Under GST, there are supplies which are specifically exempted from tax. When the final product is exempt from tax, tax laws do not allow utilisation of tax credit available on the inputs and input services used in the supply of these exempted products. That means, the entire supply chain is not exempted, and the tax paid on inputs becomes the cost of the supplier.
To benefit the taxpayers in these scenarios, the concept of Zero-Rating has been introduced in the GST act. The objective of the government in introducing a category called ‘Zero-Rated; supplies was to make both, the input used as well as the output produced tax-free.
In this article, we will help you understand:
The ‘Zero-Rating concept makes the entire supply chain of a particular supply tax-free. That means, there is no tax either on the inputs/input services used or on the output. This is in contrast with exempted supplies, where only the output is exempted from tax, but tax is levied on the inputs used.
As per Section 16(1) of the IGST Act, 2017, Zero-Rated supplies are those supplies (goods or services or both) which are:
- Exported or
- Supplied to a Special Economic Zone (SEZ), Special Economic Zone developer or a Special Economic Zone unit.
by registered dealers. That also means these supplies attract GST of 0%.
The GST law allows taxpayers to:
- Claim refunds for taxes paid on the zero-rated supplies.
- Claim credit of tax paid on inputs/input services used in these supplies
- Claim refund of the unutilised input tax credit when the supplies are exempted, or the supplies are made without payment of tax, but taxes are paid on the inputs or input services used.
A registered person making zero-rated supply can claim a refund under either of the following options:
- He/she can supply goods or services or both under a bond or Letter of Undertaking (LoU) without the payment of integrated tax (IGST) and claim a refund of the unutilised input tax credit
- He/she can supply goods or services or both and claim a refund of the integrated tax (IGST) paid.
That means, the taxpayers have an option not to pay IGST and claim a refund of the unutilised ITC or pay IGST and claim a refund of the same.
The regular refund application (GST RFD-01) is not applicable in this case. For export of goods, there is no need of filing a separate refund claim as the shipping bill filed by the exporter is deemed to be an application for refund of integrated tax paid on the goods exported.
This application shall be considered to be filed only when:
- The person in charge of the conveyance carrying the export goods files an export manifest or an export report with details of the number and the date of shipping bills or bills of export;
- The applicant has filed GSTR-1 and GSTR-3B appropriately.
Once these documents are filed, the refund will be processed by the department, and an amount equal to the integrated tax paid in respect of each shipping bill or bill of export will be electronically transferred to the bank account of the applicant.
To claim refunds for tax paid on supplies made to SEZ, the suppliers will have to file a refund claim in form GST RFD-01 on the common portal. However, in case of service providers, along with the claim form, these documents also have to be attached:
- Statement containing the number and date of invoices and
- Bank Realisation Certificates or Foreign Inward Remittance Certificates.
When a refund is on account of supplies made to SEZ, the DTA supplier will have to file the refund claim.
In case supplies are made to an SEZ unit/developer, the refund claim can be filed by the:
- Supplier of goods after all goods are admitted in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone;
- Supplier of services along with evidence regarding the receipt of services for authorised operations as endorsed by the specified officer of the Zone.
The documents that need to be submitted along with the claim form are:
- Statement containing the number and date of invoices along with the proof regarding the endorsement,
- Details of payment made by the recipient to the supplier, along with the proof of payment,
- Declaration 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.
Taxpayers making Zero-Rated supplies are entitled to a provisional refund of 90% on the claim. This Provisional refund will be granted within seven (7) days from the date of acknowledgement of the refund claim. The amount will be credited to the claimant’s bank account digitally.
The order for the provisional refund is issued in Form GST RFD 04 along with the payment advice in the name of the claimant in Form GST RFD 05.
However, the provisional refund will not be granted if the person claiming the refund has been prosecuted for any offence under the Act or any law in force (where the amount of tax evaded exceeds INR 2.5 crores), in the preceding five (5) years.