This commentary provides doctrinal analysis and practical insights on the legal issue discussed below. The judgment is analysed in the context of its factual background, issues framed, and conclusions reached by the Court.

2026 (9) TMI 2054 - GSTAT CHANDIGARH

1. Introduction

The computation of refund of unutilised input tax credit on exports made under bond or Letter of Undertaking turns on a precise identification of the "turnover of zero-rated supply of goods" for the relevant period. A recurring dispute arises where the export invoice is issued and goods are removed for export during the refund period, but the goods physically leave India only in a subsequent period. The question is whether the invoice value must be excluded from the numerator of the Rule 89(4) formula merely because the shipping bill or export-general-manifest particulars evidence actual export after the close of the claimed period.

The Tribunal, in 2026 (9) TMI 2054 - GSTAT CHANDIGARH, held that such invoice value forms part of turnover of zero-rated supply where the invoices were issued during the relevant period for goods cleared for export under bond or LUT, provided that the exporter establishes actual export of those goods. The decision draws a necessary distinction between the GST point at which export turnover is attributed to a tax period and the evidentiary fact that goods have ultimately been taken out of India.

The ruling does not treat invoicing as a substitute for actual export. Rather, it recognises a two-stage statutory design: the invoice and removal determine period-wise turnover for the refund formula, while actual export remains an indispensable condition for grant of refund. This distinction has substantial consequences for exporters facing a timing difference between invoicing, removal, shipping documentation and the physical crossing of the customs frontier.

2. Legal & Statutory Context

Section 16 of the Integrated Goods and Services Tax Act, 2017 identifies export of goods or services as a zero-rated supply. Section 16(3) permits a registered person making a zero-rated supply to claim refund of unutilised input tax credit on supply without payment of integrated tax under bond or Letter of Undertaking, in accordance with Section 54 of the Central Goods and Services Tax Act, 2017 and the prescribed rules.

The definitional provisions are important but operate for distinct purposes. Under Section 2(5) of the Integrated Goods and Services Tax Act, 2017, "export of goods" means "taking goods out of India to a place outside India." Section 2(23) provides that "zero-rated supply" has the meaning assigned by Section 16. Thus, actual movement out of India establishes the export character of the goods. It does not, by itself, answer the separate computational question of the period in which the value is included in the Rule 89 refund formula.

Section 54(3) of the Central Goods and Services Tax Act, 2017 permits a registered person to claim refund of unutilised input tax credit at the end of a tax period, subject to its conditions. Its first proviso permits such refund, among other cases, where there are "zero rated supplies made without payment of tax." Section 54(1) prescribes an outer limitation of two years from the relevant date for a refund application. That limitation is distinct from the expression "relevant period" used in the Rule 89 computation formula.

For goods supplied under bond or LUT, Rule 96A of the Central Goods and Services Tax Rules, 2017 requires the registered person, before export, to furnish a bond or LUT binding the person to pay tax and applicable interest if the goods are not exported out of India within the stipulated period. Rule 96A(1)(a) specifies fifteen days after expiry of three months from the invoice date, subject to any further period allowed by the Commissioner. Rule 96A(2) also contemplates electronic transmission of export-invoice details furnished in GSTR-1 and confirmation from the Customs-designated system that the covered goods have been exported.

The central computational provision is Rule 89(4) of the Central Goods and Services Tax Rules, 2017. As applicable to the period examined by the Tribunal, it prescribed:

"Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC / Adjusted Total Turnover."

For the issue concerning goods, the operative definitions were equally important. "Turnover of zero-rated supply of goods" meant the value of zero-rated supply of goods "made during the relevant period" without payment of tax under bond or LUT. "Relevant period" meant "the period for which the claim has been filed." The formula consequently requires the numerator, net ITC and adjusted total turnover to be aligned to the same refund period.

The invoice-based architecture of the GST law is reflected in Section 12 of the Central Goods and Services Tax Act, 2017, under which liability to pay tax on goods arises at the time of supply; the time of supply is generally the earlier of the invoice date, or the last date on which the supplier is required to issue the invoice, and the date of receipt of payment. Explanation 1 deems supply to have been made to the extent covered by the invoice or payment.

Further, Section 31(1) of the Central Goods and Services Tax Act, 2017 mandates that where supply of taxable goods involves movement, the registered person shall issue the tax invoice "before or at the time of removal of goods for supply to the recipient." The statutory use of "shall" makes the timing of invoice issuance integral to the recognition and reporting of the supply.

3. Interpretative Issues

The apparent tension lies between two propositions. First, export of goods is completed only when goods are taken out of India. Secondly, Rule 89(4)(C) refers to the value of zero-rated supplies "made during the relevant period." A reading that equates "made" exclusively with the later date of actual export would make the export event under Section 2(5) decisive for both eligibility and period-wise turnover. The Tribunal rejected that approach.

The better reading separates the legal functions of the provisions. Section 2(5) establishes whether goods are in fact exported. Section 16 attaches zero-rated treatment to that export. Sections 12 and 31 identify the point at which the supply is invoiced and recognised in the GST framework. Rule 89(4) then allocates the value of the zero-rated supply to the refund period through the language of supplies "made during the relevant period."

This construction is also required by the internal design of the formula. If invoice value were removed from the numerator merely because physical export occurred later, while the underlying supply had been invoiced and reflected in the earlier period, the formula would not accurately measure the proportion of ITC attributable to zero-rated supplies made in that period. The expression "relevant period" cannot be applied selectively to the numerator while disregarding the invoice-linked determination of turnover under the GST scheme.

