Refund of IGST paid on export of services

[Archna Gupta]

Dear Sir/ Ma'am

My question is on refund of IGST on export of services. In my view there is a time limit of one year from the date of invoice on realisation of amount when we export services under LUT. But in case of export on payment of IGST, no time limit is there on realisation of foreign exchange. If I am correct my next question is that the time limit for filing refund is with in two years from the date of realisation of export proceeds. Now suppose on some invoices we have received amount and two years time limit is going to expire. If we file refund on those invoices then what about other export invoices of the same period for which payment is yet to realise. Can we file another refund claim within two years of realising the payment? Please reply.

[Rajagopalan Ranganathan]

Madam,

According to Explanation 2 (c) of Section 54 of CGST Act, 2017 the time limit of two years for filing the refund claim under Section 54 (1) of CGST Act 2017 in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of -

(i) receipt of payment in convertible foreign exchange [or in Indian rupees wherever permitted by the Reserve Bank of India], where the supply of services had been completed prior to the receipt of such payment; or

(ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice;

Therefore the refund claim can be filed within two years from the date of payment received in respect of each invoice individually.

[KASTURI SETHI]

I concur with the views of Sh.Ranganathan, Sir.

[Alkesh Jani]

Dear Experts,

"....where the supply of services had been completed prior to the receipt of such payment" this is a kind of conditional provision that service had been completed prior to receipt of payment. Further, Explanation 2(c)(ii) for Section 54 is also not applicable as per query, as it is for advance payment.

As per the query, (h) is applicable i.e. date of payment of tax.

The time limit of two years will apply to all refund as per Explation (1) "refund"

This is my view.

Thanks

[KASTURI SETHI]

On re-examination, I agree with Sh.Alkesh Jani Ji to the extent that Explanation -2(c) (ii) of Section 54 is not applicable to this situation. However, from the query it appears that the supply of service has already been completed as the party is struggling for payment from the service receiver. Thus Explanation 2 (c)(i) is applicable and refund claim will not be time barred. Suppose service has not been completed by any reason, then (h) will be applicable. To cap it all, no risk of time bar is involved.

[KASTURI SETHI]

The chances of applicability of Explanation 2 (h) in this case are bleak.

[Archna Gupta]

I agree that the refund of IGST will not be time barred. In other words the time limit of 2 years will be counted from the date of receipt of payment.

But what if we have received payment on some invoices and in those cases the time limit of 2 years is going to expire and on other export invoices of the same period we have not received the payment. In such a situation if we apply for refund on the invoices against which we have received money then the refund on the other export invoices on which we receive payment later will lapse because refund for the same period can not be filed twice.

Please suggest what should we do in this situation.

[KASTURI SETHI]

Madam,

You cannot go invoice-wise. You will have to follow the date of receipt of payment of foreign exchange for refund claim. Regarding the problem of 'Tax Period' bunching of refund claim is allowed. You can bunch refund claims of successive tax period with the condition mentioned in the circular. Pl. go through para no. 2.1 of C.B.I. & C. Circular No. 135/05/2020-GST, dated 31-3-2020 read with Circular No.125/44/2019-GST dated 18.11.19.

[Archna Gupta]

I agree Kasturi Sir that I have to file refund receipt wise and not invoice wise.

My question is suppose I have two service export invoices with payment of IGST in a particular tax period and we have recived payment of one invoice in foreign exchange and the amount on another invoice is still not received and two years period from the date of receipt on first invoice is going to expire so I have to file refund of that invoice otherwise it will become time barred.

So my question is how will I able to file refund on the second invoice on receipt of money if I have already filed refund for that tax period earlier for first invoice.

[Alkesh Jani]

Dear Kasturji Sir,

Are we missing time of supply Section 13 of CGST Act.?

Moreover, I assume that Tax is paid and also declared in their GSTR-2 for the relevant tax period. Therefore, Explanation (2)(h) will be applicable. this is my view, Please suggest.

With regards,

[Alkesh Jani]

Please read GSTR-1 instead of GSTR-2.

[KASTURI SETHI]

Dear Alkesh Jani Ji,

I am of the view that the refund claimant will resort to (h) only when the claimant is unable to determine the relevant date under (a) to (g). Here only (c) , it being export of service. Needless to say (h) is the last channel. When the claimant qualifies to (c)(i) for determination of 'relevant date', why should the claimant go to '(h)', especially when the party has date of receipt of foreign exchange. The date of payment of tax will come into play only in the absence of (c)(i) and (ii).

