ZERO RATED SUPPLY UNDER INTEGRATED GOODS AND

SUPPLY TAX, 2017

By

HARSHIT MALVIYA 2016039

5 Year Integrated B.A., LL.B. (Hons.) Course

TAXATION LAW II

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM, VISAKHAPATNAM-531035
ANDHRA PRADESH, INDIA

1|Page
 CERTIFICATE

This is to be certifying that project entitled “ZERO RATED SUPPLY UNDER IGST ACT,
2017” submitted by HARSHIT MALVIYA (2016039) is a bonafide record of work done under
my supervision, the matter embodied in the project has not been submitted as another
application. This project is own research work done by student and there is no plagiarism.

Date- October 2019

Mr. R.V. VISHNU KUMAR

(Project Guide Name)

2|Page
 ACKNOWLEDGEMENT

I have made my project titled “ZERO RATED SUPLY UNDER IGST ACT, 2017” under the
supervision of Mr. R.V. Vishnu Kumar, Faculty Lecturer, Damodaram Sanjivayya National Law
University. I find no words to express my sense of gratitude for Mr. R.V. Vishnu Kumar sir for
providing the necessary guidance at every step during the completion of this project. I am also
grateful to the office, librarian and library staff of DSNLU, Visakhapatnam for allowing me to
use their library whenever I needed to. Further I am grateful to my learned teachers for their
academic patronage and persistent encouragement extended to me. I am once again highly
indebted to the office and Library Staff of DSNLU for the support and cooperation extended by
them from time to time. I cannot conclude with recording my thanks to my friends for the
assistance received from them in the preparation of this project.

3|Page
Contents
SYNOPSIS.....................................................................................................................................................5
ABSTRACT....................................................................................................................................................6
INTRODUCTION...........................................................................................................................................7
SALIENT FEATURES OF IGST ACT, 2017........................................................................................................8
Zero Rated, NIL, Exempted and Non-GST Supply.........................................................................................9
What is Exempt Supply?........................................................................................................................11
Classification of Exemptions:............................................................................................................12
Types of Exemptions:........................................................................................................................12
Exemption under one GST Law and the effect on another GST Law:...............................................13
Important Notifications issued for exemption from payment of GST:...............................................13
Treatment of ITC if supply is exempt.....................................................................................................14
What is a non-taxable supply?...............................................................................................................15
4. Negative list under GST......................................................................................................................15
Difference between Nil Rated, Exempt, Zero Rated and Non-GST supplies...........................................16
List of Zero-Rated Supply and Exempted Supply..............................................................................16
OBJECTIVES................................................................................................................................................18
Refund of Zero Rated Supplies in GST..............................................................................................21
Refund procedures for Export of goods.....................................................................................................22
Refund procedures for Export of Services and Supplies to SEZ.....................................................23
Provisional Refund..............................................................................................................................23
Special Procedure to facilitate smooth refund of Central Tax and State Tax.............................................24
Non-applicability of Principle of Unjust Enrichment:.................................................................................26
Conclusion.................................................................................................................................................27

4|Page
 SYNOPSIS

INTRODUCTION:-

Section 16(1) of the IGST Act, 2017, which states that “zero rated supply” means any of the
following supplies of goods or services or both, namely: –– a) export of goods or services or
both; or b) supply of goods or services or both to a Special Economic Zone developer or a
Special Economic Zone unit.

OBJECTIVES OF THE STUDY :-

In this project researcher will try to understand the concept of Zero Rated Supply under IGST
Act 2017. Researcher will also deal with the legal aspect of Zero Rated Supply under IGST Act.

SIGNIFICANCE OF THE STUDY :-

The researcher would try to tell the importance of Zero Rated Supply under IGST Act.
Researcher would also focus on lacunae in the present legal provisions.

SCOPE OF THE STUDY

Researcher will limit its study to the present scenario of Zero Rated Supply under IGST Act and
loopholes in the present legal provision.

REVIEW OF LITERATURE:-

In this project, researcher will refer the books, articles, research studies, online research articles,
and constitutional provisions.

RESEARCH METHODOLOGY:-

This project will be based on Doctrinal Research Design.

HYPOTHESIS:-

Claims made for Zero Rated Supply under Integrated Goods And Supply Act 2017 is very
complex and new provision should be introduce.

