Understanding Deemed Exports and Their GST Treatment

Deemed exports are a concept that exists within India's indirect tax framework and is thoroughly addressed in foreign trade regulations. The IGST Act under the Goods and Services Tax (GST) specifically defines this term. Taxpayers often find it challenging to distinguish between regular exports and deemed exports, as both provide comparable tax benefits. This article aims to offer a comprehensive understanding of deemed exports, enabling readers to make well-informed decisions.

Understanding Deemed Exports Under GST

Generally, exporting goods involves physically moving them out of India, and these transactions are considered zero-rated under GST. Nevertheless, the Central Government has the authority to designate specific categories of goods supplies as 'deemed exports.' This classification allows these supplies to be treated as exports for tax purposes, even if the goods remain within India's geographical borders.

Key Criteria for Qualifying as Deemed Exports

To be recognized as a deemed export under GST, a supply of goods must fulfill several essential conditions:

• These provisions apply exclusively to the supply of goods, not services.
• The physical movement of goods outside India is not a prerequisite.
• The Central Government must officially designate these goods supplies as deemed exports under Section 147 of the CGST Act, 2017.
• The goods in question must originate from manufacturing or production processes within India.
• Payments for these supplies can be accepted in either Indian Rupees or convertible foreign currency.
• Such transactions are ineligible for execution under a Bond or Letter of Undertaking (LUT).
• Applicable taxes must be paid at the point of supply, and a refund for these taxes can subsequently be requested.

Notified Categories of Deemed Exports Under GST

As per CGST notification no. 48/2017 – Central Tax, dated 18th October 2017, the following supplies of goods are recognized as deemed exports:

• Provision of goods by a GST-registered individual to a recipient holding an Advance Authorisation (AA).
• Provision of capital goods by a GST-registered individual against an Export Promotion Capital Goods Authorisation (EPCG).
• Provision of goods by a GST-registered individual to units such as Export Oriented Units (EOU), Electronic Hardware Technology Park Units (EHTP), Software Technology Park Units (STP), or Bio-Technology Park Units (BTP).
• Provision of gold by a Bank or Public Sector Undertaking against an Advance Authorisation (AA).

It is important to note that the Foreign Trade Policy (FTP) 2015 – 2020 also contains a definition for deemed exports. However, this FTP definition varies from the one provided in GST law and should not be applied when interpreting GST provisions. A supply of goods might be classified as a deemed export under the FTP but may not meet the criteria for deemed exports under GST, as these two legislations serve distinct objectives. For instance, if Dealer ‘A’ in Rajasthan sells goods to Dealer ‘B’, an Export Oriented Unit (EOU), and Dealer ‘B’ subsequently sells these goods to customer ‘C’ in Germany, the transaction between A and B is considered a deemed export. The subsequent sale from B to C constitutes a regular export.

GST Treatment of Deemed Exports

In contrast to standard exports, deemed export supplies are not inherently zero-rated. GST is applicable to all deemed export transactions at the point of supply. These supplies cannot be conducted without prior tax payment under a Bond or Letter of Undertaking (LUT). The tax must be paid at the time of supply, after which a refund can be claimed. Under specific conditions, either the supplier or the recipient of the goods may apply for a refund of the GST paid. It is crucial to remember that if the supplier claims the tax refund, the recipient is then ineligible to claim the input tax credit (ITC) for those supplies.

Supplementary Requirements for Deemed Exports to EOU/STP/BTP Units

When making deemed exports to Export Oriented Units (EOU), Electronic Hardware Technology Park (EHTP), Software Technology Park (STP), or Bio-Technology Park (BTP) units, additional stipulations apply:

• The EOU/EHTP/STP/BTP unit is required to provide advance notification by submitting Form A to both the supplier and the relevant jurisdictional GST officers of both the supplier and the recipient.
• Form A must include a unique serial number and specify the goods to be procured, with prior approval from the Development Commissioner.
• The supplier must dispatch the goods accompanied by a proper tax invoice.
• The recipient must endorse the tax invoice, and a copy of this endorsed invoice must be forwarded to the supplier and the jurisdictional GST officers of both parties.
• The EOU/EHTP/STP/BTP unit must maintain thorough records of all such received goods in Form B.

GST Refund Procedure for Deemed Exports

Necessary Documentation for Refund Claims

Suppliers seeking a refund of GST paid on deemed exports must provide the following documents and information:

• A detailed statement outlining invoice-wise specifics of all deemed export supplies carried out by the supplier.
• An acknowledgment from the jurisdictional tax officer of the Advance Authorisation (AA) or Export Promotion Capital Goods (EPCG) holder confirming receipt of the deemed export supplies. Alternatively, for EOU/EHTP/STP/BTP units, a copy of the tax invoice signed by the recipient verifying receipt of the supplies.
• A declaration from the recipient confirming that no Input Tax Credit (ITC) has been claimed for these supplies.
• A declaration from the recipient stating they will not seek a refund for these specific supplies.

Refund Application Form

To secure a refund for GST paid on deemed exports, either the supplier or the recipient must submit an application using Form GST RFD – 01, along with all necessary supporting documentation. The process for filing and managing refund claims for deemed export supplies can be completed online. Such claims must be submitted within two years from the date the return related to these deemed export supplies was electronically filed. CGST notification no. 49/2017, issued on 18th October 2017, also specifies the evidence required from suppliers of deemed export supplies when seeking a refund. Statement 5B must be completed and included as part of Annexure I of the RFD-01 refund application.

Any Input Tax Credit (ITC) claimed on inputs used for manufacturing deemed exports must be applied towards the sale of taxable supplies (excluding nil-rated or fully exempted goods). A Chartered Accountant's certificate must be submitted to the jurisdictional GST Commissioner or an authorized officer within six months of the supply.

Reporting Deemed Exports in GSTR–1 and GSTR–3B

Deemed export supplies must be reported in Table 6C of Form GSTR – 1, where the registered dealer needs to provide invoice specifics and the tax paid on these supplies.

Within Form GSTR – 3B, deemed exports are to be listed in Table 3.1 (b) alongside other zero-rated supplies.

Any modifications to B2B deemed export invoices should be declared in Table 9A (B2B amendments), while changes to debit/credit notes are reported in Table 9C. For further details, refer to: Exports Under GST – Deemed Exports, Forms for Refunds.