Hello, in this post we will dive deep into the topic of Zero rated supply in GST.

The GST law came into effect mainly to improve our exports. Therefore, made all exports zero-rated/ tax-free. So, an exporter can offer lower prices to the customer and be more competitive in the international market without comprising his profit.

We will cover the following topics in this post:

What is Zero-Rated Supply in GST?

Zero-Rated Supply is the GST free goods and services provided by the companies. When the company/ business pays GST on the assets, purchases or business expenses, they can also claim ITC on this.

Even if the businesses under the list of Zero-Rated Supply with annual sales not more than 5 lakh, they can register with Customs to claim the GST paid.

As per Section 16 (1) of GST, the supplies considered as ‘Zero rated supply’:

  • Export of goods or services.
  • Supply of goods or services to an SEZ developer or SEZ unit.

Difference Between Zero rated supply and Exemption

Under GST there are zero rated supplies and exempt supplies. For both the goods and services are free of tax.

Zero rated supply is to make the entire chain of supply tax-free. Therefore, your business inputs or the products you sell will not have any tax. It is applicable to goods and services exported /sold to Special Economic Zones (SEZ) units /SEZ developers.

The exemption is applicable only to a specific product, but not to the entire chain of supply. So, you need to pay tax on the business inputs and not for the products you sell. You find it in our blog – GST exempt supply.

Note: Zero ratings and exemptions are different from nil ratings, ie, goods/services with 0% GST. It is also different from non-taxable supplies. These do not come under the GST.

Refund of Zero Rated Supply in GST

i. Refund process for exporter of goods

Suppliers claiming a refund for IGST paid on export of goods comes under Rule 96 of the CGST Act. They do not need to file a separate claim for refund of IGST paid on export of goods. When the exporter of the goods files shipping bill, you can claim the refund.

The exporter’s shipping bill is taken into consideration if:

  • The person responsible for the transport of the export goods files an export manifest/export report. It will have the number and date of shipping bills/bills of export.
  • Exporter applying for the IGST refund should file a valid return in Form GSTR 3 /Form GSTR 3B.

ii. Refund process for exporter of services and supplies to SEZ

Exporters making supplies to SEZs can also pay IGST first and then claim the refund. As per the rule 89(1) of the CGST Act, these exporters need to file refund claim in Form GST RFD 01 on the common portal.

For the service exporters, an additional statement needs to be filed along with the refund claim. It contains the number and date of invoices and relevant Bank Realization Certificates /Foreign Inward Remittance Certificates. Domestic Tariff Area supplier needs to file the refund claim on the account of supplies made to SEZ.

IGST refund application is filed by:

  • Goods supplier: Provided goods have been declared as full in the SEZ for the authorized operations by the specific zone officer.
  • Service supplier: Provided services have been declared as received in the SEZ for authorized operations by the specific zone officer.

The declaration of the specified zone officer is mandatory for filing IGST refund by the DTA supplier.

Documents to be filed

Documents to you need to submit with the refund claim for goods supplied to SEZ unit /developer:

  • Invoice number and date.
  • Proof of declaration by the specific zone supervisor.
  • A declaration that SEZ unit /developer has not received ITC for the tax paid by the supplier of goods or services.

If the services supplied to SEZ unit /developer it will contain:

  • Invoice number and date.
  • Proof of declaration by the specific zone supervisor.
  • Details of payment and its proof recipient to the supplier for authorized operations.
  • A declaration that SEZ unit /developer has not received ITC for the tax paid by the supplier of goods or services.

With that, we have come to and of this post on Zero rated supply in GST. Share your views with us in the comment section below.

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