Deemed Export under GST | Procedure for Refund

Deemed export under gst significantly support domestic manufacturing and enhance competitiveness in the international market. Suppliers in India manufacture goods that do not physically leave the country but treat them as exports for tax purposes. This classification enables suppliers to take advantage of several tax benefits and recoveries. Thus, businesses involved in this category must become aware of the compliance requirements and procedures pertaining to the area.

Understanding Deemed Exports

Section 2(39) of the Central Goods and Services Tax Act, 2017, defines deemed exports as suppliers providing goods within India and receiving payment either in Indian rupees or convertible foreign exchange. Such supplies, despite not crossing the international border, qualify for exemptions or recoveries usually enjoyed under the regular export, tax refund in such cases, etc.

Key Characteristics of Deemed Exports

1. Goods Manufactured in India: The goods for deemed exports should be manufactured within India. This ensures the promotion of domestic manufacturing.
2. No Physical Export: Unlike a normal export, a deeming export does not represent an outflow of goods from India. In other words, these goods will never leave the country, but at the same time, they can enjoy export-like benefits.
3. Payment Terms: Suppliers can make payments for deemed export transactions in Indian rupees or convertible foreign exchange, thereby gaining the leeway to choose the payment method.
4. Tax Treatment: Deemed exports are taxable under GST at the time of supply. Unlike regular exports, which are zero-rated, deemed exports attract a payment of GST upfront; however, suppliers can get refunds later.

Categories of Deemed Exports

The Government of India has notified specific categories of supplies that qualify as deemed exports under GST. These categories include:

1. Supply to Advance Authorization Holders: The supply of goods from a registered supplier to an Advance Authorization holder constitutes a deemed export.
2. Supply to Export Promotion Capital Goods (EPCG) Authorization Holders: Supplies made against EPCG authorization are also considered to be deemed exports.
3. Supplies to Export-Oriented Units (EOUs): Supplies made by way of goods to EOUs are considered to be deemed exports as these units are set up solely for export purposes.
4. Supply of Gold by Banks or Public Sector Undertakings (PSUs): Supply of gold by banks or PSUs against Advance Authorization is considered as deemed export.

These classifications help streamline the process for businesses engaged in domestic manufacturing while providing them with access to various benefits associated with export activities.

GST Compliance for Deemed Exports

To ensure compliance with GST regulations when dealing with deemed exports, businesses must adhere to specific requirements:

1. Tax Payment: Suppliers need to pay GST on deemed export transactions at the time of supply. In contradistinction to regular exports, which enjoy zero ratings, deemed exports would require paying tax upfront.
2. Documentation: Proper documentation is always necessary for claims for refunds in respect of GST paid for deemed exports. Suppliers have to maintain all the details of transactions undertaken, and invoice supplies must be under the GST regime.
3. Refund Application: After paying GST on deemed export supplies, the suppliers can apply for a refund through the prescribed procedure under Rule 89 of the CGST Rules, 2017.
4. Acknowledgment from Tax Authorities: The suppliers should obtain an acknowledgment from relevant tax authorities regarding receiving goods by recipients classified as Advance Authorization or EPCG holders.

Procedure for Claiming Refund on Deemed Exports

Claiming a refund on GST paid for deemed exports involves several steps:

Step 1: Prepare Documentation

• Suppliers will need to develop an all-inclusive document that shall contain a statement accompanied by an invoice-wise list of deemed export supplies that must be in the document.
• Jurisdictional tax official’s acknowledgment stating that the recipient has received the goods.
• An undertaking by the recipient that this supply shall not be available for claiming an input tax credit (ITC).

Step 2: File Refund Application

Once the suppliers collect all the documents, they can apply for a refund through the GST portal. The application shall contain:

• All details regarding the GST paid with respect to deemed export supplies.
• Supporting the documents above.
• Any information needed by the tax authorities.

Step 3: Verification by Tax Authorities

After submitting the form, tax authorities check and verify all the documents attached to the application. They can also seek clarifications or further details if required. It is important to respond to the queries made during this process well in time.

Step 4: Refund Processing

After verification is successful, tax authorities will process the refund application and issue a refund order. The authorities will credit the refund amount to the supplier’s bank account based on the registered information.

Benefits of Deemed Exports

Engaging in deemed exports offers several advantages for businesses:

1. Cash Flow Management: It improves cash flow management and reduces the load on finances since suppliers can claim refunds on the GST paid in the case of deemed exports.
2. Promoting Domestic Manufacturing: It encourages the development of domestic manufacturing as this classification provides incentives to manufacturers that are almost similar to those available to actual exporters.
3. Competitive Advantage: Businesses engaged in deemed exports would gain a competitive advantage as the international market access would not incur the extra costs associated with physical exports.
4. Access to Special Licenses:  Manufacturers with their deemed exports may also be eligible for special import licenses to import raw materials at reduced costs.

Final Thoughts

Understanding the complexities of deemed exports under GST is crucial. Once you know how to file refunds, compliance becomes easier. Review all documentation for your transactions and ensure it aligns with GST measures. This approach helps streamline operations and improve financial health. It also lets you maximize the benefits of the GST framework. Stay updated on changes or new policies to adjust your strategy. Doing so can help you capitalize on the growth of this sector in international trade.