This update provides our insights into the latest amendments under Section 16 of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’).
Amendment 1: Supply to SEZ shall be treated as zero-rated supply only if made for authorised operations.
| Insights
The expression ‘authorised operations’ is not defined under GST laws.
However, Section 2(c) read with Section 4(2) and Section 15(9) of the SEZ Act
define the expression to mean such operations which the Development
Commissioner (‘DC’) has authorised an SEZ unit to undertake and the same is
mentioned in the letter of approval.
Contrary to the belief that amendment is harsh, the change, in fact, is
in line with SEZ laws.
Amendment 2: Realisation of export proceeds within the
period prescribed under FEMA laws where goods exported under bond or LUT
without payment of IGST.
| Insights
·
Exporting
goods without payment of IGST and claiming refund of unutilised ITC are two
different aspects under Section 16 of the IGST Act. The former can be done with
or without the latter.
·
To
mere qualify ‘export of goods,’ there is no condition to receive sale proceeds.
Thus, even in cases of bad debts, exports made without payment of IGST would
have no adverse implications.
·
To
understand the refund aspect of the amendment, we need to analyse the provision
in three different timelines as under:
Before March 23, 2020
·
To
claim refund of unutilised ITC, there was no condition for receipt of sale
proceeds under GST laws. Therefore, even in case of bad debts, refund was
allowed.
March 23, 2020, to September 30, 2023
·
A
new Rule 96B was inserted on March 23, 2020, to state that where sales proceeds
are not realised within the specified time frame, refund already granted will
be paid back to the Government along with interest.
·
However,
this condition of Rule 96B was not backed by the parent IGST Act and was viewed
as ultra vires to IGST Act.
·
Thus,
exporter could still claim GST refund even in cases of bad debts. However,
non-receipt of sale proceeds may have other implications under Customs laws
(e.g., where drawback was claimed) or under FEMA or RBI laws.
October 1, 2023, and onwards
·
The
Government realised the anomaly and amended Section 16 of the IGST Act to give
legal backing to Rule 96B. Going forward, receipt of sale proceeds within
specified time is must or else, GST refund already granted shall be recovered
with interest.
Amendment 3: Government has notified certain goods on
which refund of IGST paid on export is not available.
There are three following aspects to this amendment:
1.
Whether
receipt of sale proceeds is a condition to avail refund of IGST?
2.
Whether
supplies to SEZ have the option to pay IGST and claim refund of the same?
3.
Assuming
NO, whether supplies can be made to SEZ with payment of IGST and SEZ
unit can avail ITC of such IGST?
| Insights
·
Unlike
for zero-rated supply without payment of IGST, condition of sales proceeds is
not inserted for zero-rated supplies with payment of IGST. Only Rule 96B
requires receipt of sale proceeds.
Thus, one can still argue eligibility of refund
of IGST paid on the ground that Rule 96B is not backed by the IGST Act and
hence, ultra vires.
·
It
seems to us that the Government has unintendedly missed granting supplies to
SEZ an option to claim refund on payment of IGST.
In any case, SEZ laws clearly allows GST
exemption on procurements and also clearance from DTA with payment of IGST. So,
one can argue that SEZ laws would override GST laws given the non-obstante
clause under Section 51 of the SEZ Act, 2005.
·
Even
if it is assumed that option of payment of IGST is not available to SEZ, it
would not mean that supplies cannot be made to SEZ with charging IGST. It only
means that refund of such IGST shall not be allowed to supplier. An SEZ unit
can always avail ITC of such IGST and claim refund on its own exports.
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