The concept of deemed export under GST is not a new concept. This terminology is also frequently used in the Foreign Trade Policy (FTP) however, the meaning of deemed export under GST is different than the interpretation of this term in FTP. Moreover, deemed export under GST has been clearly distinguished from exports as a distinct supply under GST and thus these two terms have separate meanings and separate tax implications.
Difference between Exports and Deemed export under GST
Export of goods or services require the goods or services to be exported outside the Indian territory, however, in the case of deemed export under GST, it is pertinent to note that the goods or services are not physically exported out of India but are deemed to have been exported.
Export is a zero rated supply in GST but deemed export under GST is not a zero rated supply by default. GST is levied on all deemed exports at the point of supply.
Deemed export under GST – Meaning
Deemed export under GST refer to those transactions in which the goods supplied do not leave the country, and the payment for such supplies is received either in Indian rupees or in free foreign exchange. This means that the goods or services supplied are intended for use in the manufacturing or production of goods that are to be exported outside India.
Example – M/s ABC sells goods to M/s PQR, an EOU for further sale to M/s XYZ in New York. Here, the supply from M/s ABC to M/s PQR will be treated as deemed export under GST and the supply from M/s PQR to M/s XYZ will be treated as export under GST.
Categories of supply of goods notified as deemed export under GST
In exercise of powers conferred under Section 147 of the CGST Act, the Central Government has issued Notification no. 48/2017-Central Tax dated 18.10.2017 wherein the following categories of supply of goods has been declared as Deemed export under GST:-
- Supply of goods by a registered person against Advance Authorization
- Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
- Supply of goods by a registered person to Export Oriented Unit
- Supply of gold by a bank or Public Sector Undertaking specified in the Notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorization
Conditions to be fulfilled for classification as deemed export under GST
The following conditions must be fulfilled for the classification of these supplies as deemed export under GST:-
- Supplies covered u/s 147 of the CGST Act, 2017 as elaborated above
- Applicable only for the supply of goods (not for supply of services)
- Goods are not required to be taken outside India
- Goods must be produced or manufactured in India
- Payment can be received either in Indian currency or in free convertible foreign currency. Free convertible foreign currency means that the supplies have not been made under any bond/LUT.
- The tax must be paid at the time of supply. The refund can be claimed on such supplies thereafter.
Taxability of deemed export under GST
As discussed above, export is a zero rated supply in GST but deemed export under GST is not a zero rated supply by default. GST is levied on all deemed exports at the point of supply. Moreover, these supplies cannot be made under any bond/LUT. Thus, the taxpayer will have to pay the tax and later on can claim the refund.
Deemed exports are exempted from payment of GST under the GST law. The supplier of goods or services can claim a refund of the GST paid on the supply of goods or services to such organizations.
Additional conditions to be fulfilled for supply to EOU/STP/HTP to be treated as deemed export under GST
- It is mandatory that an EOU/EHTP/STP/BTP unit has to give prior intimation by filing Form – A i.e. (Intimation for procurement of supplies from the registered person by Export Oriented Unit (EOU)/Electronic Hardware Technology Park (EHTP) Unit/ Software Technology Park (STP) unit/ Bio-Technology Parks (BTP) Unit under deemed export benefits under section 147 of CGST Act,2017 read with Notification No.48/2017-Central Tax dated 18.10.2017).
- The said intimation shall be given to – (a) the registered supplier; (b) the jurisdictional GST officer in charge of such registered supplier; and (c) its jurisdictional GST officer.
- The form must contain a running serial number, details of goods to be procured which is pre-approved by the Development Commissioner.
- The registered supplier thereafter will supply goods under tax invoice to the recipient EOU / EHTP / STP / BTP unit.
- On receipt of such supplies, the EOU / EHTP / STP / BTP unit shall endorse the tax invoice and send a copy of the endorsed tax invoice to – (a) the registered supplier; (b) the jurisdictional GST officer in charge of such registered supplier; and (c) its jurisdictional GST officer.
- The endorsed tax invoice will be considered as proof of deemed export supplies by the registered person to EOU / EHTP / STP / BTP unit.
- The recipient EOU / EHTP / STP / BTP unit shall maintain records of such deemed export supplies in digital form, based upon data elements contained in Form – B.
Refund Procedure for tax paid on deemed export under GST
As per 3rd proviso to Rule 89(1) of CGST Rules, 2017, application for refund in case of deemed exports can either be filed by the recipient of deemed export supplies. Alternatively, the supplier of such deemed exports supplies can also file the refund application, in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund.
It may be noted that rule 89(4A) of the CGST Rules, 2017 as amended vide Notification no. 75/2017-Central Tax dated 29.12.2017 (w.e.f 23.10.2017), the recipient of deemed export supplies can claim refund of input tax credit availed in respect of other inputs or input services used in making zero-rated supply of goods or services or both, in case of deemed export supplies on which the supplier has availed the benefit of notification No. 48/2017-Central Tax dated 18.10.2017.
Further Rule 96(9) of the CGST Rules, 2017 as amended vide Notification no. 75/2017-Central Tax dated 29.12.2017 (w.e.f 23.10.2017) also provides that the recipient of deemed export supplies on which the supplier has availed the benefit of notification No. 48/2017-Central Tax dated 18.10.2017 cannot export on payment of integrated tax.
Time limit for filing refund claim
For obtaining refund the recipient or supplier of deemed export supplies has to file an application in FORM GST RFD-01 through the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner before the expiry of two years from, the date on which the return relating to such deemed export supplies is to be furnished electronically. The application has to be accompanied by a statement containing the number and date of invoices along with such other evidences as may be notified in this behalf.
Documentation and Compliances
The supplier of goods or services must maintain proper documentation to claim the benefits of deemed export under GST. The supplier must issue a tax invoice indicating that the supply is intended for deemed export and must obtain a certificate from the recipient of goods or services confirming that the goods or services have been received for deemed export.
The supplier of goods or services must comply with various provisions of the GST law to avail of the benefits of deemed export. This includes timely filing of GST returns, payment of GST on the supply of goods or services to organizations that are not eligible for deemed export status, and maintaining proper records.