Export Advance Refund

[Guest]

Dear Sir,

We have received advance for export order. Now order got cancelled. We are refunding partial amount to them. And partial deduction as recovery charges.

While Bank says, you need to refund full amount. As per policy, We can refund before 1 year without approval of RBI.

How to treat this in accounts and gst?

Is there any implication from RBI if export order got cancelled?

[DR.MARIAPPAN GOVINDARAJAN]

Whether you have refunded before one year or after one year?

[Guest]

Before one year We are refunding.

Bank says for partial amount which we are not refunding, We need to make export.

Situation is partial amount deducted is due to export order cancelled. And we are not going to make any export against it.

So how to treat this in books? as income, liable to gst? and can not we deduct it as charges for cancellation of order?

[Venkataprasad Pasupuleti]

Dear Mitresh ji,

GST is not liable on the retention amount inter alia for 2 reasons. one is that there is no supply for mere retention of money due to breach of contract performance and the other is that even assuming there is supply, it is export qua Zero-rated supply on which GST is not liable. Ensure that LUT was executed. Hope am clear.

AI Summary

Retention of export advance: GST not leviable on retained cancellation charges if no supply and LUT compliance is ensured. When an export order is cancelled and part of an advance is refunded while part is retained as cancellation or recovery charges, refunds made before one year generally do not require RBI approval but banks may impose documentary requirements. The retained amount should be examined against contract terms and accounting standards to decide recognition as income or a charge. For GST, retention is typically not leviable because mere retention for breach does not constitute supply, and if treated as supply it would be zero rated provided procedural conditions such as execution of a Letter of Undertaking are met.