5|Page
 ABSTRACT

By zero rating it is meant that the entire value chain of the supply is exempt from tax. This
means that in case of zero rating, not only is the output exempt from payment of tax, there is no
bar on taking/availing credit of taxes paid on the input side for making/providing the output
supply. Such an approach would in true sense make the goods or services zero rated. All supplies
need not be zero-rated. As per the GST Law exports are meant to be zero rated the zero rating
principle is applied in letter and spirit for exports and supplies to SEZ. The relevant provisions
are contained in Section 16(1) of the IGST Act, 2017, which states that “zero rated supply”
means any of the following supplies of goods or services or both, namely: –– a) export of goods
or services or both; or b) supply of goods or services or both to a Special Economic Zone
developer or a Special Economic Zone unit. As already seen, the concept of zero rating of
supplies requires the supplies as well as the inputs or input services used in supplying the
supplies to be free of GST. This is done by employing the following means: a) The taxes paid on
the supplies which are zero rated are refunded; b) The credit of inputs/ input services is allowed;
c) Wherever the supplies are exempted, or the supplies Zero Rating of Supplies in GST 202 GST
FLYERS are made without payment of tax, the taxes paid on the inputs or input services i.e. the
unutilised input tax credit is refunded. The provisions for the refund of unutilised input credit are
contained in the explanation to Section 54 of the CGST Act, 2017, which defines refund as
below: “refund” includes 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, or refund of tax on the
supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided
under sub-section (3). Thus, even if a supply is exempted, the credit of input tax may be availed
for making zero-rated supplies. A registered person making zero rated supply can claim refund
under either of the following options, namely: –– a) he may supply goods or services or both
under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as
may be prescribed, without payment of integrated tax and claim refund of unutilised input tax
credit; or b) he may supply goods or services or both, subject to such conditions, safeguards and
procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid

6|Page
on goods or services or both supplied, in accordance with the provisions of section 54 of the
CGST Act, 2017 or the rules made thereunder.

INTRODUCTION

As per section 16 of the IGST Act, 2017 zero rating means that the entire supply chain of a
particular zero rated supply is tax free i.e. there is no burden of tax either on the input side or on
output side. This is in contrast with exempted supplies, where only output is exempted from tax
but tax is levied on the input side. The essence of zero rating is to make Indian goods and
services competitive in the international market by ensuring that taxes do not get added to the
cost of exports. By zero rating it is meant that the entire value chain of the supply is exempt from
tax. This means that in case of zero rating, not only is the output exempt from payment of tax,
there is no bar on taking/availing credit of taxes paid on the input side for making/providing the
output supply. Such an approach would in true sense make the goods or services zero rated. All
supplies need not be zero-rated. As per the GST Law exports are meant to be zero rated the zero
rating principle is applied in letter and spirit for exports and supplies to SEZ. The relevant
provisions are contained in Section 16(1) of the IGST Act, 2017, which states that “zero rated
supply” means any of the following supplies of goods or services or both, namely: –– a) export
of goods or services or both; or b) supply of goods or services or both to a Special Economic
Zone developer or a Special Economic Zone unit. As already seen, the concept of zero rating of
supplies requires the supplies as well as the inputs or input services used in supplying the
supplies to be free of GST. This is done by employing the following means: a) The taxes paid on
the supplies which are zero rated are refunded; b) The credit of inputs/ input services is allowed;
c) Wherever the supplies are exempted, or the supplies Zero Rating of Supplies in GST 202 GST
FLYERS are made without payment of tax, the taxes paid on the inputs or input services i.e. the
unutilised input tax credit is refunded. The provisions for the refund of unutilised input credit are
contained in the explanation to Section 54 of the CGST Act, 2017, which defines refund as
below: “refund” includes 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, or refund of tax on the
supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided
under sub-section (3). Thus, even if a supply is exempted, the credit of input tax may be availed

7|Page
for making zero-rated supplies. A registered person making zero rated supply can claim refund
under either of the following options, namely: –– a) he may supply goods or services or both
under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as
may be prescribed, without payment of integrated tax and claim refund of unutilised input tax
credit; or b) he may supply goods or services or both, subject to such conditions, safeguards and
procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid
on goods or services or both supplied, in accordance with the provisions of section 54 of the
CGST Act, 2017 or the rules made thereunder.

SALIENT FEATURES OF IGST ACT, 2017

(i) Continuance of uninterrupted ITC chain on inter-State transactions.

