GST for exporters: no GST refund for Exporters of services

• Basic provisions related to export of services in GST

In Model GST draft it was promised the GST refund on export of services within 7 days. There is a provision in CGST Act also to refund the 90% of GST paid with 7 days. Section 54(6) of CGST Act provide for the refund of 90% of GST provisionally within 7 days of filing of refund application. Further refund application can be filed only after the relevant date. A list of relevant dates for various scenarios for both goods and services are provided. In case of services the relevant date will be:

Section 54 (14) (c)

in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of––

(i) receipt of payment in convertible foreign exchange, where the supply of services had been completed prior to the receipt of such payment; or

(ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice;

If we analyse the above provisions we will find that relevant date will be the date when both provision of services and payment are done. In case of services generally invoice is raised on advance basis. Liability to make payment of tax will arise at the time of raising an invoice whereas the exporter will be able to file the refund only after providing the services and receipt of payment.

This will cause the blockage of working capital for the exporters. In service tax regime exporters were not liable to pay the service tax. In GST even the liability to pay tax will be there when the place of supply is outside India. In service tax if the place of provisioning was falling outside India there was no requirement to pay any tax. In GST a service provider is required to pay the IGST or export under bond/LUT. Only large service providers will be able to fulfill this criteria. Rest of them will be liable to pay tax and then claim refund.

Practical issues exporters of services are facing:

Now the biggest issue with the services providers is that there is no form for the claim of refund. They are liable to pay tax but no mechanism for refund is in place. Small exporters are not eligible for LUT and bond option will have its own cost and compliance burden. 

Steps government shall take immediately:

1. Forms for refund of tax shall me made available immediately and refund shall be processed at fast speed.
2. If they are unable to provide the online forms. Start accepting hard copies at regional offices.
3. If any of them is not possible allow exporters to export without payment of taxes for the time being.
4. Remove the requirement of Bond from export.
5. Allow the small exporters to export under LUT.