Refund of ITC in respect of Export of Service

[PRASAD MVS]

Our client 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) ibid reads as under.

Refund Amount =

(Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover

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”.

We think that “non -Zero-rated Supply of Service” implies the turnover of Service other than Zero-rated Supply of Service i.e Domestic Supply of Service. We 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 our 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

We solicit the opinion of the experts supported by instructions or case laws if any.

AI Summary

Client Seeks ITC Refund Under Rule 89(4) of CGST Rules; Dispute Over 'Non-Zero Rated Supply of Service' Definition A client, exclusively exporting services, seeks a refund of unutilized Input Tax Credit (ITC) under Rule 89(4) of the CGST Rules, 2017. The issue arises from the interpretation of 'non-Zero rated Supply of Service' in the formula for calculating refunds. The department considers export services with pending payments as 'Non-Zero Rated,' while the client argues that these should only include domestic services. The client maintains that services exported under zero-rated conditions should not be classified as non-zero rated. An expert agrees with the client's interpretation and suggests appealing if the department disagrees.