The Hon'ble Finance Minister, in Budget 2021-22, hailed as a 'development-oriented' and 'visionary' budget amid the pandemic-induced disruptions, inter alia, announced multiple changes to the Goods and Services Tax ('GST') framework. The changes have been proposed vide the Finance Bill, 2021, that amends the Central Goods and Services Tax Act, 2017 ('CGST Act') and the Integrated Goods and Services Tax Act, 2017 ('IGST Act'), in order to ease doing of business, curb input credit frauds, safeguard Government revenues and to provide statutory backing to debated Rules.
This GST Charcha deciphers into recent changes in GST Laws made vide Clause No. 114 of the Finance Bill, 2021 to with respect to changes in scope of zero-rated supplies.
Relevant provision
Words 'for authorised operations' are proposed to be inserted in Section 16(1)(b) of the IGST Act:
'16. Zero rated supply:
(1) 'zero rated supply' means any of the following supplies of goods or services or both, namely:- -
(b) Supply of goods or services or both for authorised operations to a Special Economic Zone developer or a Special Economic Zone unit.'
Sub-section (3) of Section 16 of the IGST Act is proposed to be substituted:
'16. Zero rated supply:
(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond orLetter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed:
Provided that the registered person making zero rated supply of goods shall, in case of non-realisation of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances, in such manner as may be prescribed.
(4) The Government may, on the recommendation of the Council, and subject to such conditions, safeguards and procedures, by notification, specify- -
(i) a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so paid;
(ii) a class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax so paid.'
Discussion and Comments
Changes in scope of zero-rated supplies
Section 16 of the IGST Act is proposed to be amended to bring the following changes:
- SEZ supplies to be used only for authorised operations - Under Section 16(1)(b) of the IGST Act, it is proposed that the benefit of zero-rated supply made to a SEZ unit or SEZ developer will be allowed only when the same is for authorised operations.
- Zero-rated supply under IGST route restricted to only notified categories - Section 16(3) of the IGST Act has been amended with insertion of new Section 16(4) in a manner that it restricts the option of zero-rated supply on payment of integrated tax (IGST) only to a notified class of taxpayers or notified supplies of goods or services;
- Non-realization of sales proceeds of goods exported will require depositing refund amount with interest- A proviso to Section 16(3) of the IGST Act is proposed to be inserted requiring the registered person making zero-rated supply of goods, in case of non-realization of sale proceeds, to deposit the refund amount along with interest, within 30 days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances.
Rule 96B of the Central Goods and Services Tax Rules, 2017 ("CGST Rules") (inserted w.e.f. March 23, 2020) provides for recovery of refund in case of non-realization of sale proceeds in case of export of goods. However, insertion of such rule for recovery of refund sanctioned was being debated to be beyond the powers vested by the parent legislation and hence was prone to challenge by the taxpayers in the court of law. Now, to overcome this, the IGST Act itself provides that the registered person making zero-rated supplies of goods and there is non-realization of sale proceeds within the specified time, then, he is liable to deposit the refund received along with interest. The time limit provided is 30 days after the expiry of time limit prescribed under the FEMA for receipt of foreign exchange remittances.
Further, now only notified class of taxpayer or notified class of goods/services will be eligible for claiming refund of IGST paid on zero-rated supplies, unlike present provision which allows both the options to all persons subject to Rule 96(10) of the CGST Rules. Only option left will be to claim refund of unutilized Input Tax Credit ("ITC"), which is considered as a cumbersome route as against IGST payment route. Also, in case of refund of unutilized ITC, no refund is allowed for capital goods as per Rule 89(4) of the CGST Rules, causing accumulation of credit with no utilization to exporters.
To know more, kindly watch our video 'Major Changes in Zero Rated Supply of Goods or Services - Union Budget 2021' by CA Bimal Jain- https://www.youtube.com/watch?v=f6cstF1ZtO0&t=129s
Note: Amendments carried out in the Finance Bill, 2021 will come into effect from the date when the same will be notified and when the said clause also gets concurrently notified with the corresponding amendments passed by the respective States and Union territories in respective SGST/ UTGST Act.
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