- December 31, 2024
- Posted by: admin
- Categories: Export Financing, Blog
India, a thriving hub of global trade, exports a vast array of goods that contribute significantly to the country’s economic growth. The export of goods involves shipping products manufactured in India to other countries in exchange for foreign currency or Indian rupees. While traditional exports involve crossing international borders, there’s another category known as Deemed Exports under the Goods and Services Tax (GST) regime, which holds significant importance in the Indian trade ecosystem.
This article explores the concept of deemed exports in India, the governing GST rules, taxation procedures, and the process of claiming refunds.
What Are Deemed Exports?
Deemed exports refer to transactions where goods manufactured in India are supplied within the country, but the nature of the transaction qualifies them as exports under specific government policies. Unlike regular exports, deemed exports do not leave Indian territory, yet they enjoy certain export-related benefits as per the Export and Import Policy, 1997-2002, and the GST framework.
The key distinguishing feature of deemed exports is that they are not zero-rated under GST, unlike conventional exports. This means that GST is applicable to such transactions, and the tax can later be claimed as a refund by the supplier or the recipient of goods. Payments for deemed exports can be made either in Indian currency or in convertible foreign exchange.
Deemed Exports under GST: A Definition
Under Section 147 of the CGST/SGST Act, 2017, deemed exports are defined as the supply of certain notified goods (not services) manufactured in India. These transactions are classified as deemed exports only if they meet specific criteria laid out by the Central Government.
While regular exports enjoy a zero-rated GST status, deemed exports are taxed at the applicable GST rates. However, the government allows a full refund of the GST paid on these transactions to either the supplier or the recipient, ensuring that the tax burden is ultimately nullified.
Examples of Deemed Exports
To understand deemed exports better, let’s consider an example:
A company based in Gurugram, Haryana, sets up a factory to manufacture spare parts for washing machines. These parts are supplied to another company in Pune that holds an Export Promotion Capital Goods (EPCG) authorization. Since the goods are supplied to a business with an EPCG license within India, this transaction qualifies as deemed exports under GST.
Notifications Governing Deemed Exports under GST
The Government of India has issued Notification No. 48/2017 – Central Tax, which identifies the categories of transactions that qualify as deemed exports. These include:
Supplies to Advance Authorization (AA) Holders
Goods supplied by a GST-registered supplier to a recipient holding an Advance Authorization (AA) qualify as deemed exports. Advance Authorization allows duty-free import of inputs required for manufacturing export products.
Supplies to EPCG Holders
Transactions where capital goods are supplied to recipients holding an EPCG authorization fall under the deemed exports category. EPCG schemes aim to promote exports by facilitating the import of capital goods at concessional rates.
Supplies to Export-Oriented Units (EOUs)
Supplies made to units recognized as Export-Oriented Units (EOUs), Electronic Hardware Technology Parks (EHTPs), Software Technology Parks (STPs), or Bio-Technology Parks (BTPs) qualify as deemed exports.
Supply of Gold by Banks or PSUs against AA
When banks or Public Sector Undertakings (PSUs) supply gold to recipients holding an Advance Authorization, it is considered a deemed export transaction.
Additional Conditions for EOUs/EHTPs/STPs/BTPs
Deemed exports to EOUs, EHTPs, STPs, and BTPs are subject to certain additional conditions:
Prior Intimation
The recipient must file Form A with details of the goods procured. This form must be shared with:
- The supplier
- The jurisdictional GST officer of the supplier
- The jurisdictional GST officer of the recipient
Pre-Approval from Development Commissioner
The transaction must receive prior approval from the Development Commissioner.
Tax Invoice
The supplier must issue a tax invoice for the goods.
Acknowledgment of Receipt
Upon receiving the goods, the recipient must endorse the tax invoice and share copies with:
- The supplier
- The jurisdictional GST officers of both the supplier and the recipient
Record-Keeping
The recipient must maintain a record of the goods in Form B for compliance purposes.
How Deemed Exports Are Taxed under GST
Unlike regular exports, deemed exports are not zero-rated supplies. This means the supplier is required to pay GST at the time of the transaction. However, a refund mechanism ensures that the tax does not become a financial burden on the parties involved.
Who Can Claim Refunds?
Refund of GST paid on deemed exports can be claimed by either:
- The supplier of goods
- The recipient of goods
However, the recipient cannot claim Input Tax Credit (ITC) for the goods if the supplier has already claimed a refund of the GST paid.
Procedure for Claiming GST Refund on Deemed Exports
The supplier or recipient must follow a structured process to claim a GST refund on deemed exports. Here are the steps:
1. Required Documents
To apply for a refund, the following documents must be submitted:
- A detailed statement containing invoice-wise details of the goods supplied as deemed exports.
- Acknowledgment from the jurisdictional tax officer of the recipient, confirming the delivery of goods.
- In the case of EOUs/EHTPs/STPs/BTPs, a copy of the tax invoice signed by the recipient.
- A Letter of Undertaking (LUT) from the recipient stating:
- No ITC has been claimed for the transaction.
- No refund claim will be made by the recipient for the same transaction.
2. Refund Forms
The supplier or recipient must fill out Form GST RFD-01, which is available on the Central Board of Indirect Taxes and Customs (CBIC) portal under the GST section. This form should be submitted along with the required documents.
3. Time Limit
Refund claims must be filed within two years from the date of furnishing the GST return related to the deemed export supplies.
Understanding GSTR-1 and GSTR-3B Forms
1. GSTR-1
Deemed export supplies must be reported in Table 6C of Form GSTR-1. Key details include:
Nature of the product
Invoice details
Serial number of the b
port
Taxable amount
2. GSTR-3B
In Form GSTR-3B, deemed exports are disclosed in Table 3.1(b), along with other zero-rated supplies and exempt transactions.
Benefits of Deemed Exports under GST
Deemed exports provide several advantages to businesses:
- Ease of Trade: By classifying certain domestic transactions as exports, businesses can enjoy export-related benefits without crossing borders.
- Tax Refund: The GST refund mechanism ensures that the financial burden of taxation is mitigated.
- Support for Export-Oriented Businesses: Schemes like Advance Authorization and EPCG encourage businesses to focus on export-oriented production.
- Enhanced Compliance: The structured process for refunds and record-keeping improves transparency and compliance in trade practices.
Challenges in Deemed Exports under GST
Despite the benefits, there are challenges associated with deemed exports:
- Complex Procedures: The process of obtaining approvals, filing forms, and maintaining records can be cumbersome.
- Delayed Refunds: Refund claims often face delays due to bureaucratic inefficiencies.
- Lack of Awareness: Many businesses are unaware of the benefits and procedures related to deemed exports.
Conclusion
Deemed exports play a pivotal role in strengthening India’s domestic manufacturing and export ecosystem. By facilitating transactions where goods manufactured locally are supplied under specific conditions, deemed exports promote the growth of industries like EOUs, EHTPs, and STPs. The GST framework ensures clarity in taxation, with provisions for refunds to support businesses. Proper adherence to the procedures for documentation and refund claims helps streamline operations. Companies like Credlix, a global supply chain solutions provider, further empower exporters and businesses by offering innovative financial solutions. This synergy fosters a robust export-driven economy, contributing to India’s global trade aspirations.