(ii) No requirement to pay tax upfront or substantial blockage of funds for the inter-State
seller or buyer.
(iii) No claim of refund of taxes paid in exporting State, as ITC is used up while paying the
tax.
(iv) Self monitoring model.
(v) Activity of streamlining is limited to inter-State dealers and Central and State
Governments should be able to streamline their processes expeditiously.
(vi) As Dealers making inter- state supplies will be e registered and correspondence with
them will be by e mail, the compliance level will improve substantially.
(vii) The IGST Model can take ‘Business to Business’ as well as ‘Business to Consumer’
transactions into account.

Zero Rated, NIL, Exempted and Non-GST Supply

The terms zero rated, nil rated, exempted and non-taxable supply under GST have always been
misused and misinterpreted1. There has always been confusion regarding the said terms and the
said confusion still prevails even after introduction of GST.

Zero Rated Supply

1
Shweta Jain, GST Law & Practice, Taxman’s Publication, 2017 Edition, ISBN –
9789386635587.
8|Page
The relevant provisions of zero rated supplies are contained in section 16 (1) of the IGST Act,
2017 which states as under :

Zero rated supply means any of the following supplies of goods or services or both, namely –

export of goods or services or both; or supply of goods or services or both to a Special Economic
Zone developer or Special Economic Zone unit2. Under zero rated supply, the output supplies as
well as the inputs or input services used in supplying the supplies would be free from GST.
Following are the important points under zero rated supply:

1. The taxes paid on the supplies which are zero rated are refunded;

2. The credit of inputs and input services are allowed;

3. Wherever the supplies are exempted, or the supplies are made without payment of tax, the
taxes paid on the inputs and / or input services will be refunded (i.e. unutilized input tax credit
would be refunded).

Further, the provisions for the refund of unutilized input credit are contained in the explanation
to Section 54 of the CGST Act, 2017, which defines refund as below:

“Refund” includes 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, or refund of tax on the supply
of goods regarded as deemed exports, or refund of unutilized input tax credit as provided under
sub-section (3).

Nil Rated

Goods or services on which GST rate of 0 % is applicable are called NIL rated goods or services.
Such goods or services, on which GST rate of 0% is applicable, are listed in schedule 1 under
GST rate schedule. Example of Nil rated supplies are salt, jaggery, cereals etc.Input tax credit of
inputs and / or input services used in providing supply attracting Nil rate is not available i.e. no
input tax credit on Nil rated supplies.

Exempted Supply
2
Vivek Laddha and Pooja Patwari, GST Master Guide, Taxmann’s Publication, 2018 Edition,
ISBN – 9789387702769.
9|Page
Exempted supply means supply of any goods or services or both which attracts nil rate of tax or
which may be wholly exempt from tax under section 11 of CGST Act or under section 6 of the
IGST Act, and includes non-taxable supply.

Following points are to be noted for exempted supply:

1. There is no GST applicable on outward exempted supplies;

2. Input tax credit of inputs and / or input services used in providing exempted supply is not
available i.e. no input tax credit on exempted supplies;

3. A registered person supplying exempted goods or services or both shall issue ‘bill of supply’
instead of tax invoice.

Non GST Supply

Goods or services on which GST is not leviable are called Non GST supply3. Input tax credit of
inputs and / or input services used in providing non GST supply is not available i.e. no input tax
credit on non GST supplies. Examples of Non-GST supplies are alcohol for human consumption,
petroleum products, electricity etc.

What is Exempt Supply?

Exempt supplies comprise the following three types of supplies:

1. Supplies taxable at a ‘NIL’ rate of tax* (0% tax);

2. Supplies that are wholly or partially exempted from CGST or IGST, by way of a
notification amending Section 11 of CGST Act or Section 6 of IGST Act;
3. Non-taxable supplies as defined under Section 2(78) – supplies that are not taxable under
the Act (For Example Alcoholic liquor for human consumption.

Tax need not be paid on these supplies. Input tax credit attributable to exempt supplies will not
be available for utilization/setoff.

