Less amount received agaisnt Export with Duty paid

[REKHANK KAYASTH]

Exported the goods of 1000 dollar+18* GST, Refund of 18% GST charged refunded by Custom but against the Export Invoice of 1000 Dollar, received the payment of 900 dollar, hence in the course of GST Audit u/s. 65 the department wants to pay GST on 100 Dollar, which deducted by the foreign buyer. So, should i pay GST on short payment received of 100 Dollar?

[Rajagopalan Ranganathan]

Madam, 

Please elaborate reasons for deduction of 100 dollars by foreign customer.

[Sadanand Bulbule]

In terms of Section 16(1) (a) of the IGST Act, export of goods/services is zero rated supply. So in my opinion, despite less consideration paid by the importer, the entire IGST amount charged is liable for refund as tax element cannot be exported.

[YAGAY andSUN]

No, you are not liable to pay GST on the short payment of $100, provided certain conditions are met — and this is a very common issue in exports where buyers deduct for damages, quality issues, early payment discounts, etc.

Let’s break it down properly under GST law:

🧾 Scenario:

• You exported goods worth $1000 + 18% GST (though GST is not charged on exports since they are zero-rated under Section 16 of IGST Act).
• You received $900, i.e., $100 short payment.
• GST refund of 18% was already claimed and sanctioned on full $1000.
• During audit, the department says: “You got GST refund on $1000 invoice but received only $900. So, pay GST on the remaining $100.”

✅ Legal Position:

Under Section 16(3) of IGST Act, zero-rated supply (exports) shall be made without payment of IGST under bond/LUT, and exporter is eligible for refund of unutilized ITC.

Alternatively, you can pay IGST on exports and claim refund of IGST paid (which you seem to have done).

Now, regarding partial payment received:

📌 Relevant Points to Justify Non-Taxability:

1. Export Value is the Invoice Value, not Realized Value:
   • As per Rule 89(4) of CGST Rules, refund is based on the “FOB value” or the invoice value, whichever is lower.
   • There is no direct linkage of refund to actual foreign inward remittance if exports are made on actual invoice value and goods were genuinely shipped.
   • Forex fluctuation or deductions by buyer do not trigger GST demand.
2. No Additional Supply on $100:
   • You haven’t provided any extra service/supply for the deducted $100.
   • The amount was not received, hence no GST payable, because GST is levied on the value of supply actually made, not necessarily on collection.
3. Circular No. 37/11/2018-GST:
   • Clarifies that non-realization of export proceeds (due to foreign buyer deductions, etc.) does not automatically mean GST is payable unless refund was wrongly claimed.
4. Foreign Buyer Deduction Reasons:
   • If the $100 was deducted due to damage, shortage, or commercial credit note, it is not an additional taxable amount.
   • Provide documentation showing reason for deduction, and clarify that goods worth $1000 were exported.

❗ Department’s Concern:

They are likely seeing this as "you took refund on $1000, but only received $900, so you owe tax on the difference". This is incorrect unless the deduction was due to some taxable service/supply provided separately, or you over-invoiced.

✅ What You Should Do:

1. Prepare reconciliation of:
   • Invoice value,
   • Shipping Bill value,
   • Actual remittance received,
   • Reason for short payment (email from buyer, debit note, etc.).
2. Provide clarification that:
   • Exports were genuine and goods were shipped for $1000,
   • Short payment was due to commercial reasons (and not for additional supply),
   • Refund of IGST was properly claimed.
3. Use FEMA Compliance as backup:
   • RBI allows some shortfall in realization (within 6 months, extendable).
   • If your AD bank has not raised objection, it's additional support.

🧠 Conclusion:

• No GST is payable on the $100 short payment if it's a commercial deduction and not a result of over-invoicing or unaccounted supply.
• Ensure proper documentation and respond accordingly to the audit findings under Section 65.

[Shilpi Jain]

Reason for reduction in realisation would be crucial to reply to your query.

Ideally, if $100 is received less, any GST paid thereon if not payable since consideration is not received, then pay back the refund received on such amount and take back the same as credit in your credit ledger. So ideally you will not loose anything except the interest component.

[KASTURI SETHI]

On the same issue in another case, the department's Civil Appeal is pending with the Hon'ble Supreme Court. The department has taken stand that the bank is the recipient of service from foreign bank. Indian bank is liable to pay IGST under RCM and not the Exporter. 

 Citation Commissioner CCE Vs. State Bank of Bikaner & Jaipur - 2023 (11) TMI 1347 - SC ORDER admitted on 7.11.23.

 

[YAGAY andSUN]

RBI Master Direction also provide the Write off facility, therefore, check your eligibility within the Framework of FEMA Laws.