With Payment or Without Payment

WITH PAYMENT OR WITHOUT PAYMENT – Suitable option for Exporter

According to a survey in 2017, India ranks 17^th among 190 countries in exports and exports contribute 13.7% to the country’s GDP. It is the reason government is also providing so many benefits to the exporters and the same convention has been continued in GST also. Including the exports in zero-rated supplies helps the exporters to export the goods or services without payment of tax, so that the price of their goods or services will be low which makes exporters to compete in the international market.

Section 16(1) of IGST Act, 2017 says that “zero rated supply” means any of the following supplies of goods or services or both, namely:

• export of goods or services or both; or
• supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

 So as per the provision exporter can export the goods without payment of tax. Till here everything is clear. Now comes the question, what will happen to the input tax that is accumulated in the electronic credit ledger of exporter. Because he would have paid tax on his inputs and if he doesn’t have any output liability what he’ll do with such credit?  As per section 54 of CGST Act, 2017 the exporter can get the refund of such credit.

Section 16(3) of IGST Act, 2017 says that “a registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:

• he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or
• he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied,

in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made there under.”

Now the biggest question in front of the exporter is whether he has to go for with payment of tax or without payment of tax. Selecting an option is bit complicated unless you know the provisions. So, let’s go through the provisions and see which method is beneficial for whom.

WITH PAYMENT OF TAX

Case 1: Exporter having TRAN Credit

A registered person having TRAN credit, can’t claim refund of such credit. So, if a registered person who has TRAN credit and doesn’t have any domestic sales can go for with payment option. If he opts for with payment, he can pay IGST on exports from his TRAN credit & normal ITC and claim refund on tax paid. But if he opts for without payment, his TRAN credit would be lapsed (as he doesn’t have any domestic sales).

Case 2: Having huge credit on Capital Goods

As per section 54 we cannot claim refund of tax paid on purchase of capital goods. If the exporter has huge credit arising from purchase of capital goods and he doesn’t have any domestic sales, then neither he can utilize such credit nor he can claim refund of the same. In such a case, he can go for with payment option. He can pay the IGST on exports from his ITC and claim refund of the same.

Case 3: Certain conditions to fulfil for Export under LUT

If the exporter exports the goods under LUT, he has to export the goods within 3 months from invoice and has to receive the remittances in foreign currency within 12 months from invoice date. To avoid all these conditions, he may export the goods with payment of tax.

WITHOUT PAYMENT OF TAX

Case 1: If the exporter doesn’t have huge ITC

If a registered person doesn’t have that much balance in his electronic credit ledger which can be used to set off against payment of IGST, he can opt for without payment. For example, if a registered person has exports of Rs. 1cr taxable at 18%, his tax liability would be 18 lakhs. But he has only 10 lakhs in his ITC ledger. Then instead of adding cash and paying IGST, he can just go for without payment option and claim unutilized ITC as refund.

Case 2: If exporter has claimed benefits of Penultimate sale or Deemed Exports

As per Rule 96 of CGST Rules, 2017 if the exporter has procured any material on which the benefit of notification 48/2017 - Central Tax (Deemed Exports) or notification 40/2017 - Central Tax (Penultimate Sale) has been claimed, he cannot claim refund on payment of IGST. In such kind of situation, the exporter shall export the goods under bond/LUT and claim the refund of accumulated ITC. The same has been held in the Advance Ruling TOYOTA TSUSHO INDIA PVT. LTD 2019 (30) G.S.T.L. 358 (A.A.R. - GST).

Case 3: If the exporter has more domestic sales compared to Exports

If the exporter has both domestic sales and exports, and his domestic sales are more than exports, then he can utilize the accumulated input tax for discharging the liability on such domestic sales. Because if he goes for with payment, he has to pay tax and had to wait for the refund of such tax. But, if he opts for without payment, he can set off his tax liability on domestic sales with accumulated ITC.

Conclusion

Therefore, based on the above parameters, the exporter can judge which method is beneficial for him. Further, there is no compulsion for consistency. He may go for with payment for one export and without payment for the another. Thus, it is purely to his will and professional judgement, in choosing the right option.