3
http://www.gstcouncil.gov.in/igst-notifications.
10 | P a g e
*Zero-rated supplies such as exports would not be treated as supplies taxable at ‘NIL’ rate of tax;

Central or the State Governments are empowered to grant exemptions from GST.
Conditions are4:

1. Exemption should be in public interest

2. By way of issue of notification
3. Must be recommended by the GST Council
4. Absolute exemption or conditional exemption may be for any goods and / or services of
any specified description.
5. Exemption by way of special order (not notification) may be granted exceptional
circumstances.
6. Registered person supplying the goods and / or services is not entitled to collect tax
higher than the effective rate, where the supply enjoys an absolute exemption.

Classification of Exemptions:

Supplier may be exempt – Exemption to the person making supplies-i.e  supplier, regardless of
the nature of outward supply.

Ex: Services by Securities and Exchange Board of India, Services by Charitable entities.

Certain Supplies may be exempt –Certain supplies due to their nature and type are exempted
from GST. All supplies that are notified would be eligible for the exemption. Here, irrespective
of who the the supplier is, exemption is allowed. not very much relevant.

Ex: Services by way of sponsorship of sporting events, Services by way of public conveniences

4
Shweta Jain, GST Law & Practice, Taxman’s Publication, 2017 Edition, ISBN – 9789386635

11 | P a g e
Types of Exemptions:

Absolute exemption: Exemption without any conditions.

Ex: Transmission or distribution of electricity by an electricity transmission or distribution

utility, Services by Reserve Bank of India.

Conditional Exemption: Exemption subject to certain conditions.

Ex: Services by a hotel, inn, guest house, club or campsite, by whatever name called, for
residential or lodging purposes, having declared tariff of a unit of accommodation less than `
1000/- per day”.

Conditional or partial exemption:

Intra-State supplies of goods and/or services received from an unregistered person by a

registered person is exempted from payment of tax under reverse charge provided the aggregate
value of such supplies received by a registered person from all or any of the suppliers does not
exceed ` 5000/- in a day.

Exemption under one GST Law and the effect on another GST Law5:

Note that the exemption allowed under the CGST Act cannot be deemed to be applicable under
IGST Act. In other words, GST Exemption allowed in case of inter-State transactions is not the
same as the GST exemptions available in case of Intra-State transactions.

Exemption under CGST Act Deemed to be exempt under SGST / UTGST Act

No auto-application of exemption under IGST Act

Exemption under IGST Act No auto-application of exemption under CGST Act

5
[2019] 102 taxmann.com 420/72 GST 622 (AAR - Odisha).
12 | P a g e
Important Notifications issued for exemption from payment of GST6:

Notification No. Particulars

02/2017 Exempted supplies of around 149 items of goods in terms of Section

Central Tax (Rate) 11(1) of the CGST Act, 2017. Ex. Electricity, Salt, fresh fruits, plastic

dated 28.06.2017 bangles, passenger baggage etc.

Amended vide Notification No.28/2017, 35/2017,42/2017, 7/2018, 19/2018
– Central Tax (Rate)

12/2017 Exemption to supply specified services under the CGST Act. More or less,
all the exemptions were available earlier under the erstwhile service tax law
Central Tax (Rate)
Amended vide Notification No.21/2017, 25/2017, 32/2017 and 47/2017,
dated 28.06.2017
2/2018 – Central Tax (Rate)

Treatment of ITC if supply is exempt

In case of exempt supplies, amount of credit as attributable to exempt supplies shall be reversed.

How to determine the credit attributable to exempt supplies in the above case?

Credit attributable to exempt supplies =  (A/T) x C

Where,

A = Aggregate value of exempt supplies (all supplies other than taxable and zero-rated supplies)

T = Total turnover of the person in the tax period

C= Common Credit

Common Credit  Total input tax in a period

6
Vivek Laddha and Pooja Patwari, GST Master Guide, Taxmann’s Publication, 2018 Edition,
ISBN – 9789387702769.
13 | P a g e
 Less: Tax attributable exclusively for non-business purpose

Less: Tax attributable exclusively for exempt supplies

Less: Ineligible credits as per Section 17(5) Works contract, Rent a cab etc.

Less: Tax attributable exclusively for taxable supplies (including zero-rated supplies)

What is a non-taxable supply?

“non-taxable supply” means a supply of goods or services or both which is not leviable to tax
under  CGST Act or under the IGST Act.

A transaction must be a ‘supply’ as defined under the GST law to qualify as a non-taxable supply
under the GST.

Note: Only those supplies that are excluded from the scope of taxation under GST are covered
by this definition – i.e., alcoholic liquor for human consumption, articles listed in section 9(2) or
in schedule III.

