QUESTION

ABC is an exclusive service exporter, with no supply of goods, no supply of domestic service. They are claiming a refund of unutilized ITC under Rule 89(4) of the CGST Rules,2017. They are getting export proceeds within two months of export. The formula for eligible refund as per Rule 89(4). Rule 89 (4) E defines the Adjusted Total Turnover as under:- Adjusted Total Turnover` means the sum total of the value of- (a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and (b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding-…….. The point of dispute is regarding the term “ non -Zero rated Supply of Service” contained in the definition of “Adjusted Total Turnover” which is the denominator of the above-mentioned formula. The department is of the opinion that the value of export of services for which payments are pending receipt at the end of the relevant period for which refund claim is filed is to be treated as “Non-Zero Rated Supply of Service”. According to ABC “non -Zero-rated Supply of Service” implies the turnover of Service other than Zero-rated Supply of Service i.e Domestic Supply of Service. They feel that once the Services are exported under Zero-rated in terms of Section 16 of the IGST Act,2017, the same can not be treated as “Non-Zero rated Services” unless there is any violation of the conditions. In case, the export proceeds were received within the prescribed time and there are no allegations that services in question were not exported. Particularly in the context where there is no specific definition to that extent in the formula unlike the definition of `Turnover of Zero rated Supply of Service` as defined under Ruled 89(4) (D) ibid.

ANSWER

Facts of the case: ABC is an exclusive service exporter, with no supply of goods, no supply of domestic service. They are claiming a refund of unutilized ITC under Rule 89(4) of the CGST Rules, 2017. They are getting export proceeds within two months of export. Whether the value of export of services for which payments are pending receipt at the end of the relevant period for which refund claim is filed is to be treated as “Non-Zero Rated Supply of Service”.

Law applicable: SECTION 2 of IGST Act
(6) 'export of services' means the supply of any service when,''
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian rupees wherever permitted by the Reserve Bank of India and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

CGST RULE 89

(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula -

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC / Adjusted Total Turnover --------------------

SECTION 16 of IGST Act

(1) 'zero rated supply' means any of the following supplies of goods or services or both, namely:''
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Reply: Export of service is defined under section 2(6) of IGST Act. Further the formula given in Rule 89 of CGST Rules take into calculation the export of service for which payment is received. It is corresponding to the definition of export of service given in Section2(6) because export of service is completed only if the payment is received.

Now the question is when the payment is to be received, the definition given in section is silent about the time frame. Under these circumstances if the payment is received then the definition is fulfilled.

In your case the payment is received in a normal time frame, so if the payment is received before filing of refund claim then it is ok.

In IGST Act the term 'Zero rated supply' is defined but the term Non Zero Rated supply is not defined. So this term should be construed as per logic of interpretation.
In our opinion it is the supply which is not covered under the definition of zero rated supply. Since in your case payment is received and all the conditions of section 2(6) are fulfilled so it can't be considered as non zero rated supply.
(Reply dt. 21/05/2021)