GST Refund of Input Service denied in case Export of Goods without payment of Tax

[Rahul Chachan]

Dear Experts,

The compnay is 100% export oriented, no domestic sale. The compnay majorly exports goods outside india.

GST officer has denied the Refund of accumulated ITC on input services such as consultancy services availed for accounting and other matters as these input services are not linked with export of goods.

GST Rules allows refund of Input and Input Services without any condition. Further, as compnay only exports goods / services therefore all inward supplies are related to exports only.

Officer is asking for case laws that ITC on Input Services are allowed in case of Export of Goods.

Kinldy help

[KASTURI SETHI]

On this issue, read the following case law carefully.

2025 (1) TMI 397 - RAJASTHAN HIGH COURT - M/S SUNIL FINISHING WORKS VERSUS UNION OF INDIA JODHPUR, GOODS AND SERVICES TAX NETWORK (GSTN) NEW DELHI, STATE OF RAJASTHAN JAIPUR, THE STATE TAX OFFICER PALI

[Padmanathan KV]

With due respect, the case law quoted above pertains to inverted duty structure which has no relevance with the query asked about refund on export of goods (i.e. zero rated supply).

As far as refund of input services is concerned, pls note that the Rule 89 itself is very clear in this regard. Rule 89(4) reads as under:

(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

Where, -

(A) "Refund amount" means the maximum refund that is admissible;

(B) "Net ITC" means input tax credit availed on inputs and input services during the relevant period ;

(C) “Turnover of zero-rated supply of goods" means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less;

(D) "Turnover of zero-rated supply of services" means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

(E) “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 value of exempt supplies other than zero rated supplies during the relevant period

(F) “Relevant period” means the period for which the claim has been filed.

Explanation. – For the purposes of this sub-rule, the value of goods exported out of India shall be taken as –

(i) the Free on Board (FOB) value declared in the Shipping Bill or Bill of Export form, as the case may be, as per the Shipping Bill and Bill of Export (Forms) Regulations, 2017; or

(ii) the value declared in tax invoice or bill of supply,

whichever is less.

According to section 2(60) of the Act, “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;

Since the Rules are crystal clear in this regard, you may bring these relevant provisions to the attention of the Proper Officer.

[Amit Agrawal]

I agree with Shri Padmanathan Ji!

[KASTURI SETHI]

For claiming refund of unutilised input tax credit on input services under Section 54 (3) (ii) of CGST Act, the definition of only 'input service'' would not click, the definitions of 'ínput', 'inputs', 'input tax' and 'input tax credit' are equally important and relevant.

In this context, the judgment Hon'ble Supreme Court in the case of UOI Versus VKC Footsteps India Pvt. Ltd. 2021 (9) TMI 626 - SUPREME COURT must be carefully read in toto. Para No.60 is extracted below :-

"Central Goods and Services Tax Act, 2017 - Section 2(59) - Definition of input - Plural expression ‘inputs’ not defined - Ordinary principle of construing plural in same plane as singular is applicable - However, to construe ‘inputs’ so as to include both input goods and input services would do violence to provisions of Section 54(3) ibid and contrary to Explanation I - Hence, in construing Section 54(3) ibid contextually, Court cannot broaden expression ‘inputs’ to cover both goods and services. [para 60]"

[Shilpi Jain]

This officer must be a State officer. Central officers are better aware of these things.

The provisions itself are very clear on refund of ITC relating to both inputs and input services. There is no requirement that these should be directly relating to the exports.

If the officer does not agree, the only way out is to try your luck in appeal.

[Sharad Singh]

but in a scenario where ITC accumulated due to participations in trade fair / trade expo and other promotional schemes has been in large amount and the turnover of export hasnt been in consonace with that, can that much ITC will be refunded even when that expenses hasnt contributed in  the furtherance of export business . for example a taxpayer who spent 18 lakh on promotion and trade exhibition participation, could only export goods of turnover 6 lakh in a year . the export goods were made mostly of input goods with itc on average 5 percent ,and few services  also . itc other than expense of promotion is hardly 40 thousand  but now taxpayer asking refund of itc not only for  input in making goods but also for all expense of promotion, amounting itc more than 2.5 laakh. Assesing authority has denied the ITC saying that input hasnt been converted in furtherance of business in ratio of export .

AI Summary

Refund of input tax credit on input services denied where nexus with exported goods is disputed, raising eligibility questions. A 100% export oriented company claimed refund of accumulated input tax credit on input services; the tax officer denied refund asserting those services were not linked to export of goods, while the company contends all inward supplies relate to exports and points to rules permitting refund of inputs and input services without linking conditions.