Central Tax Circulars

CGST Circular 37/2018

To,

The Principal Chief Commissioners/Chief Commissioners/Principal
Commissioners/ Commissioners of Central Tax (All) The Principal Directors
General/ Directors General (All)

Madam/Sir,

Subject: Clarifications on exports related refund issues- regarding

1) Board vide Circular No. 17/17/2017 – GST dated 15th November 2017 and
Circular
No. 24/24/2017 – GST dated 21st December 2017 clarified various issues in
relation to processing of claims for refund. Since then, several
representations have been received seeking further clarifications on issues
relating to refund. In order to clarify these issues and with a view to
ensure uniformity in the implementation of the provisions of the law across
field formations, the Board, in exercise of its powers conferred by section
168 (1) of the Central Goods and Services Tax Act, 2017 (CGST Act), hereby
clarifies the issues raised as below:

2) Non-availment of drawback: The third proviso to sub-section
(3) of section 54 of
the CGST Act states that no refund of input tax credit shall be allowed in
cases where the supplier of goods or services or both avails of drawback in
respect of central tax.

2.1 This has been clarified in paragraph 8.0 of Circular No. 24/24/2017 –
GST, dated 21st
December 2017. In the said paragraph, reference to “section 54(3)(ii) of the
CGST Act” is a typographical error and it should read as “section 54(3)(i)
of the CGST Act”. It may be noted that in the said circular reference has
been made only to central tax, integrated tax, State / Union territory tax
and not to customs duty leviable under the Customs Act, 1962. Therefore, a
supplier availing of drawback only with respect to basic customs duty shall
be eligible for refund of unutilized input tax credit of central tax / State
tax / Union territory tax / integrated tax / compensation cess under the
said provision. It is further clarified that refund of eligible credit on
account of State tax shall be available even if the supplier of goods or
services or both has availed of drawback in respect of central tax.

1. Amendment through Table 9 of GSTR-1: It has been reported
   that refund claims
   are not being processed on account of mis-matches between data contained
   in FORM GSTR-1, FORM GSTR-3B and
   shipping bills/bills of export. In this connection, it may be noted that the
   facility of filing of Table 9 in FORM GSTR-1, an
   amendment table which allows for amendments of invoices/ shipping bills
   details furnished in FORM GSTR-1 for earlier tax
   period, is already available. If a taxpayer has committed an error while
   entering the details of an invoice / shipping bill / bill of export in Table
   6A or Table 6B of FORM GSTR-1, he can rectify the same
   in Table 9 of FORM GSTR-1.

3.1. It is advised that while processing refund claims on account of zero
rated supplies,
information contained in Table 9 of FORM GSTR-1 of the
subsequent tax periods should be taken into cognizance, wherever applicable.

3.2. Field formations are also advised to refer to Circular No.
26/26/2017 – GST dated 29th
December, 2017, wherein the procedure for rectification of errors made while
filing the returns in FORM GSTR-3B has been provided.
Therefore, in case of discrepancies between the data furnished by the
taxpayer in FORM GSTR-3B and FORM
GSTR-1, the officer shall refer to the said Circular and
process the refund application accordingly.

4) Exports without LUT: Export of goods or services can be made
without payment of
integrated tax under the provisions of rule 96A of the Central Goods and
Services Tax Rules, 2017 (the CGST Rules). Under the said provisions, an
exporter is required to furnish a bond or Letter of Undertaking (LUT) to the
jurisdictional Commissioner before effecting zero rated supplies. A detailed
procedure for filing of LUT has already been specified vide Circular No.
8/8/2017 –GST dated 4th October, 2017. It has been brought to the notice of
the Board that in some cases, such zero rated supplies have been made before
filing the LUT and refund claims for unutilized input tax credit have been
filed.

4.1. In this regard, it is emphasised that the substantive benefits of
zero rating may not be
denied where it has been established that exports in terms of the relevant
provisions have been made. The delay in furnishing of LUT in such cases may
be condoned and the facility for export under LUT may be allowed on ex post
facto basis taking into account the facts and circumstances of each case.

5) Exports after specified period: Rule 96A (1) of the CGST
Rules provides that any
registered person may export goods or services without payment of integrated
tax after furnishing a LUT / bond and that he would be liable to pay the tax
due along with the interest as applicable within a period of fifteen days
after the expiry of three months or such further period as may be allowed by
the Commissioner from the date of issue of the invoice for export, if the
goods are not exported out of India. The time period in case of services is
fifteen days after the expiry of one year or such further period as may be
allowed by the Commissioner from the date of issue of the invoice for
export, if the payment of such services is not received by the exporter in
convertible foreign exchange.

5.1 It has been reported that the exporters have been asked to pay
integrated tax where the
goods have been exported but not within three months from the date of the
issue of the invoice for export. In this regard, it is emphasised that
exports have been zero rated under the Integrated Goods and Services Tax
Act, 2017 (IGST Act) and as long as goods have actually been exported even
after a period of three months, payment of integrated tax first and claiming
refund at a subsequent date should not be insisted upon. In such cases, the
jurisdictional Commissioner may consider granting extension of time limit
for export as provided in the said sub-rule on post facto basis keeping in
view the facts and circumstances of each case. The same principle should be
followed in case of export of services.

