Zero Rated Supply in IGST is being introduced through Chapter VIII. Zero Rated Supplies refers to items that are taxable under GST but the Rate of Tax is Nil. The concepts of Zero Rated Supply are covered under Section 16 of the IGST Act. Below we have discussed about Meaning of Zero Rated Supplies, Input Tax Credit etc. In our earlier article, we provided a detailed explanation on Free Supplies under GST and GST Impact on E-commerce industry in India.
Zero Rated Supply Meaning
Zero rated supply means any of the following taxable supply of goods and/or services, namely-
- Export of goods and/or services; or
- Supply of goods and/or services to a SEZ developer or an SEZ unit.
It is also provided that the credit of input tax may be availed for making zero rated supplies notwithstanding that such supply may be an exempt supply.
It is further provided that a registered taxable person exporting goods or services shall be eligible to claim refund under one of the following two options:-
i. A registered taxable person may export goods or services under bond, subject to such conditions, safeguards and procedure as may be prescribed without payment of IGST and claim refund of unutilised input tax credit in accordance with provisions of section 48 of the CGST Act.
ii. A registered taxable person may export goods or services subject to such conditions, safeguards and procedure as may be prescribed with payment of IGST and claim refund of IGST paid on goods and services exported in accordance with provisions of section 48 of the CGST Act.
Lastly, it is provided that the SEZ developer or SEZ unit receiving zero-rated supply shall be entitled to claim refund of IGST paid by registered taxable person on such supply.
On studying the above provisions, following implications may be drawn:-
The meaning of zero-rated supply is very restricted and limited to normal exports and supply to SEZ or SEZ developer. The supplies made to EOUs, EHTP, STP etc are not covered under the concept of zero-rated supply.
Input Tax Credit in Zero Rated Supply
The input tax credit is available for zero rated supplies. This means that export without payment of duty and supply to SEZ will be considered as zero rated supply and credit will be available. Consequently, there will not be requirement to reverse credit even when the supplies are made without payment of duty in cases of exports and supply made to SEZ.
EOU : Zero Rated Supply
As EOU are not covered under zero-rated supplies, the refund of unutilised Cenvat credit will not be admissible to the supplies made to EOU.
It was concluded by various judicial pronouncements like NBM Industries Case wherein supply to EOU was treated at par with physical export and benefit of refund of accumulated credit was extended.
However, their amendment was made vide Budget, 2015 wherein definition of export was given for the purpose of refund of accumulated Cenvat credit which stated that export means taking out of India to a place outside India.
Consequently, refund of accumulated credit is not admissible to EOU but is available for clearances made to SEZ because the provisions of SEZ Act have overriding effect and supplies to SEZ are to be considered as export. It appears that the present policy is carried forward in the GST regime too.
Deemed Export : Zero Rated Supply
It appears that the concept of ‘deemed exports’ will also be introduced in GST laws. This is evident from the definition of ‘deemed exports’ given under section 2(37) of the GST Act, 2016.
It states that deemed exports as notified by the Central/State Government on the recommendation of the Council, refer to those transactions in which the goods supplied do not leave India and payment for such supplies is received either in Indian rupees or in convertible foreign exchange.
At present, as per DGFT Laws, supplies to EOU is considered as deemed export and it may be possible that it is specified as deemed exports in GST Law also if the same is recommended by the Council.
It is also pertinent to mention that refund under section 48 of the GST Act, 2016 includes refund of tax on supply of goods regarded as deemed exports.
Consequently, it may be possible that supplies to EOU are made on payment of tax but refund of the said tax is admissible to the supplier.
This is departure from the present provision under Central Excise Laws wherein clearances to EOU are made without payment of excise duty.
We can say that exemption for supplies to EOU will be through refund mechanism. Similarly, for SEZ, exemption by way of refund mechanism has been prescribed in GST regime.
This Article on Zero Rated Supply and explanation on Section 16 of IGST Act are contributed by CA Swaroop.