Export of Services with Payment of IGST – A Practical and Legal
Understanding under GST
Export of services under
the GST regime has been designed as a zero-rated supply to promote
international trade and ensure that taxes do not become a cost to exporters. A
supplier of services exporting outside India is given two alternatives: either
to export without payment of tax under a Letter of Undertaking (LUT) and claim
refund of unutilized input tax credit, or to export with payment of Integrated
Goods and Services Tax (IGST) and thereafter claim refund of the tax paid. The
second option, i.e., export with payment of IGST, is often preferred in
practice due to its relatively straightforward refund mechanism.
In this model, the
exporter charges IGST on the export invoice and pays such tax either through
the electronic credit ledger by utilizing available input tax credit or through
the electronic cash ledger. Once the export is completed and the consideration
is received, the exporter becomes eligible to claim a refund of the IGST paid.
This refund is claimed by filing an application in Form GST RFD-01 on the
common portal. The legal framework governing such refunds is primarily
contained in Rule 89 and Rule 96 of the CGST Rules.
Process To File
Application
↓
Login to GST Portal
↓
Select Refund Category
↓
Select Relevant Period
↓
Fill Statement 2 (Invoices + BRC)
↓
Auto Calculation of Refund
↓
Upload Documents
↓
Submit (DSC/EVC)
↓
ARN Generated
↓
Processing by Officer
↓
Refund / Query / Rejection
From a practical
standpoint, the transaction begins with the issuance of invoices. Typically,
exporters issue one invoice in foreign currency for commercial purposes and
another invoice in Indian Rupees for GST compliance. The IGST is levied only on
the INR invoice. Care must be taken to ensure that tax is not charged on the
foreign currency invoice, as this is merely for contractual and international
trade purposes.
The eligibility to claim
refund is subject to several conditions, which are critical in nature. The
exporter must be registered under GST and should have filed the relevant
returns, namely GSTR-1 and GSTR-3B, for the tax period. The tax on the exported
services must have been actually paid, and the exporter must possess proof of
receipt of payment in the form of a Bank Realisation Certificate (BRC) or
Foreign Inward Remittance Certificate (FIRC). Further, where the tax has been
paid using input tax credit, it is essential that such credit is eligible in
terms of Sections 16 and 17 of the CGST Act.
One of the most important
aspects affecting refund claims is the correct reporting of export transactions
in GST returns. In Form GSTR-1, export details are required to be disclosed in
Table 6, whereas in Form GSTR-3B, such supplies must be reported under the
column meant for zero-rated supplies. Any mismatch or incorrect reporting can
lead to rejection or delay in refund processing. In fact, it has been observed
in practice that even minor errors in reporting can result in significant
procedural complications.
Although the law provides
an opportunity to rectify mistakes in returns, such corrections are not
entirely flexible. Amendments in GSTR-1 can be made through subsequent returns;
however, the GST portal allows only limited corrections for each invoice. This
makes it imperative for taxpayers to exercise due diligence at the time of
initial filing itself, as repeated errors may become practically irreversible
and may directly impact refund eligibility.
Documents Flow Chart
Export Invoice
↓
Service Provided
↓
Payment Received
↓
BRC / FIRC Generated
↓
Prepare Statement 2
↓
Attach Declarations
↓
Upload on GST Portal
The documentation
required for claiming refund also plays a crucial role. The exporter is
required to furnish a detailed statement of invoices, along with BRC or FIRC
evidencing receipt of export proceeds. In addition, self-declarations and
undertakings prescribed under the GST law are to be submitted as part of the
refund application. The refund authority may also call for additional documents
depending on the nature of the case, and therefore maintaining proper records
becomes essential.
Another significant
factor in refund claims is the concept of the “relevant date,” which determines
the limitation period. The refund application must be filed within two years
from this relevant date. In the case of export of services, the relevant date
is generally linked to the receipt of payment where the service has already
been provided, or to the date of invoice where payment has been received in
advance. Importantly, both the supply of service and receipt of consideration
must be completed before a refund can be claimed.
The law also imposes
certain restrictions under Rule 96(10), whereby exporters who have availed
benefits under specified notifications or schemes may not be eligible to claim
refund of IGST paid on exports. However, over time, clarifications have been issued
to relax these restrictions in specific cases, particularly where capital goods
are procured under schemes such as EPCG. These nuances require careful
evaluation, as eligibility for refund can vary depending on the factual matrix
of each case.
In practical scenarios,
taxpayers often face challenges due to technical validations on the GST portal.
One such issue arises when the period of export and the period of receipt of
payment differ, leading to complications in selecting the appropriate refund
period. In such cases, taxpayers are often required to adopt a reasonable
approach and provide explanations before the authorities, if required.
The process of filing the
refund application itself is relatively straightforward but requires attention
to detail. The taxpayer must log into the GST portal, select the appropriate
refund category, choose the relevant period, furnish invoice details, upload
supporting documents, and submit the application. The system validates the data
with returns already filed, and only upon successful validation can the
application be processed further.
In conclusion, while the
mechanism of export of services with payment of IGST provides a direct route
for claiming refunds, it is highly compliance-driven. The success of a refund
claim depends not only on the substantive eligibility but also on procedural
accuracy. Proper documentation, correct reporting in returns, timely
realization of export proceeds, and adherence to statutory timelines are all
critical factors. A disciplined and well-informed approach can significantly
reduce litigation and ensure smooth processing of refunds under GST.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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