Regarding the time of supply of service under Section 13, in my view, this Section comes into picture for payment of tax i.e. when liability arises. Here the party is to get 'refund' and NOT to pay tax. We are not to ascertain the date of liability for payment of tax. We are to ascertain the relevant date for filing refund claim within the stipulated period.

Views of our colleague experts are also solicited. I am not closed.

[KASTURI SETHI]

Madam,

I understand your problem very well. This refund claim is not hit by the 'relevant date' but hit by 'tax period'. In pre-GST era, refund claim was to be filed within one year. In GST regime, Govt. has increased the period to two years from the relevant date. I am of the opinion that a period of two years for completion of all legal requirements for export of goods or services is not insufficient. So the exporter has to manage all these docs (including receipt of foreign exchange) within prescribed limit. There is no escape route to come out of the time constrains of 'Tax Period'. Any tax payer/exporter has to comply with this limit prescribed. The problem of non-receipt of foreign exchange in respect of a few invoice within time limit was/is manageable. One has to be pro-active.

These are my views.

[Alkesh Jani]

Shri Kasturiji Sir,

At very outset, refund of any tax paid (whether it is of zero rated (including export) or unutilized ITC) is governed by Section 54(1) of CGST Act. It is further bifurcated as for refund of unutilized ITC which will be governed by Section 54(3). The refund amount is required to be credit to welfare fund, but in terms of provision of Section 54(8) the refund amount is to be given in cash. For the tax paid for export of goods or service or both, is to be refunded in cash (refer Section 54(8)(a)).

In the given circumstances, it is important to peruse term “refund” which is given below for ready reference

“(1) “refund” includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3).”

The services exported with payment of tax, will be governed by Section 54(1) for the purpose of limitation period of two years from relevant date. Considering that service has been exported and Invoice was also raised, but payment is not received. In this case, Explanation (2) (c) will not be applicable as for (i) receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India1, where the supply of services had been completed prior to the receipt of such payment, for (ii) is for advance payment.

In the present circumstance there is no receipt of payment, therefore, (c)(i) is also not applicable sub-section (h) is applicable and two years of time limit can also be invoked.

Moreover, the refund is for tax paid on export of service, one of the two interpretation can be made;-

(1) Service provided, Invoice issued and tax paid but no consideration is received is out of ambit of “Supply”, therefore, excess tax paid

(2) Service provided, Invoice issued and Tax paid, deemed to be supply and refund of tax paid.

Here, refund is of tax paid. Time of supply is relevant in the present case, as payment of tax is to be made, for purpose of filing of refund claim and to arrive at the relevant date (Refer Explanation given at Section 13, which determines the time of supply (erstwhile point of taxation) (also refer Section 7(5) of IGST Act)

These are my view.

With Regards

[KASTURI SETHI]

Dear Alkesh Jani Ji,

Views may or may not agree but it is an undisputed trait of your personalty that you are really a hard worker limitless and untiring. You attempt to reach 'fathomable' and 'unfathomable' ends. It is really appreciable.

[Alkesh Jani]

Dear Kasturiji Sir,

You have shaped and sharpen me for which I will be thankful to you today, tomorrow and for always. You are inspirational not only to be but many.

With Regards

[KASTURI SETHI]

Dear Alkesh Jani Ji,

I am overwhelmed with your flowery language (full of adjectives) used by you for me. I am really indebted to you. You have always been humble, polite, disciplined, transparent and egoless not only for me but also for all colleague experts. Your ideal nature reminisces me of Sachin Tendulkar's words. Once he said, " How a player behaves in the playground is his/her real character in all other fields of life."

To cap it all, you have wooed my heart.

AI Summary

Refund of IGST on exported services: claims depend on date of foreign exchange receipt; tax period bunching may apply. Refund claims for IGST paid on exported services must be filed within two years from the relevant date applicable to each supply. Where services were completed before receipt of consideration, the relevant date is the date of receipt of payment in convertible foreign exchange (or permitted rupee receipt); for advance payments it is the invoice date. If none of the specified relevant dates can be determined, the fallback is the date of payment of tax. Refunds are filed by tax period, and tax period bunching of successive periods is permitted under prescribed administrative circulars.