Issues and Concerns
I. Can a registered person exporting non-taxable goods (say, motor spirit) claim refund of inputs and input services utilised in the manufacture of such non-taxable goods?
Although this is a debatable issue, some experts believe that the law does not place restriction on claiming refund of taxes paid on inward supplies used in effecting such export of non-taxable goods. This could be argued on the following grounds:
Zero rated supply includes within its ambit, inter alia, export of goods
Motor spirit, although non-taxable, would fall within the meaning of goods as defined in Section 2(52) of the CGST Act
Section 17(2) of the CGST Act states that a supplier shall be entitled to avail input tax credit to the extent of input tax as is attributable to taxable supplies including zero rated supplies.
Section 16(2) of the IGST Act states that input tax credit may be availed for making zero rated supplies notwithstanding the fact that such supply may be an exempt supply subject to restrictions on ITC in Section 17(5).
Exempt supply has been defined in Section 2(47) of the CGST Act to include non-taxable supply.
Section 54(3) of the CGST Act specifies that refund of unutilised input tax credit shall be allowed in case of zero rated supplies effected without payment of tax unless such export are subjected to export duty. Thus, refund on export of nontaxable goods may be sought by the registered person.
It is relevant to note here that while, just as the argument for eligibility to claim refund of input tax credit is based on the definition of ‘exempt supply’, the same could well become a ground for dis-entitlement of input tax credit under Section 16 of the CGST Act, since they are used for supply of non-taxable goods. It is to be noted that Section 16 of the IGST Act should be read harmoniously with Section 16 of the CGST Act, i.e., only input tax credit that was eligible in the first instance could be claimed as refund. Given that motor spirit is kept outside the ambit of GST, availment of input tax credit used for non-taxable supplies, could at the very outset, be deemed to be ineligible. Therefore, this contentious issue may be put to rest by way of an amendment, clarification by the Board or judicial scrutiny.
II. Can a registered person being an exporter claim refund of unutilised input tax credit being transitional credit carried forward from the pre-GST regime? Under the GST law, there is no provision specifically providing for refund of transitional credit. Section 54(3) pertains to refund of unutilised input tax credit.
Section 2(63) of the CGST Act defines “input tax credit” to broadly refer to CGST, SGST, UTGST and IGST charged on the supply of goods or services. Thus, it is apparent from the definition that taxes paid under pre-GST regime does not fulfil this criteria to be classified as input tax credit as referred to in Section 54(3).
However, Explanation (1) to Section 54(14) of the CGST Act defines “refund” to include, ter alia, refund of tax paid on zero rated supplies. Thus, it is advisable that the exporter opts to export goods or services on payment of tax, utilise such transitional credit for payment of output tax on exports and then apply for refund of the tax paid on exports.
III. Refund in respect of tax paid on capital goods used by an registered person for effecting exports.
It is interesting to note that Explanation (1) to Section 54(14) of the CGST Act defines “refund” to include, inter alia, inputs and input services used in making zero rated supplies. On the same lines, “NET ITC” as defined under Rule 89(4) of the CGST Rules, fers to merely input tax credit availed on inputs and input services. Thus conspicuous by its absence is the fact that refund of unutilised input tax credit on account of zero rated supplies is not available in respect of capital goods.
Such a scenario may be countered by the exporter by choosing to export on payment of tax. As was the case in (II) above, the exporter who opts to export goods or services on payment of tax can utilise input tax credit accumulated on capital goods towards payment of output tax on exports and subsequently apply for refund of taxes paid on exports.
From the above scenarios, it is interesting to note that a registered person should wisely exercise his option to either effect zero-rated supplies on payment of tax or without payment of tax based on the facts of the case and there can be no general rule that can be applied to one and all.
IV. Determination of Authorised Operations in respect of supplies made to a SEZ developer or SEZ unit.
The Second proviso to Rule 89 of the CGST Rules, states that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the supplier of goods or services can apply for refund if such supplies are being used for authorised operations. The question which arises is, who determines the authorised operations and who is the specified officer referred to in the said Rule. ‘Authorised Operations’ has been defined under Section 2(c) of the SEZ Act to mean:
For a SEZ Developer – The Board of Approval may authorise the Developer such operations which the Central Government may authorise
For a SEZ Unit – Operations as authorised by the Development Commissioner in the Letter of Approval.
‘Specified officer’ has been defined in the SEZ Rules to mean a Joint or Deputy or Assistant Commissioner of Customs for the time being posted in the SEZ.
Thus, the terms as defined above, may be adopted for the purpose of Rule 89 of the GST Rules.