Refund for Penultimate Sale

Refund for Penultimate Sale

What is Penultimate Sale:

If an exporter purchases any goods from a registered supplier with the intention of exporting the same, then the transaction between the registered supplier and the exporter would be called as Penultimate Sale. This is not a new concept. It has been continuing from the old indirect tax regime and there has been slight change in provisions. As per section 5(3) of Central Sales Act, 1956 the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export. So, earlier we used to consider penultimate sale as export and exempted the same. But, here we are charging concessional rate on these kind of transactions.

Penultimate Sale in GST (Notification 40/2017 Central Tax (Rate))

As per Notification 40/2017 (Central Tax Rate), government has given some exemptions to the exporter saying that from 24 October 2017 onward penultimate sale would be taxable at a rate of 0.05% of CGST and 0.05% of SGST. What would be the necessity of this exemption? For a while, let us assume that there is no such concept called penultimate sale. Then the registered supplier would be charging normal rate to the exporter also. The exporter will, however, get the refund of the tax paid by him while purchasing goods as it is a zero rated supply, without any complexities (as per section 54). Then what’s the need of charging tax and giving refund of the same? If the tax is just Rs. 2 – 5 lakhs, it won’t make much difference. But what if the tax is 90 lakhs or 1 crore? It blocks the working capital requirements of exporter. To avoid such problem to the exporter, government has introduced this benefit.

Conditions for claiming the benefit: Notification 40/2017 (CTR)

For claiming such benefit, the exporter and the registered supplier has to fulfill certain conditions:

1. the registered supplier shall supply the goods to the registered recipient on a tax invoice;
2. the registered recipient shall export the said goods within a period of ninety days from the date of issue of a tax invoice by the registered supplier;
3. the registered recipient shall indicate the Goods and Services Tax Identification Number of the registered supplier and the tax invoice number issued by the registered supplier in respect of the said goods in the shipping bill or bill of export, as the case may be;
4. the registered recipient shall be registered with an Export Promotion Council or a Commodity Board recognized by the Department of Commerce;
5. the registered recipient shall place an order on registered supplier for procuring goods at concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the registered supplier;
6. the registered recipient shall move the said goods from place of registered supplier, directly to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported; or directly to a registered warehouse from where the said goods shall be move to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported;
7. if the registered recipient intends to aggregate supplies from multiple registered suppliers and then export, the goods from each registered supplier shall move to a registered warehouse and after aggregation, the registered recipient shall move goods to the Port, Inland Container Deport, Airport or Land Customs Station from where they shall be exported;
8. in case of situation referred to in condition (vii), the registered recipient shall endorse receipt of goods on the tax invoice and also obtain acknowledgement of receipt of goods in the registered warehouse from the warehouse operator and the endorsed tax invoice and the acknowledgment of the warehouse operator shall be provided to the registered supplier as well as to the jurisdictional tax officer of such supplier; and
9. when goods have been exported, the registered recipient shall provide copy of shipping bill or bill of export containing details of Goods and Services Tax Identification Number (GSTIN) and tax invoice of the registered supplier along with proof of export general manifest or export report having been filed to the registered supplier as well as jurisdictional tax officer of such supplier.

Prerequisites for considering a transaction as Penultimate Sale:

• Export Order: The recipient of the goods (exporter) should possess an export order before such penultimate sale and he should be registered under Export Promotion Council.
• Export within 90 days: The recipient shall export the said goods within a period of 90 days from the date of invoice issued by supplier of goods.
• GSTIN of supplier and the tax invoice number issued by supplier should be mentioned on shipping bill.
• The exporter should export the said goods only under LUT or bond and cannot export on payment of IGST (Circular 37/2018 – Central Tax, read with Notification 03/2018 – Central Tax).
• The said benefit is optional. So, even if you want to go for normal provisions, you can.

What if the exporter doesn’t export goods within 90 days?

If the exporter doesn’t export the said goods within 90 days, he may seek extension of period from jurisdictional officer under which the exporter is registered and if the officer gets satisfied with whatever reasons you have provided, he may grant extension for a period which he deems fit.

But, generally if the exporter doesn’t export goods within said period, he is liable to pay the differential tax amount along with the interest.

Inverted Duty Structure for Supplier:

The registered supplier is selling goods to the exporter at a concessional rate of 0.1%. But the supplier is purchasing inputs for those goods at normal rates only. This would fall under the case of inverted duty structure as the tax rate on inputs is higher than the tax rate on outputs. So, the registered supplier can go for refund of his unutilized ITC.

Zero Rated Supply for Exporter:

The government has also provided that the exporter can claim refund of the concessional tax (0.1%) paid by him while purchasing the inputs. There is no restriction on this.

Concept of Penultimate Sale:

Practical Aspects while doing Refund of Registered Supplier

As I said, registered supplier can go for refund of unutilized ITC on the basis of inverted duty structure. While claiming the refund, the following points should be kept in mind:

a.       Make sure that the registered supplier has not claimed refund of ITC on input services as we are going for refund under inverted duty structure.

b.       Verify the shipping bills of the exporter and make sure that the shipping bill contain GSTIN of supplier and invoice number mentioned on invoice issued by the registered supplier.

c.       Check whether the exporter has made any export on payment of IGST as this scheme is not applicable when exports were made on payment of IGST.

d.       Ensure that the purchase order from exporter has been attached along with sales invoice.

e.       Ask for Registration cum Membership Certificate (RCMC) of the exporter. As this benefit is available only when the exporter is registered under Export Promotion Council, registered supplier should obtain such membership certificate from the exporter.

f.        Check the validity period of such membership certificate.