Treatment of GST on Services Provided Outside India

Background

In this era of globalization Export has increased unexpectedly, especially due to the pandemic Indian economy has experienced many ups and downs, but now its time to expand our market globally and recover from all those recessions.

Export means goods and services that are produced in one country and sold to buyers in another countries. Export and Imports together make up international trade.

As per GST, Export of goods and services are treated as Inter-state supply and accordingly IGST (Integrated goods and services tax) is charged on export.

According to provision of IGST Act: - “Export of services” means supply of service when:

1. The supplier of service is present in India
2. The recipient of service is outside India and the place of supply of service is also out of India
3. Payment has been received in convertible foreign exchange by the supplier of services.
4. Supplier and recipient are not distinct person, if supply is outside India.

Note: - If the place of supply of service is in Nepal or Bhutan then Payment in Indian rupees are also treated as Exports.

Case law: - The administrative and support services is Zero Rated, if supplied to Foreign client and payment is received in foreign exchange.

TAX APPLICABLITY

• Interstate supply are covered under IGST Act and IGST becomes applicable on export of Goods and Services
• However, Government has introduced that No tax burden should be levied on taxpayer on export of Goods and services.
• This No tax burden defined concept of as Zero Rate Supply in IGST act.

Zero Rated Supply: An Introduction: -

Zero rated supply means Export of goods or services or both and Supply of goods or services or both to a Special Economic Zone Developer or Special Economic Zone.

It does never mean that the goods or services have a tax rate of ‘0%’ instead it means that the recipient of supply would have to pay ‘0%’ GST to the supplier.

GST registration is required for the person making Zero Rated Supply. Persons who are engaged in export of goods and services have two options to claiming Zero Tax, 1) Either to Pay GST on Exports at the time of sale and claim refund of same or 2) Not charge GST against one time submission of Bond / Letter of Undertaking (LUT) to Department (Submission required for each financial year prior to any Zero tax GST billing.

In second case; If GST has been paid on Input of goods exported but it is not payable on output supply of goods exported against Bond/ LUT, then refund can be claimed of the ITC of GST.

How refund can be claimed by exporters for Zero Rated Supply:

Here is a glimpse of how to claim refund for zero rated supply:

The use of Bonds has almost been dispensed with the use of LUT. In a very few cases only the use of Bonds can be seen.

How refund can be claimed using the option of LUT Method:

(PQR to avail Input tax credit)

(Rs 100/-) to PQR to issue invoice

• PQR to ensure no IGST is charged in the Euro invoice.
• PQR to bring proof-of export and satisfy all other conditions prescribed
• PQR to claim refund of input tax credit of Rs 100/- being maximum amount related to the outward export supply
• Such refund to be claimed by filing Form GST RFD-01

Note: - Letter of Undertaking (LUT) is available for all registered persons except those who has been prosecuted for any offence under the CGST Act 2017 or the IGST Act 2017 or any existing laws in country, if the amount of tax evaded exceeds “two hundred and fifty lakhs” rupees.

Here are some simple steps using which one can claim refund under the option of LUT Method:

Step 1: A registered person who is availing the option of supplying goods or services for export without paying any Integrated Tax can prior to export, furnish a Letter of Undertaking or a Bond in form no. GST RFD-11 in Bond or LUT format to the Jurisdictional Commissioner which binds himself to pay the tax due with the interest due specified in section 50 sub-section (1); not later than:

1. 15 days after the expiry of 3 months from the date of issue of the invoice for export, if goods are not exported out of India.
2. 15 days after the expiry of 1 year or further period as specified by the commissioner; from the date of issue of the invoice for export, if the payment has not been received by exporter in foreign exchange.

Step 2: Details of the invoices for export furnished on the common portal in FORM GSTR-1 shall be electronically transmitted to the system and a confirmation regarding the goods has been exported out of India will be electronically transmitted to the common portal.

Exporters registered under GST can export goods or services without paying IGST by using LUT.

LUT is valid for the whole financial year. LUT or Bond must be submitted to the concerned tax authority (central/state) having area of jurisdiction over. Further it will be accepted by the concerned Deputy/Assistant Commissioner within 3 working days; if not it will be deemed to be accepted. (Presently LUT submission made available online at GST portal and it’s a very easy process)

LUT must be on the letter head of the exporter along with the signature and seal of the person authorized. If conditions of the LUT cannot be fulfilled then a Bond may be asked to be furnished along with applicable Security deposit in form of a Bank Guarantee.

