computation of refund in case of time-barred export invoices/FIRCs under Rule 89(4) of CGST Rules

[Angre Port]

There is a case of refund of accumulated ITC on account of export of services without payment of tax under Section 54 of the CGST Act read with Rule 89(4) of the CGST Rules. During scrutiny of the refund application, it is noticed that certain export invoices/FIRCs are time-barred, being beyond the limitation period prescribed under Section 54.

The issue arises in a situation where the taxpayer has only export turnover and no domestic turnover during the relevant period.

As per Rule 89(4), refund is calculated on the basis of 'Turnover of zero-rated supply' in the numerator and 'Adjusted Total Turnover' in the denominator. However, the Rule does not specifically clarify the treatment of time-barred export invoices/FIRCs while computing the refund amount.

If eligible turnover of zero-rated supply is taken (eligible word is not mentioned in rule 89 of CGST Rules, in the numerator after excluding time-barred invoices/FIRCs, then what should be considered as 'Adjusted Total Turnover' in the denominator? In cases where there is no domestic turnover, exclusion of such time-barred turnover from both numerator and denominator may result in both figures becoming identical, thereby leaving the refund amount unchanged. Consequently, the taxpayer may still become eligible for the entire refund amount despite certain invoices/FIRCs being time-barred.

Sir Please guide in this issue and share any judgement, circular, or clarification in respect of this issue.

[YAGAY andSUN]

Under Section 54 of the CGST Act, 2017 read with Rule 89(4) of the CGST Rules, 2017, refund of unutilised ITC in case of zero-rated supply of services without payment of tax is computed as:

Refund = (Turnover of zero-rated supply x Net ITC) / Adjusted Total Turnover.

"Adjusted Total Turnover" under Rule 89(4)(E) means turnover in a State/UT during the relevant period, excluding taxes, and includes taxable, exempt, and zero-rated supplies.

In the present case, certain export invoices/FIRCs are time-barred under Section 54(1) being beyond the prescribed limitation period. Limitation under Section 54 is substantive; a time-barred claim is not enforceable and cannot qualify as valid zero-rated supply turnover for refund purposes.

Though Rule 89(4) does not use the term "eligible turnover", only legally admissible turnover within limitation can be considered for computation. Hence, time-barred export invoices/FIRCs must be excluded from the numerator.

The issue is whether such exclusion affects the denominator where there is no domestic turnover.

"Adjusted Total Turnover" is not an independent figure but is derived from the same relevant period turnover used in the formula. Therefore, turnover excluded from the numerator on account of limitation cannot be retained in the denominator, as it would distort the statutory proportionality.

Where no domestic turnover exists, exclusion of time-barred export invoices/FIRCs results in proportional reduction of both numerator and denominator, leaving the ratio unchanged. This maintains consistency of the formula and ensures ineligible turnover is not indirectly considered.

Section 54 prescribes strict limitation; once the time limit expires, the claim becomes non-admissible. Refund provisions must be strictly construed, and benefit cannot be extended indirectly through computational adjustment.

There is no specific CBIC circular directly addressing this issue. However, the statutory framework and principles of limitation under indirect tax law support exclusion of time-barred turnover from both components of the formula.

Accordingly, export invoices/FIRCs held time-barred are required to be excluded from both "Turnover of zero-rated supply" and "Adjusted Total Turnover" under Rule 89(4) to ensure legally correct refund computation.

[Pinnacle Tax Advisor]

Since you are the 100% exporter, the refund will be reduced proportionately for any time barred FIRCs. Although the amount related to time barred FIRCs is part of the export turnover, the refund against these FIRCs cannot be claimed due to the time limitation. Therefore, the proportionate refund amount corresponding to such FIRCs will be excluded from the eligible refund.

[KASTURI SETHI]

No chance at all. No benefit/relief even on technical ground is admissible. The Supreme Court is very very strict on time limitation. Hence it can be inferred that you are asking for the moon.

[Shilpi Jain]

How is it time barred? For services, the time limit starts from date of realisation of forex in case it is received after service delivery. In case of receipt of advance, time limit starts from issue of invoice.

[Simha]

Let us understand this with a simple example:

Assume you are filing a refund application for the period April 2020 to March 2021.

• ITC availed during the period: Rs. 120/- (Rs. 10/- per month)
• Zero-rated turnover: Rs. 1,200/-
  • Assume one export invoice of Rs. 100/- is issued every month and the amount is realized in the same month.
• There is no domestic turnover.

Now, suppose the refund claim for the first two months, i.e., April and May, is considered time-barred.

In such a case, ideally either of the following approaches can be followed:

1. Reduce the ITC and export turnover relating to April and May from the refund calculation; or
2. Keep the Net ITC as Rs. 120/-, but consider the zero-rated turnover as Rs. 1,000/-. At the same time, the adjusted total turnover should remain Rs. 1,200/-. This will proportionately reduce the refund amount.

You may check whether any extra benefit is arising by following either of the above methods before applying the same.

Please note that this is only a practical approach. Since no additional benefit is being claimed, the same can be properly explained to the officer.

AI Summary

Refund computation for zero-rated exports examines whether time-barred invoices and FIRCs must be excluded from the statutory formula. Computation of refund of accumulated input tax credit on zero-rated export of services under Section 54 of the CGST Act read with Rule 89(4) of the CGST Rules, where certain export invoices or foreign inward remittance certificates are stated to be time-barred under the limitation period. The discussion focuses on whether such time-barred export turnover can be treated as part of the refund formula when the taxpayer has only export turnover and no domestic turnover during the relevant period, and whether exclusion of that turnover from the numerator necessarily affects the denominator under the prescribed formula.