 It must also be noted that the following items are not out of scope of GST. That means
GST Rate has not yet been announced or notified for them.
o petroleum crude
o high-speed diesel
o motor spirit (commonly known as petrol)
o natural gas and
o aviation turbine fuel

4. Negative list under GST

 Services by employee to employer in the course/ relation to employment

14 | P a g e
  Services of funeral, burial, crematorium or mortuary
 Sale of land
 Sale of completed buildings
 Actionable claims (other than lottery, betting and gambling)
 Services by any court or Tribunal
 Functions performed by the MPs, MLAs etc.
 Duties performed by any person who holds any post in pursuance of the provisions of the
Constitution in that capacity.

Difference between Nil Rated, Exempt, Zero Rated and Non-GST supplies

Supply Name Description

Zero Rated Exports

Supplies made to SEZ or SEZ Developers.

Nil Rated Supplies that have a declared rate of 0% GST.

Example:  Salt, grains, jaggery etc.

Exempt Supplies are taxable but do not attract GST and for which ITC cannot be claimed.

Example:  Fresh milk, Fresh fruits, Curd, Bread etc.

Non-GST These supplies do not come under the purview of GST law.

Example: Alcohol for human consumption, Petrol etc.

List of Zero-Rated Supply and Exempted Supply

Zero rated supplies

15 | P a g e
This is a taxable supply, but the rate of tax is nil.

Group 1 – Food
Group 2 - Sewerage services and water
Group 3 - Books etc
Group 4 - Talking books for the blind and handicapped and wireless sets for the blind
Group 5 - Construction of buildings, etc
Group 6 - Protected buildings
Group 7 - International services
Group 8 – Transport
Group 9 - Caravans and houseboats
Group 10 – Gold
Group 11 - Bank notes
Group 12 - Drugs, medicines, aids for the handicapped, etc
Group 13 - Imports, exports, etc
Group 15 - Charities, etc
Group 16 - Clothing and footwear

Exempt supplies

No tax is chargeable on an exempt supply, and input tax cannot be covered except as allowed
under the partial exemption provisions.

Group 1 – Land
Group 2 – Insurance
Group 3 - Postal services
Group 4 - Betting, gaming and lotteries
Group 5 – Finance
Group 6 – Education
Group 7 - Health and welfare
Group 8 - Burial and cremation
Group 9 - Subscriptions to trade unions, professional and other interest bodies
Group 10 - Sport, sports competitions and physical education
Group 11 - Works of art, etc
Group 12 - Fund-raising events by charities and other qualifying bodies
Group 13 - Cultural services, etc
Group 14 - Supplies of goods where input tax cannot be recovered
Group 15 - Investment gold

16 | P a g e
 OBJECTIVES

The objective of zero rating of exports and supplies to SEZ is sought to be achieved through the
provision contained in Section 16(3) of the IGST Act, 2017, which mandates that a registered
person making a zero rated supply is eligible to claim refund in accordance with the provisions
of section 54 of the CGST Act, 2017, under either of the following options, namely: –

 he may supply goods or services or both under bond or Letter of Undertaking, subject to
such conditions, safeguards and procedure as may be  prescribed, without payment of integrated
tax (IGST) and claim refund of unutilised input tax credit of Central tax (CGST), State tax
(SGST) / Union territory tax (UTGST) and integrated tax (IGST); or
 he may supply goods or services or both, subject to such conditions, safeguards and
procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid
on goods or services or both supplied.
The second category pertains to refund of integrated tax paid for the zero-rated supplies made by
suppliers who opt for the route of export on payment of integrated tax and claim refund of such
tax paid. There can be two sub-categories of such suppliers namely, –

1. Exporter of goods

2. Service exporters and persons making supplies to SEZ.

1. Export of Goods

The normal refund application in GST RFD-01 is not applicable in this case. There is no need for
filing a separate refund claim as the shipping bill filed by the exporter is itself treated as a refund
claim. As per rule 96 of the CGST Rules, 2017, the shipping bill filed by an exporter shall be
deemed to be an application for refund of integrated tax paid on the goods exported out of India
and such application shall be deemed to have been filed only when:-

(a) the person in charge of the conveyance carrying the export goods duly files an export
manifest or an export report covering the number and the date of shipping bills or bills of export;
and

17 | P a g e
(b) the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR3B, as the case
may be.