6) Deficiency memo: It may be noted that if the application for
refund is complete in
terms of sub-rule (2), (3) and (4) of rule 89 of the CGST Rules, an
acknowledgement in FORM GST RFD-02 should be issued. Rule 90 (3) of the
CGST Rules provides for communication in FORM GST RFD-03 (deficiency
memo) where deficiencies are noticed. The said sub-rule also provides that
once the deficiency memo has been issued, the claimant is required to file a
fresh refund application after the rectification of the deficiencies.

6.1. In this connection, a clarification has been sought whether with
respect to a refund
claim, deficiency memo can be issued more than once. In this regard rule 90
of the CGST Rules may be referred to, wherein it has been clearly stated
that once an applicant has been communicated the deficiencies in respect of
a particular application, the applicant shall furnish a fresh refund
application after rectification of such deficiencies. It is therefore,
clarified that there can be only one deficiency memo for one refund
application and once such a memo has been issued, the applicant is required
to file a fresh refund application, manually in FORM GST RFD-01A. This
fresh application would be accompanied with the original ARN, debit entry
number generated originally and a hard copy of the refund application filed
online earlier. It is further clarified that once an application has been
submitted afresh, pursuant to a deficiency memo, the proper officer will not
serve another deficiency memo with respect to the application for the same
period, unless the deficiencies pointed out in the original memo remain
unrectified, either wholly or partly, or any other substantive deficiency is
noticed subsequently.

7) Self-declaration for non-prosecution: It is learnt that some
field formations are
asking for a self-declaration with every refund claim to the effect that the
claimant has not been prosecuted.

7.1. The facility of export under LUT is available to all exporters in
terms of notification
No. 37/2017- Central Tax dated 4th October, 2017, except to those who have
been prosecuted for any offence under the CGST Act or the IGST Act or any of
the existing laws in force in a case where the amount of tax evaded exceeds
two hundred and fifty lakh rupees. Para 2(d) of the Circular No.
8/8/2017-GST dated 4th October, 2017, mentions that a person intending to
export under LUT is required to give a self-declaration at the time of
submission of LUT that he has not been prosecuted. Persons who are not
eligible to export under LUT are required to export under bond.

7.2. It is clarified that this requirement is already satisfied in case
of exports under LUT
and asking for self–declaration with every refund claim where the exports
have been made under LUT is not warranted.

8) Refund of transitional credit: Refund of unutilized input
tax credit is allowed in two
scenarios mentioned in sub-section (3) of section 54 of the CGST Act. These
two scenarios are zero rated supplies made without payment of tax and
inverted tax structure. In sub-rule (4) and (5) of rule 89 of the CGST
Rules, the amount of refund under these scenarios is to be calculated using
the formulae given in the said sub-rules. The formulae use the phrase ‘Net
ITC’ and defines the same as “input tax credit availed on inputs and input
services during the relevant period other than the input tax credit availed
for which refund is claimed under subrules (4A) or (4B) or both”. It is
clarified that as the transitional credit pertains to duties and taxes paid
under the existing laws viz., under Central Excise Act, 1944 and Chapter V
of the Finance Act, 1994, the same cannot be said to have been availed
during the relevant period and thus, cannot be treated as part of ‘Net ITC’.

9) Discrepancy between values of GST invoice and shipping bill/bill
of export: It has
been brought to the notice of the Board that in certain cases, where the
refund of unutilized input tax credit on account of export of goods is
claimed and the value declared in the tax invoice is different from the
export value declared in the corresponding shipping bill under the Customs
Act, refund claims are not being processed. The matter has been examined and
it is clarified that the zero rated supply of goods is effected under the
provisions of the GST laws. An exporter, at the time of supply of goods
declares that the goods are for export and the same is done under an invoice
issued under rule 46 of the CGST Rules. The value recorded in the GST
invoice should normally be the transaction value as determined under section
15 of the CGST Act read with the rules made thereunder. The same transaction
value should normally be recorded in the corresponding shipping bill / bill
of export.

9.1 During the processing of the refund claim, the value of the goods
declared in the GST
invoice and the value in the corresponding shipping bill / bill of export
should be examined and the lower of the two values should be sanctioned as
refund.

10) Refund of taxes paid under existing laws: Sub-sections (3),
(4) and (5) of section
142 of the CGST Act provide that refunds of tax/duty paid under the existing
law shall be disposed of in accordance with the provisions of the existing
law. It is observed that certain taxpayers have applied for such refund
claims in FORM GST RFD-01A also. In this regard, the field formations
are advised to reject such applications and pass a rejection order in FORM
GST PMT-03 and communicate the same on the common portal in FORM GST
RFD-01B. The procedures laid down under the existing laws viz., Central
Excise Act, 1944 and Chapter V of the Finance Act, 1994 read with above
referred sub-sections of section 142 of the CGST Act shall be followed while
processing such refund claims.