LUT is deemed to be accepted just after the ARN (Acknowledgement Reference Number) is generated online. No Physical document is required to be submitted. If after submitting the LUT it is found that the exporter was ineligible to submit such LUT. Then it shall be deemed to have been rejected.

Procedural Requirement for LUT Method:

Format of letter of Undertaking in	FORM GST RFD-11 (as per rule 96A CGST Rule)
Submission to	The Jurisdictional Commissioner, (online facility at GST portal)
Validity Period	Financial Year
How	Filling up form will all declaration with two witness name/addresses
Executed by	Working partner, Managing Director or the Company Secretary, Proprietor, A person duly authorized by such working partner or Board of Directors of such company or proprietor.

How refund can be claimed under the method of Refund of IGST:

Here is a glimpse of the process to be followed for above:

(Rs. 1000/-) to PQR (PQR to avail input tax credit) PQR to issue tax invoice of 1500/-

• IGST to be charged on tax invoice issued in INR meant only for the purpose of GST. INR 180 will tax applicable on export assuming 12% GST rate.
• PQR to Debit electronic credit ledger with IGST applicable of Rs. 180/- on the export.
• PQR to bring proof-of- export and satisfy all other conditions prescribed.
• Refund of Rs. 180/- to be allowed on automatic processing of shipping bill by customs ones GSTR-3 and EGM is filled (Rule 96 of the CGST Rules to be followed) and export proceeds received in time. In case of Export of services, Export proceeds realization proof is required to be submitted

Steps for the refund of Integrated tax paid on goods and services exported out of India. Rule 96 of CGST Rules :

Step 1: Exporter of goods will have to file shipping bill as an application for refund of taxes paid on goods exported outside India and it shall be deemed as filled when:

a) The person in charge of the exported goods files an export manifest or an export report detailing the number and date of bills of export.
b) A valid return has been furnished by the applicant in FORM GSTR-3 or FORM GSTR-3B.

Step 2: The details of the export invoiced in FORM GSTR-1 should be transmitted electronically to the system designed by the customs.
Step 3: And said system designated by the Customs shall electronically transmit to the common portal, it is a confirmation that the goods covered by the invoices has been exported.

IMPORTANT NOTES FOR EXPORTERS:

1. GSTIN in Shipping bill must be quoted on the export product if it attracts GST for domestic clearance.
2. if the exporter exclusively deals with products which are either wholly exempt from GST or out of GST regime, Quoting PAN (Permanent Account Number), which is authorized as Import Export code by DGFT.
3. If the export has been made by specialized agencies like United Nations Organization, notified Multilateral Financial Institutions, Embassies and Consulates, the exporter can quote Unique Identity Number, instead of GSTIN, in the Shipping bill.
4. The Shipping bill cannot be filed Without GSTIN or PAN or UIN.
5. Neither the claim for refund of IGST paid nor Input Tax Credit on inputs consumed in goods exported, can be processed without GSTIN and GST Invoice details in Shipping Bill.
6. If the Commercial Invoice is different from Tax Invoice, details of both shall be provided in the Shipping Bill.
7. Against each item in the Shipping bill Taxable value and Tax amount should be mentioned for the purpose of processing the refund amount.
8. Multiple tax invoices issued by same GSTIN holder are allowed in one Shipping bill for the same consignee.
9. In the Shipping Bill for the field “State of origin” declare the State code from where export goods originated, state code is a part of GSTIN. (First two number of GSTIN is state code)

New Changes in Export Procedures:

As per new format of shipping bill (electronic / manual) and Courier Shipping Bill, has been amended to include GSTIN and IGST related information, to ensure he export benefits like refund of IGST paid as well as accumulated input tax credit can be processed smoothly.

Export under factory stuffing procedures:

It is the duty of Board to create a trust-based environment where compliance in accordance with the extant laws is ensured. In the context of GST, taking into account the obligation of filing GSTR1 and GSTR2 by exporters who are registered under GST, Board intends to simplify the procedure relating to factory stuffing hitherto carried out under the supervision of Central Excise officers.

Meaning of Deemed Export:

On the recommendations of the Council The Government may, notify certain supplies of goods as deemed exports, even if goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

Notification No. 48/2017-Central Tax for Deemed Exports

Some supplies have been notified as deemed export vide above notification as below

1.	Supply of goods by a registered person against Advance Authorization
2.	Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization
3.	Supply of goods by a registered person to Export Oriented Unit
4.	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.