GST Refunds for Zero-Rated Supplies in India: A Comprehensive Guide for Businesses

Within the Indian Goods and Services Tax (GST) framework, specific transactions enjoy a special status – zero-rated supplies. These involve exports or supplies to Special Economic Zones (SEZs), where no GST is levied. Businesses making these zero-rated supplies can, however, claim Input Tax Credit (ITC) on the inputs and services used. To facilitate the utilization of this credit, the government allows claiming refunds under Section 54 of the Central Goods and Services Tax (CGST) Act, 2017.

This guide delves into the intricacies of claiming GST refunds for zero-rated supplies made without payment of tax. We’ll explore the calculation process, required documents, and the application procedure, empowering businesses to leverage the benefits of zero-rated supplies within the GST system.

Understanding the Calculation of GST Refunds for Zero-Rated Supplies

The formula used to calculate the maximum admissible refund amount is:

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

Here’s a breakdown of the terms:

• Refund Amount: This represents the maximum amount you can claim as a refund.
• Net ITC: This refers to the total input tax credit availed on inputs and input services during the relevant period.
• Turnover of zero-rated supply of goods: This is the value of zero-rated goods supplied during the relevant period without tax payment under a bond or Letter of Undertaking (LUT).
• Turnover of zero-rated supply of services: This includes payments received during the relevant tax period and zero-rated supplies completed in prior periods.
• Adjusted Total Turnover: This excludes the value of exempt supplies (other than zero-rated supplies) made during the relevant period.

Example:

Let’s assume a business exported goods worth ₹10 lakh and provided zero-rated services worth ₹5 lakh in a quarter. Their Net ITC for the period is ₹2 lakh, and the Adjusted Total Turnover is ₹20 lakh (excluding exempt supplies).

Refund Amount = (₹10 lakh + ₹5 lakh) x ₹2 lakh ÷ ₹20 lakh = ₹1.5 lakh

This translates to a maximum GST refund of ₹1.5 lakh that the business can claim.

Essential Documents for GST Refund Application (as per Circular 125/44/2019 – GST dated 18.11.2019)

To ensure a smooth refund process, ensure you have the following documents in order:

1. Endorsement(s): These are required from the specified SEZ officer, confirming receipt of goods/services for authorized operations within the SEZ.
2. Self-certified Copies of Invoices: For any invoices not reflected in your GSTR-2A for the relevant period, submit self-certified copies.
3. Self-Declaration Regarding Non-Prosecution: Declare that you haven’t availed a provisional refund for the same supplies claimed in the current application.
4. Declarations: Submit declarations as mandated under relevant provisions of the CGST Act and rules.
5. Undertaking: Provide an undertaking related to specific sections of the Act, as required.

Streamlining the GST Refund Application Process

Filing a GST refund application for zero-rated supplies involves these steps:

1. Application Submission: Submit your application electronically through the GST common portal. You should receive an acknowledgment (FORM GST RFD-02) within 15 days.
2. Provisional Refund (Optional): The proper officer may sanction a provisional refund of up to 90% of the claimed amount if all conditions are met.
3. Sanction Order and Payment Advice: Upon verification and satisfaction, the officer will issue an order (FORM GST RFD-04) sanctioning the provisional refund within 7 days. A payment advice (FORM GST RFD-05) will be issued for the credited amount to your registered bank account.
4. Scrutiny and Final Order: The department may issue a Show Cause Notice (SCN) if they require clarification on any aspect of your claim. Following any necessary response, a final order for the refund will be issued within 60 days of filing the application.

Optimizing GST Refunds for Zero-Rated Supplies: Key Takeaways

For businesses engaged in international trade or supplying to SEZs, mastering the process and requirements for claiming GST refunds on zero-rated supplies is crucial. Here are some key takeaways:

• Meticulous Documentation: Maintain accurate and complete records of your zero-rated supplies, invoices, and ITC to support your refund claim.
• Adherence to Procedures: Follow the prescribed application process