10.1 Furthermore, it has been brought to the notice of the Board that the
field formations
are rejecting, withholding or re-crediting CENVAT credit, while processing
claims of refund filed under the existing laws. In this regard, attention is
invited to sub-section (3) of section 142 of the CGST Act which provides
that the amount of refund arising out of such claims shall be refunded in
cash. Further, the first proviso to the said sub-section provides that where
any claim for refund of CENVAT credit is fully or partially rejected, the
amount so rejected shall lapse and therefore, will not be transitioned into
GST. Furthermore, it should be ensured that no refund of the amount of
CENVAT credit is granted in case the said amount has been transitioned under
GST. The field formations are advised to process such refund applications
accordingly.

11) Filing frequency of Refunds: Various representations have
been made to the Board
regarding the period for which refund applications can be filed. Section
2(107) of the CGST Act defines the term “tax period” as the period for which
the return is required to be furnished. The terms ‘Net ITC’ and ‘turnover of
zero rated supply of goods/services’ are used in the context of the relevant
period in rule 89(4) of CGST Rules. The phrase ‘relevant period’ has been
defined in the said sub-rule as ‘the period for which the claim has been
filed’.

11.1 In many scenarios, exports may not have been made in that period in
which the inputs
or input services were received and input tax credit has been availed.
Similarly, there may be cases where exports may have been made in a period
but no input tax credit has been availed in the said period. The above
referred rule, taking into account such scenarios, defines relevant period
in the context of the refund claim and does not link it to a tax period.

11.2 In this regard, it is hereby clarified that the exporter, at his
option, may file refund
claim for one calendar month / quarter or by clubbing successive calendar
months / quarters. The calendar month(s) / quarter(s) for which refund
claim has been filed, however, cannot spread across different financial
years.

12) BRC / FIRC for export of goods: It is clarified that the
realization of convertible
foreign exchange is one of the conditions for export of services. In case of
export of goods, realization of consideration is not a pre-condition. In
rule 89 (2) of the CGST Rules, a statement containing the number and date of
invoices and the relevant Bank Realisation Certificates (BRC) or Foreign
Inward Remittance Certificates (FIRC) is required in case of export of
services whereas, in case of export of goods, a statement containing the
number and date of shipping bills or bills of export and the number and the
date of the relevant export invoices is required to be submitted along with
the claim for refund. It is therefore clarified that insistence on proof of
realization of export proceeds for processing of refund claims related to
export of goods has not been envisaged in the law and should not be insisted
upon.

13) Supplies to Merchant Exporters: Notification No. 40/2017 –
Central Tax (Rate),
dated 23rd October 2017 and notification No. 41/2017 – Integrated Tax (Rate)
dated 23rd October 2017 provide for supplies for exports at a concessional
rate of 0.05% and 0.1% respectively, subject to certain conditions specified
in the said notifications.

13.1 It is clarified that the benefit of supplies at concessional rate is
subject to certain
conditions and the said benefit is optional. 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.

13.2 It is also clarified that the exporter will be eligible to take
credit of the tax @ 0.05% /
0.1% paid by him. 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. In this connection, notification No. 3/2018-Central Tax,
dated 23.01.2018 may be referred.

14) Requirement of invoices for processing of claims for
refund: It has been brought
to the notice of the Board that for processing of refund claims, copies of
invoices and other additional information are being insisted upon by many
field formations.

14.1 It was envisaged that only the specified statements would be
required for processing
of refund claims because the details of outward supplies and inward supplies
would be available on the common portal which would be matched. Most of the
other information like shipping bills details etc. would also be available
because of the linkage of the common portal with the Customs system.
However, because of delays in operationalizing the requisite modules on the
common portal, in many cases, suppliers’ invoices on the basis of which the
exporter is claiming refund may not be available on the system. For
processing of refund claims of input tax credit, verifying the invoice
details is quintessential. In a completely electronic environment, the
information of the recipients’ invoices would be dependent upon the
suppliers’ information, thus putting an in-built check-and-balance in the
system. However, as the refund claims are being filed by the recipient in a
semi-electronic environment and is completely based on the information
provided by them, it is necessary that invoices are scrutinized.

14.2 A list of documents required for processing the various categories
of refund claims on
exports is provided in the Table below. Apart from the documents listed in
the Table below, no other documents should be called for from the taxpayers,
unless the same are not available with the officers electronically:

15) These instructions shall apply to exports made on or after 1st July,
2017. It is also
advised that refunds may not be withheld due to minor procedural lapses or
non-substantive errors or omission.

16) It is requested that suitable trade notices may be issued to publicize
the contents of
this circular.

17) Difficulty, if any, in implementation of the above instructions may
please be brought
to the notice of the Board. Hindi version would follow.