GST Refund in Case of Export of Services

Since GST was implemented in India, several exporters have faced difficulties in claiming GST refunds in case of export of services or goods. The result is large amounts of working capital being locked up until refunds are correctly applied for and received. Service exporters particularly have asked us how to get refunds because the process is more complex than for goods exporters. during this post, we answer some questions on getting GST refunds for service exporters.

What is an export of services?

Under the IGST Act, export of products refers to taking goods from India to a place outside India. Export of services may be a more nuanced definition – it refers to a supply of services where the supplier is in India and the recipient is outside India, and:

The place of supply of service is outside of India
Payment for such service is received in convertible exchange and
Supplier and recipient of services are distinct persons

Who is impacted by these rules?

All service exporters in India, including companies that provide services (back office support, software, etc.) to their parent companies overseas.

What is Zero Rated Supply?

Under Section 16 of the IGST Act, GST isn’t applicable in India on exports. Hence, all export supplies of a taxpayer registered under GST would be classified as “zero-rated supply”. consistent with Section 16, zero-rated Supply is an exempted supply but Input decrease (ITC) would be available on such supply. In effect, this suggests a negative GST or a GST refund.

What are the routes for a refund?

Any person making a Zero Rated Supply can opt for one of the following two options, as per Section 16(3) of the IGST Act:

Supply goods or services (or both) under a bond or Letter of Undertaking (LUT) without payment of IGST and claim refund of unutilized ITC, or
Supply goods or services (or both) on payment of IGST and claim GST refunds of such tax paid

Is there a difference between the GST refund process for a manufacturer and a service exporter?

Yes. the method for manufacturers is definitely simpler. A manufacturer’s shipping bill itself is going to be treated as an application for a refund and they will get a refund directly into their bank account. No separate application is required . To ensure smooth processing and payment of GST refunds, the GST authorities have declared that refund amounts are going to be credited to the bank account of the exporter registered with customs, whether or not it is different from the bank account of the applicant mentioned in his registration particulars.

Unlike manufacturers, service exporters cannot get direct GST refunds into their checking accounts. to urge a refund, the service exporter must file certain documents with the jurisdictional GST officer of the corporation. The differentiation is formed because services are intangible and there is no documentation trail of exports. The export of products has a clear trail with customs, shipping/transport and other bills being shared with the govt.

It’s important to note that a proof of realisation (i.e. funds being received) isn’t required for the export of goods but it is necessary for GST refunds on service exports. counting on the payment terms for a service exporter’s customers, this will add 30-60 days to the timeline.

What documents are required by a service exporter to say GST refunds?

A process for online GST refunds has not yet been prescribed. The list of required documents for claiming an offline refund is:

A cover letter
Export Invoices
Bank Realization Certificates or Foreign Inward Remittance Certificates
Application for Refund within the Form GST RFD 01
Form GSTR 3B and GSTR 1
A cancelled cheque
If GST refund claims exceed ₹2 lakhs, a certificate from a Chartered Accountant/Cost Accountant must be submitted together with the documents above.

These documents are all mandatory, i.e. GST refunds can’t be requested until these are all submitted.

What is the process for claiming GST refunds?

Step 1: the appliance for GST refund is to be forwarded to the proper officer with the documents listed above. It must include a press release containing the number and date of invoices and the relevant Bank Realization Certificates or Foreign Inward Remittance Certificates. The officer shall, within 3 days of filing of the appliance , issue an acknowledgement in Form GST RFD-02.

Step 2: The officer will make an order in Form GST RFD-04, sanctioning the quantity of refund on a provisional basis within a period of 7 days.

Step 3: The officer will issue a payment advice in Form GST RFD-05 to be electronically credited to any of the bank accounts of the applicant as laid out in the application. 90% of the quantity is credited at this stage.

Step 4: The remaining 10% of the quantity is paid after scrutiny of documents (i.e. verification of physical documents with the web data in the GST portal). Form GST RFD-06 are going to be issued sanctioning the balance amount, if all details are okay.

When should the claim for GST refunds be filed?

Every claim should be filed within the expiry of two years from the relevant date of exports. For service exporters, the relevant date is either:

The date of completion of services, or
The date of receipt of the advance, in cases the advance is received before the date of issue of the invoice.

Typically, therefore, if a service exporter receives advances, it’s beneficial to him to apply at that stage itself.

What are the standard timelines for GST refunds to be processed?

It is early days in the GST regime, but thus far we have seen that GST refunds are being sanctioned smoothly within the timeline promised as mentioned above. it’s of course critical to have the documentation in order for this.

Related Topics: GST Refund and its Related Issue

What happens just in case of delays in approval?

Cases delayed beyond 60 days will get interest at the notified rate (not exceeding 6%) till the date of refund, if the refund is sanctioned. In some cases which can be decided by the Appellate or Adjudicating Authority or Court, interest is going to be paid at the notified rate (not exceeding 9%), reckoned from the primary period (i.e. after the primary 60 days) till the date of refund.

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