QUESTION

A Person is a Trader of Taxable Goods as well exempted goods. He also makes export of exempted goods. Can he avail the credit of Input like Packing Material, Input Service like Terminal Handling Fee or Insurance Premium used for exporting the goods? If yes, then can he utilize the credit of the same towards his liability to pay tax on Taxable goods?

ANSWER

Facts of the case: A Person is a Trader of Taxable Goods as well exempted goods. He also makes export of exempted goods. Can he avail the credit of Input like Packing Material, Input Service like Terminal Handling Fee or Insurance Premium used for exporting the goods? If yes, can he utilize the credit of the same towards his liability to pay tax on Taxable goods?

Law Applicable: SECTION 17 OF CGST ACT
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Circular No.45/19/2018-GST

6.1 As per section 16(2) of the IGST Act, credit of input tax may be availed for making zero rated supplies, notwithstanding that such supply is an exempt supply. Whereas, as per section 2 (47) of the CGST Act, exempt supply includes non-taxable supply. Further, as per section 16(3) of the IGST Act, a registered person making zero rated supply shall be eligible to claim refund when he either makes supply of goods or services or both under bond or letter of undertaking (LUT) or makes such supply on payment of integrated tax.

6.2 However, in case of zero rated supply of exempted or non-GST goods, the requirement for furnishing a bond or LUT cannot be insisted upon. It is thus, clarified that in respect of refund claims on account of export of non-GST and exempted goods without payment of integrated tax; LUT/bond is not required. Such registered persons exporting nonGST goods shall comply with the requirements prescribed under the existing law (i.e. Central Excise Act, 1944 or the VAT law of the respective State) or under the Customs Act, 1962, if any.

6.3 Further, the exporter would be eligible for refund of unutilized input tax credit of central tax, state tax, union territory tax, integrated tax and compensation cess in such cases.-------------------------


Reply: The ITC is blocked as per section 17 of the CGST Act if the goods are not taxable or exempted, so you can't take ITC even in case of export.

If the goods are exempted then you can take duty drawback. There are two routes to claim duty drawback:
One is All Industry Rate (with ITC and without ITC of GST).
The other one is that you can claim all the GST paid on inputs and inputs services used to provide export supply.

Although Para 6 of the circular says that refund claim can be filed for unutilised credit but the question of refund will arise only if the credit is availed but the same is restricted under section 17. Therefore credit can't be availed because of section 17.

So the duty drawback is the correct procedure. (Reply dt. 01/06/2021)