What is Zero Rating?
By Zero-rating it is meant that the entire value chain of supply is exempt from tax. This means, In the case of zero-rated supplies, not only the outward tax is exempted from payment of tax but credit also cannot be availed on the taxes paid on Input for making the outward supply.
How does zero-rating work?
The concept of zero-rating of outward supplies requires the outward supplies as well as the inputs used in supplying such outward supplies to be free of GST. This is done by following ways:
- The taxes paid on the outward supplies which are zero-rated are to be refunded
- The credit of input services used in supplying the zero-rated supply is allowed.
- Wherever the supplies are exempted or the supplies are made without payment of tax, the taxes paid on the input services i.e. the unutilized ITC are refunded. Thus, even if zero-rated supply is exempt, the credit of input tax may be availed.
A registered person making zero rated supplies can claim a refund under either of the following ways:
- He may supply goods/services under bond or Letter of Undertaking (LUT) without payment of tax and claim refund of the unutilized ITC.
- He may supply goods or services on payment of IGST and claim a refund of such tax paid.
How do zero-rated and exempt supplies differ?
|Exempted Supplies||Zero-rated Supplies|
|Exempt supplies refer to the supply of any goods or services which attract a nil rate of tax or which may be wholly exempt from tax. This includes a non-taxable supply.||Zero-rated supply means export of goods or services or supply of goods or services to SEZ unit / SEZ developer.|
|No tax on the outward exempted supplies, however, the input supplies used for making exempt supplies are to be taxed.||No tax on the outward supplies, Input supplies are to be tax-free by way of refund of ITC|
|The credit of input tax needs to be reversed if taken. No ITC on the exempted supplies.||The credit of input tax may be availed for making zero-rated supplies, even if such supply is an exempt supply. ITC allowed on zero-rated supplies.|
|A registered person supplying exempted goods/services can issue a bill of supply instead of a tax invoice.||A normal tax invoice shall be issued.|
- Refund of tax paid on zero-rated supplies of goods or services on input services used in making such zero-rated supplies.
- Refund of tax on supply of goods regarded as deemed exports
- Refund of unutilized input tax credit
Situations leading to refund claims:
- Export / Supply to SEZ on payment of IGST – In the case where the goods are exported or supplied to SEZ units, on payment of IGST refund of such IGST paid on goods/services supplied is available
- Refund of unutilized ITC – In case of exports or supply to SEZ without payment of IGST, a refund of unutilized ITC is available.
- Refund of tax paid on the supply of goods regarded as deemed exports may be claimed
- Refund of any balance in the electronic cash ledger after payment of tax, interest, penalty, and fee can be claimed.
- Refund of tax on a supply that is not provided and for which invoice has not been issued i.e. tax paid on advance payment.
- Refund of tax wrongly collected and paid to the Government i.e. CGST & SGST paid by treating the supply as intra-state supply which is actually Inter-state supply.
- Refund of advance tax deposited by a casual taxable person or Non-resident taxable person
- Refund of excess payment of tax.
Application for a refund claim
1. Application Form :
Any person claiming a refund of tax may file an application in Form GST RFD -01 electronically through the GST portal. However, in case of a refund of IGST paid on goods exported, there is no need for filing a separate refund claim in the refund application since the shipping bill filed by the exporter is itself is treated as a refund claim.
2. Filing of refund claim :
Supplies regarded as deemed exports – In the case of deemed exports, either the recipient or the supplier is allowed to file the refund application. The supplier can seek a refund only if the recipient does not avail of ITC and furnishes an undertaking that the supplier may claim the refund
Supplies to SEZ – In case of supplies to SEZ units / SEZ developers, the refund application shall be filed by the,
Supplier of goods after such goods have been admitted in the SEZ and endorsed by the specified officer of that zone.
Supplier of services along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of SEZ.
3. Time limit within which the refund claim can be filed :
Any person claiming a refund can submit an application before the expiry of 2 years from the relevant date.
Relevant dates in case of export of goods:
Goods are exported by sea or air – Date on which the ship or aircraft leaves India
Goods are exported by land – Date on which such goods pass the frontier
Goods are exported by post – Date of dispatch of goods by the Post office concerned to the place outside India.
Relevant dates in case of export of services:
When the supply of services had been completed prior to the receipt of payment –
Date of receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the RBI
When the payment for the service is received in advance prior to the date of Invoice-
Date of issue of Invoice.
Relevant dates in case of deemed exports:
Where the refund of tax paid is available in respect of the goods –
Date on which the return relating to the deemed exports is furnished.
Relevant dates in case of unutilized ITC:
In case of a refund of unutilized ITC on account of inverted duty structure –
Due date of furnishing of return under section 39 for the period in which such claim of a refund occurs.
4. Documentary evidence for a filing refund claim
Export of services:
A statement containing the number and date of invoices and relevant Bank Realization Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC)
Export of goods:
A statement containing the number and date of shipping bills or bills of export and the number and date of relevant export invoice. Documentary evidence in form BRC and FIRC are not required here.
Supplies made to SEZ unit or SEZ developer:
A statement containing the number and date of the invoice along with evidence that the goods are admitted as endorsed by the specified officer of SEZ.
Refund of unutilized ITC:
Number and date of invoices received and issued during a tax period.
Further, a declaration needs to be furnished to establish that there is no unjust practice in the case of the applicant where the amount of refund does not exceed Rs.2 lakhs.
However, where the refund amount exceeds Rs.2 lakhs, a Certificate in Annexure 2 of Form GSTR RFD -01 by a Chartered Accountant or a Cost Accountant is to be submitted.
On successful submission of GST refund application, the same will be subjected to complete scrutiny by the tax officials and a refund order will be issued in case of proper submission. Refund application may be rejected or refund amount may be withheld by the officials in some cases and appeal can be made for further proceedings.