Thus, once the shipping bill and export general manifest (EGM) is filed and a valid return is
filed, the application for refund shall be considered to have been filed and refund shall be
processed by the department.

Since the system of filing of return in FORM GSTR-3 has not started so far, the refund of
integrated tax on export of goods would be granted based on FORM GSTR-1 and FORM GSTR-
3B for the time being. The details of the relevant export invoices contained in FORM GSTR-1
(or Table 6A thereof) shall be transmitted electronically by the common portal to the system
designated by the Customs and the said system shall electronically transmit to the common
portal, a confirmation that the goods covered by the said invoices have been exported out of
India.

Upon receipt of the information regarding the furnishing of a valid return in FORM GSTR-3 or
FORM GSTR-3B, as the case may be and FORM GSTR-1 from the common portal, the system
designated by the Customs shall process the claim for refund and an amount equal to the
integrated tax paid in respect of each shipping bill or bill of export shall be electronically
credited to the bank account of the applicant mentioned in his registration particulars and as
intimated to the Customs authorities.

As per Rule 96, the refund of IGST paid on export of goods is processed and disbursed by
Customs. For processing such refund, GST system transmits invoice level data of Table 6A in
GSTR 1 subject to the following validations: –

1. GSTR-3B is filed for the corresponding period, with admitted tax liability under Table 3.1(b);

2. Export invoices are submitted in GSTR-1/Table 6A and have correct shipping bill number,
shipping bill date and port code;

3. The admitted tax liability of IGST under table 3.1(b) of GSTR-3B, is equal to, or greater than,
the IGST amount claimed to have been paid under Table 6A of GSTR-1 of the corresponding
period.

18 | P a g e
It may be noted that Rule 96(9) has been inserted, w.e.f 23.10.2017, in CGST Rules, 2017
vide Notification no. 75/2017-Central Tax dated 29.12.2017 so as to provide that the refund of
integrated tax paid on export of goods or services is not permitted to such persons who have
received supplies on which the supplier has availed the benefit of Notification no. 48/2017-
Central Tax dated 18.10.2017 or Notification no. 40/2017- Central Tax (Rate) dated
23.10.2017 or notification No. 41/2017-Integrated Tax (Rate) dated 23.10.2017.

2. Service Exporters and Persons making supplies to SEZ

Under this category also, the supplier may choose to first pay IGST and then claim refund of the
IGST so paid. In these cases, the suppliers will have to file refund claim in FORM GST RFD –
01 on the common portal, as per Rule 89(1) of the CGST Rules, 2017. Service Exporters need to
file a statement containing the number and date of invoices and the relevant Bank Realisation
Certificates or Foreign Inward Remittance Certificates, as the case may be, along with the refund
claim.

In so far as refund is on account of supplies made to SEZ, the DTA supplier will have to file the
refund claim in such cases. The second proviso to Rule 89(1) stipulates that in respect of supplies
to a Special Economic Zone unit or a Special Economic Zone developer, the application for
refund shall be filed by the –

(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone
for authorised operations, as endorsed by the specified officer of the Zone;

(b) supplier of services along with such evidence regard-ing receipt of services for authorised
operations as en-dorsed by the specified officer of the Zone.

Thus, proof of receipt of goods or services as evidenced by the specified officer of the zone is a
pre-requisite for filing of refund claim by the DTA supplier.

The claim for refund when made for supplies made to SEZ unit/Developer has to be filed along
with the following documents:

1. a statement containing the number and date of invoices as provided in rule 46 along with the
evidence regarding the endorsement specified in the second proviso to rule 89(1) in the case of

19 | P a g e
the supply of goods made to a Special Economic Zone unit or a Special Economic Zone
developer;

2. a statement containing the number and date of invoices, the evidence regarding the
endorsement specified in the second proviso to rule 89(1) and the details of payment, along with
the proof thereof, made by the recipient to the supplier for authorised operations as defined under
the Special Economic Zone Act, 2005, in a case where the refund is on account of supply of
services made to a Special Economic Zone unit or a Special Economic Zone developer;

3. a declaration to the effect that the Special Economic Zone unit or the Special Economic Zone
developer has not availed the input tax credit of the tax paid by the supplier of goods or services
or both, in a case where the refund is on account of supply of goods or services made to a Special
Economic Zone unit or a Special Economic Zone developer.

