0.1% paid by him. Rule 89(4B) of the CGST Rules provides that where the person claiming refund of unutilized input tax credit on account of zero-rated supplies without payment of tax has received supplies on which the supplier has availed the benefit of the said notifications, the refund of input tax credit, availed in respect of such inputs received under the said notifications for export of goods, shall be granted. This refund of accumulated ITC under rule 89(4B) of the CGST Rules shall be applied under the category “any other” instead of under the category “refund of unutilized ITC on account of exports without payment of tax” in FORM GST RFD-01 and shall be accompanied by all supporting documents required for substantiating the refund claim under the category “refund of unutilized ITC on account of exports without payment of tax”. After scrutinizing the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as refund, he shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-06 and the payment order in FORM GST RFD-05.
