Refund of Unutilized ITC Due to Export on LUT

As we know that the export can be done either on payment of integrated tax or without payment of tax i.e., export on LUT basis. If export is done on payment of IGST then the refund of such tax paid can be claimed. Similarly in case the export is done on payment of LUT, the exporter can claim the refund of accumulated ITC. In this article we are going to discuss in details about the procedure and the conditions for claiming the refund of unutilized ITC due to export on LUT.

The provisions relating to refund are contained in section 54 of CGST Act 2017. Sub section 3 of section 54 of CGST Act 2017 talks about the refund of any unutilised input tax credit at the end of any tax period. The said section 54(3) also contains provisos in it which are as follows;

"Provided that no refund of unutilised input tax credit shall be allowed in cases other than

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies"

Also section 16(3) of IGST Act 2017 states that refund of unutilised ITC due to export of goods on LUT basis would be available to the exporter. The said sub section 3 is laid down as follows;

“(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed”

Thus from the above it is clear that the taxpayers can claim the refund of accumulated ITC in the following situations:
(i) where the credit has been accumulated due to inverted duty structure.
(ii) where exports are done on the basis of LUT.

However, in the following cases the refund of unutilised ITC would not be allowed;
(i) If goods exported out of India attract the export duty, then the accumulated ITC left unutilised will not be available for GST refund.

(ii) If the supplier of goods has claimed the duty drawback or has claimed the refund of IGST paid on such supply.
Time limit for claiming refund of accumulated ITC:
Section 54 states that any person claiming refund should make an application (FORM GST RFD-01) before the expiry of two years from the relevant date. The said relevant date depends upon the type of refund claimed.

Calculation of refund of unutilised ITC:
Rule 89(4) of CGST Rules 2017 prescribes the formula for calculation of refund of unutilised ITC due to export done without payment of tax. The said sub rule 4 of rule 89 states that;

“(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula -

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC / Adjusted Total Turnover”

In this regard it is important to know that the meaning of following terms used in the said formula;

(i) “Net ITC” is 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 sub-rules (4A) or (4B)or both.

Accordingly, the ITC of capital goods would not be eligible in case of refund of unutilised ITC due to export on LUT.

(ii) Turnover of zero-rated supply of goods would be the lower of followings;
(a) Zero-rated supply of goods made during the relevant period without payment of tax or
(b) The value which is 1.5 times the value of like goods domestically supplied.

(iii) Turnover of zero-rated supply of services would be the total of payments received during the particular period for zero-rated supply of services, advance towards the zero-rated supply of services finished for that specific period but received in any prior period excluding those advances received in the prior period of which service is not completed.

(iv) Adjusted Total Turnover means the sum total of the value of turnover in a State as defined in section 2(112) of CGST, excluding the turnover of services and also include the turnover of zero-rated supply of services and non-zero-rated supply of services but excluding the value of exempt supplies other than zero-rated supplies and the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.

It is to be noted that “Adjusted Total Turnover” includes “turnover in a State or Union Territory”, as defined in Section 2(112) of CGST Act.

As per Section 2(112), turnover in a State or Union Territory also includes zero-rated supplies of goods. Accordingly, doubts were arised whether the same value of zero-rated supply of goods needs to be taken into consideration while calculating “adjusted total turnover” and whether the restriction of 150% of the value of like goods domestically supplied, as applied in “turnover of zero-rated supply of goods”, would also apply to the value of "Adjusted Total Turnover" in Rule 89 (4) of the CGST Rules, 2017.

The CBIC vide Circular No. 147/03/2021-GST has clarified the same point in para 4 of said circular. Wherein it has been clarified that for the purpose of Rule 89(4), the value of export/ zero rated supply of goods to be included while calculating "adjusted total turnover" will be same as being determined as per the amended definition of "Turnover of zero-rated supply of goods" in the said sub-rule. The same can explained by the following illustration where actual value per unit of goods exported is more than 1.5 times the value of same/ similar goods in domestic market, as declared by the supplier:

Illustration: Suppose a supplier is manufacturing only one type of goods and is supplying the same goods in both domestic market and overseas. During the relevant period of refund, the details of his inward supply and outward supply details are shown in the table below:

Net admissible ITC = Rs. 270

The formula for calculation of refund as per Rule 89(4) is:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC /Adjusted Total Turnover

Turnover of Zero-rated supply of goods (as per amended definition) = Rs. 1500

Adjusted Total Turnover= Rs. 1000 + Rs. 1500 = Rs. 2500 [and not Rs. 1000 + Rs. 1750]

Net ITC = Rs. 270

Refund Amount = Rs. 1500*270 = Rs. 162
                                  2500

Thus, the admissible refund amount in the instant case is Rs. 162.

Statements/Declarations/Undertakings/Certificates and Annexures to be submitted for refund application:

For claiming the various types of refund like Refund of unutilized ITC on account of exports without payment of tax, Refund of tax paid on export of services made with payment of tax, Refund of ITC unutilized on account of accumulation due to inverted tax structure and many other types of refund, there is a list of all statements/declarations/undertakings/certificates and other supporting documents are given which are to be provided along with the refund application. The said list is provided in the Annexure A of the Circular No. 125/44/2019. As per serial number 1 of Annexure A following documents/declarations should be given for refund of unutilized ITC on account of exports without payment of tax

(i) Declaration under second and third proviso to section 54(3)

(ii) Undertaking in relation to sections 16(2)(c)

(iii) Statement 3 under rule 89(2)(b) and rule 89(2)(c)

(iv) Statement 3A under rule 89(4)

(v) BRC/FIRC in case of export of services and shipping bill (only in case of exports made through non-EDI ports) in case of goods

In addition to the above, in the Annexure-B of the said circular, a statement of invoices to be submitted with application for refund of unutilized ITC. The Format of said statement is also given in Annexure-B of Circular No. 125/44/2019.

From the above detailed discussion it can be concluded that;

Conclusion: For claiming the refund of accumulated ITC due to export of goods on LUT basis an online application to be filed in FORM GST RFD-01. The refund amount would be calculated as per formula given in Rule 89(4) and refund would not be available in respect of the ITC of capital goods. The refund application would be submitted along with the Statements /Declarations /Undertakings /Certificates and Annexures given under serial number 1 of Annexure A of the Circular No. 125/44/2019.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.