Refund of Zero Rated Supplies in GST7

The suppliers making Zero-rated supplies are entitled to claim refunds. The refunds are for the
input tax paid on the goods and services which are used for such Zero-rated supplies (including
non-taxable and exempt supplies).

For example:- An exporter supplies shoes to Dubai and uses soles in the production of such
shoes. The exporter has an option of claiming Input tax credit of GST paid on the purchase of
soles.  

There are two options available with a dealer to claim refunds:

I. The dealer can export under Bond or LUT (Letter of Undertaking) and claim a refund of the
accumulated Input credit of tax; or

II. The dealer can pay IGST while making the supplies and claim refund of the same.

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

Refund procedures for Export of goods

7
IBID
20 | P a g e
Under GST laws, the process of claiming refund has been made easy for the export dealers. For
Zero-Rated Supplies, there is no need to file refund application (GST RFD-01) separately. The
shipping bill filed by the exporter is a refund claim in itself.

The law specifies that shipping bill is to be considered as a refund claim on satisfying following
two conditions:

I. A person carrying the export goods should file an export manifest; and

II. Applicant should have filed the returns GSTR-3 or GSTR-3B appropriately.

Once the above two documents are filed appropriately, the refund is processed by the
department.

Refund procedures for Export of Services and Supplies to SEZ

The option to pay IGST and claim a refund is always available. In this case, the refund claim has
to be filed in Form GST RFD-01.

For exporters of services, the following are also required to be filed along with the refund claim:

I. A Statement containing Number and Date of Invoices; and

II. Bank Realisation Certificates / Foreign Inward Remittance Certificates

The supplier of goods or services to an SEZ are required to file the following along with the
refund claim:

I. A Statement containing Number and Date of Invoices; and

II. Proof of Receipt of goods or services which is authorised by the specified officer of SEZ

III. Details of payment made

IV. The declaration that the SEZ or developer of SEZ has not claimed the input tax credit of the
taxes paid by the supplier

21 | P a g e
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).

Manual filing of claims

Till such time as full-fledged refund module is operationalised by GSTN, manual filing of claims
has been prescribed vide Circular no.17/17/2017-GST dated 15.11.2017 & Circular no.
24/24/2017-GST dated 21.12.2017. The application for refund of IGST paid on zero-rated supply
of goods to a Special Economic Zone developer or a Special Economic Zone unit or in case of
zero-rated supply of services is required to be filed in FORM GST RFD-01A (as notified in the
CGST Rules, 2017 vide Notification no. 55/2017–Central Tax dated 15.11.2017) by the supplier
on the common portal and a print out of the said form shall be submitted before the jurisdictional
proper officer along with all necessary documentary evidences as applicable (as per the details in
statement 2 or 4 of Annexure to FORM GST RFD – 01), within the time stipulated for filing of
such refund under the CGST Act, 2017.Refund amount to be sanctioned by respective authorities

Para 2.5 of Circular no. 17/17/2017-GST dated 15.11.2017 may be referred to in order to

ascertain the jurisdictional proper officer to whom the manual application for refund is to be
submitted. Where any amount claimed as refund is rejected under rule 92 of the CGST Rules,
2017, either fully or partly, the amount debited, to the extent of rejection, shall be re-credited to
the electronic credit ledger by an order made in FORM GST RFD-1B until the FORM GST
PMT-03 is available on the common portal. Further, the payment of the sanctioned refund
amount shall be made only by the respective tax authority of the Central or State Government.
Thus, the refund order issued either by the Central tax authority or the State tax/UT tax authority
shall be communicated to the concerned counter- part tax authority within seven working days
for the purpose of payment of the relevant sanctioned refund amount of tax or cess, as the case

22 | P a g e
may be. This time limit of seven working days is also applicable to refund claims in respect of
zero-rated supplies being processed as per Circular no. 17/17/2017-GST dated 15.11.2017 as
against the time limit of three days prescribed in para 4 of the said Circular. It must be ensured
that the timelines specified under section 54(7) of the CGST Act, 2017 and rule 91(2) of the
CGST Rules , 2017 for the sanction of refund are adhered to.