At the same time, the Tribunal's approach is not an acceptance of a notional export. The invoice must relate to goods genuinely cleared for export under bond or LUT, and actual export must ultimately be proved. If the goods are never exported, Rule 96A provides the statutory consequence: the export facility under bond or LUT may be withdrawn and the tax amount becomes recoverable in accordance with the Rule.

4. Detailed Commentary & Analysis

The Tribunal identified that all three variables in Rule 89(4)-net ITC, turnover of zero-rated supply and adjusted total turnover-must relate to the same relevant period. It then focused on the phrase "zero-rated supply of goods made during the relevant period." The phrase is concerned with the making of the supply, not solely with the later completion of physical export formalities.

Section 31(1) provides the essential statutory bridge. For goods involving movement, the tax invoice must be issued before or at removal. Read with Section 12, the invoice is not a merely evidentiary document prepared after an independent taxable event. It identifies the supply and the value to the extent covered by it. In the case of goods intended for export under bond or LUT, their removal for export and the issue of the prescribed export invoice therefore locate the supply in the relevant tax period.

The Tribunal accordingly held that the turnover of zero-rated supply is to be calculated from invoices issued for goods intended to be exported. The later shipping bill endorsement that goods have left India serves a different but essential purpose: it verifies that the contemplated export has actually occurred. The distinction may be summarised as follows:

The decision also accords significance to the documentary structure of Rule 89. Rule 89(2)(b) requires, for refund on account of export of goods, a statement containing details of shipping bills or bills of export and relevant export invoices. The requirement to furnish both sets of particulars supports the conclusion that the invoice and the shipping document have complementary functions. The invoice establishes the declared supply and its period-wise value; the shipping record establishes the actual export trail. Neither document can be treated as redundant.

The conclusion is necessarily confined to a case in which the invoices were issued in the refund period, the goods were cleared for export under bond or LUT, and actual export was not disputed. It does not dispense with verification of invoice-to-shipping-bill correlation, value, eligibility of ITC, bond/LUT compliance or other statutory restrictions applicable to the claim.

5. Judicial / Administrative Perspective

In 2026 (9) TMI 2054 - GSTAT CHANDIGARH, the department sought to exclude invoice values from the claimed period because the associated goods were shown as exported in the succeeding period. The Tribunal held that there was no basis to deny refund where the invoices had been prepared during the relevant period and the goods covered by them had indeed been exported. Its ratio is that inclusion in zero-rated turnover follows the tax-period supply evidenced by the export invoice and removal, whereas actual export remains a condition precedent to the refund outcome.

The administrative approach in Circular No. 125/44/2019-GST is consistent with the necessity of actual export without treating a delay in export as automatically destructive of zero-rated treatment. Paragraph 45 states that where goods have actually been exported, though not within three months from the invoice date, payment of integrated tax first and a subsequent refund should not be insisted upon. It permits consideration of a post facto extension under Rule 96A in the facts and circumstances of the case. The clarification reinforces that actual export is substantive, but a timing lapse is addressed within the Rule 96A framework rather than by mechanically denying export-linked benefit.

The approach was also reflected in 2025 (4) TMI 427 - JHARKHAND HIGH COURT. In the context of refund of accumulated compensation cess on goods exported under LUT, the Court held that actual export, even where the asserted export timing was questioned, could not be denied merely on that basis when the statutory and circular framework provided a recovery mechanism and recognised the position of goods actually exported. The decision materially supports the proposition that the consequence of timing concerns must be examined under Rule 96A and the governing refund framework, rather than through a blanket exclusion of an otherwise established export.

6. Implications & Observations

Exporters should maintain a clear audit trail connecting the invoice period with the subsequent export event. The strongest factual record will ordinarily include the export invoice, LUT or bond details, proof of removal, shipping bill or bill of export particulars, export-general-manifest confirmation where available, and a reconciliation showing that the specific invoiced goods were ultimately exported.

For refund computation, the invoice date and period of removal require particular attention. Where these fall within the claimed period, the exporter may include the invoice value in turnover of zero-rated supply, notwithstanding that the goods leave India in the next period, provided actual export is established. The value must also be subjected to the valuation discipline contained in Rule 89, including the applicable export-value requirement.

Refund officers, correspondingly, should not treat a mismatch between the refund period and the date of actual export as conclusive proof that the invoice value falls outside the numerator. The relevant inquiry is sequential: whether a supply for export was invoiced and removed during the claim period; whether it was reported as turnover for that period; and whether the goods were subsequently actually exported. A rejection based solely on the later date of physical export would conflate the computation stage with the verification stage.

There remains a practical safeguard for revenue. Rule 96A requires the exporter to remain accountable for timely actual export, and the refund claim must be supported by the prescribed invoice and shipping-bill particulars. The Tribunal's reasoning therefore preserves both objectives of the scheme: proper period-wise attribution of zero-rated turnover and protection against refund where the intended export does not materialise.

7. Concluding Remarks

The governing principle is that the value of goods covered by export invoices issued during the relevant refund period is includible in turnover of zero-rated supply under Rule 89(4), even if the goods physically leave India later. This follows from the invoice-and-removal framework in Sections 12 and 31, read with the Rule 89 definition of zero-rated turnover.

That inclusion is conditional, not absolute. The exporter must establish that the goods were actually exported. The physical departure of goods is decisive for proving export under Section 2(5) of the Integrated Goods and Services Tax Act, 2017; it is not, however, the exclusive determinant of the refund period to which the invoice value belongs. Proper reconciliation of export invoices and shipping documentation is therefore central to sustaining the claim.

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2026 (9) TMI 2054 - GSTAT CHANDIGARH