Special Procedure to facilitate smooth refund of Central Tax and State Tax

In order to facilitate sanction of refund amount of central tax and State tax by the respective tax
authorities, it has been decided that both the Central and State Tax authority shall nominate nodal
officer(s) for the purpose of liasioning through a dedicated e-mail id. Where the amount of
central tax and State tax refund is ordered to be sanctioned provisionally by the Central tax
authority and a sanction order is passed in accordance with the provisions of rule 91(2) of the
CGST Rules, 2017, the Central tax authority shall communicate the same, through the nodal
officer, to the State tax authority for making payment of the sanctioned refund amount in relation
to State tax and vice versa. The aforesaid communication shall primarily be made through e-mail
attaching the scanned copies of the sanction order [FORM GST RFD-04 and FORM GST RFD-
06], the application for refund in FORM GST RFD-01A and the Acknowledgement Receipt
Number (ARN). Accordingly, the jurisdictional proper officer of Central or State Tax, as the
case may be, shall issue FORM GST RFD-05 and send it to the DDO for onward transmission
for release of payment. After release of payment by the respective PAO to the applicant’s bank
account, the nodal officer of Central tax and State tax authority shall inform each other. The
manner of communication as referred earlier shall be followed at the time of final sanctioning of
the refund also.

Where to file the refund claims

The registered person needs to file the refund claim with the jurisdictional tax authority to which
the taxpayer has been assigned as per the administrative order issued in this regard by the Chief
Commissioner of Central Tax and the Commissioner of State Tax. In case such an order has not
been issued in the State, the registered person is at liberty to apply for refund before the Central
Tax Authority or State Tax Authority till the administrative mechanism for assigning of
taxpayers to respective authority is implemented. However, in the latter case, an undertaking is

23 | P a g e
required to be submitted stating that the claim for sanction of refund has been made to only one
of the authorities. It is reiterated that the Central Tax officers shall facilitate the processing of the
refund claims of all registered persons whether or not such person was registered with the
Central Government in the earlier regime.

Modalities/Records in respect of manual refund claims

The Circular No.17/17/2017-GST dated 15.11.2017 and circular no.24/24/2017-GST dated

21.12.2017 lays down the modalities for maintenance of records in respect of such manual
refund claims, which needs to be adhered to scrupulously. The time limits laid down in the Act
need to be followed and the prescribed forms need to be generated manually for processing of
such refund claims.

Grant of Provisional Refund

The above category of persons making zero rated supplies will be entitled to provisional refund
of 90% of the claim in terms of Section 54(6) of CGST Act, 2017.Rule 91 of CGST Rules,
2017 provide that the provisional refund is to be granted within 7 days from the date of
acknowledgement of the refund claim. An order for provisional refund is to be issued in Form
GST RFD 04 along with payment advice in the name of the claimant in Form GST RFD 05. The
amount will be electronically credited to the claimant’s bank account. Rule 91 also prescribe that
the provisional refund will not be granted if the person claiming refund has, during any period of
five years immediately preceding the tax period to which the claim for refund relates, been
prosecuted for any offence under the Act or under an earlier law where the amount of tax evaded
exceeds two hundred and fifty lakh rupees.

Non-applicability of Principle of Unjust Enrichment:

The principle of unjust enrichment shall not be applicable in case of refund of taxes paid
wherever such refund is on accounts of zero rated supplies. As per section 54 (8) of the CGST

24 | P a g e
Act, 2017, the refundable amount, 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, shall instead of being credited to the Fund, be paid to the applicant.

Conclusion

There are many loopholes in present legal system regarding zero rated supply and new
legislation should be introduced. The essence of zero rating is to make Indian goods and services
competitive in the international market by ensuring that taxes do not get added to the cost of
exports. By zero rating it is meant that the entire value chain of the supply is exempt from tax.
This means that in case of zero rating, not only is the output exempt from payment of tax, there
is no bar on taking/availing credit of taxes paid on the input side for making/providing the output
supply. Such an approach would in true sense make the goods or services zero rated. All supplies
need not be zero-rated.

25 | P a g e
Bibliography

Books Referred-

Shweta Jain, GST Law & Practice, Taxman’s Publication, 2017 Edition, ISBN –
9789386635587.

GST Manual, Taxman’s Publication,12th Edition,2018.

Webiste-

https://www.taxmann.com/index.aspx

Online Resources-

Shweta Jain, GST Law & Practice, Taxman’s Publication, 2017 Edition, ISBN –
9789386635587.

26 | P a g e