ITC on Exported Goods and Services: Refunds and Compliance

Exports are a vital engine for the Indian economy, driving growth, creating jobs, and earning valuable foreign exchange. Recognizing this, the Goods and Services Tax (GST) regime in India incorporates special provisions to ensure that domestic taxes do not hinder the competitiveness of Indian goods and services in the global market. A cornerstone of this framework is the concept of Input Tax Credit (ITC), which essentially allows businesses to claim credit for the GST they pay on their inputs (like raw materials, services, or capital goods). When these inputs are used to produce goods or services that are exported, the GST system allows businesses to either export without paying tax upfront or claim a refund of the taxes paid, effectively making exports ‘tax-free’. This is achieved through the ‘zero-rated supply’ mechanism, ensuring that the tax burden does not get exported along with the goods or services. However, navigating the procedures for claiming these refunds and adhering to the associated compliance requirements can often seem complex, particularly for small business owners or individuals venturing into exports. This post aims to demystify the process, providing a clear guide to understanding ITC on exported goods and services, detailing the refund mechanisms, and outlining the essential compliance steps under the Indian GST law. This information is crucial for any business currently engaged in or planning to start exporting from India.

Understanding the Basics: ITC and Zero-Rated Supplies

Before diving into the specifics of export refunds, it’s essential to grasp two fundamental GST concepts: Input Tax Credit (ITC) and Zero-Rated Supplies. Understanding these concepts forms the bedrock upon which the entire export refund mechanism is built, clarifying why exporters are eligible for refunds and how the system prevents tax costs from inflating export prices.

What is Input Tax Credit (ITC) under GST?

Brief Overview

Input Tax Credit, or ITC, is a core feature of the GST system designed to prevent the cascading effect of taxes (tax on tax). In simple terms, when a business buys goods or services for its operations, it pays GST on those purchases. When the business sells its own goods or services (output supply), it collects GST from its customers. ITC allows the business to deduct the GST it paid on its purchases (input tax) from the GST it collected on its sales (output tax), paying only the difference to the government. This ensures that tax is levied only on the value added at each stage of the supply chain. Without ITC, the tax paid on inputs would become part of the cost, leading to higher prices for the end consumer and decreased competitiveness.

Eligible Inputs

Businesses can generally claim ITC on various inputs used or intended to be used in the course or furtherance of their business. This includes:

• Goods: Raw materials, components, consumables, packing materials, etc.
• Services: Rent, transportation, professional fees, advertising, repairs, banking charges, etc.
• Capital Goods: Machinery, equipment, computers, furniture, etc., used for production or service provision.

It’s important to note that certain items are specifically blocked for ITC under Section 17(5) of the CGST Act, such as expenses related primarily to personal consumption, certain construction costs, or motor vehicles under specific conditions, even if used for business.

Basic Conditions for Claiming ITC

To claim ITC, a registered business must meet several conditions stipulated under GST law. While minor variations exist, the primary conditions generally include:

1. Possession of Tax Invoice: You must have a valid tax invoice, debit note, or other prescribed tax-paying document issued by the supplier.
2. Receipt of Goods/Services: You must have actually received the goods or services.
3. Tax Paid by Supplier: The tax charged on your purchase must have been actually paid to the government by your supplier (usually verified through their return filing, reflected in your GSTR-2A/2B).
4. Filing of Return: You must have filed your own GST return (typically GSTR-3B) where the ITC is claimed.
5. Payment to Supplier: The payment for the invoice must be made to the supplier within 180 days from the date of invoice (failure may require reversal of ITC claimed earlier, which can be re-claimed upon payment).

Why Exports are Zero-Rated Supplies

Defining Zero-Rated Supply

Under Section 16 of the Integrated Goods and Services Tax (IGST) Act, 2017, the export of goods or services, or supplies made to a Special Economic Zone (SEZ) unit or developer, are classified as ‘zero-rated supplies’. This means that while the output supply (the export itself) is effectively taxed at a rate of 0%, the supplier (the exporter) is still eligible to claim Input Tax Credit (ITC) on the inputs and input services used in making those zero-rated supplies. This mechanism ensures that no GST component is embedded in the final price of the exported goods or services, making them more competitive in the international market. The fundamental principle is to export goods and services, not domestic taxes.

Contrast with Exempt Supplies

It’s crucial to distinguish zero-rated supplies from ‘exempt supplies’. Exempt supplies (like basic groceries, certain healthcare services, or educational services) also attract a 0% GST rate on the output. However, the key difference lies in the treatment of ITC. For exempt supplies, businesses cannot claim ITC on the inputs used to provide them. This means the tax paid on inputs becomes a cost for the business supplying exempt goods/services. In contrast, for zero-rated supplies (exports and supplies to SEZs), the output tax is zero, and the ITC on inputs is available, either as an offset against other domestic liabilities or as a cash refund. This highlights the preferential treatment given to exports under GST.

Significance for Exporters

The zero-rating provision is immensely significant for Indian exporters. By allowing them to claim refunds of the ITC accumulated on inputs used for exports, the government ensures that domestic taxes like GST do not increase the final price of exported products. This helps Indian businesses compete effectively on the global stage based on quality and price, rather than being disadvantaged by embedded domestic tax costs. It aligns with the World Trade Organization (WTO) principle that taxes should not be exported. This mechanism directly boosts export competitiveness and encourages businesses to look towards international markets, contributing to India’s foreign exchange earnings and economic growth. For those looking to start a business, understanding these nuances can be crucial, as highlighted in Company Registration in India.

Claiming ITC Refunds on Exports: The Process

Now that we understand that exports are zero-rated and exporters are entitled to the benefit of ITC accumulated on related inputs, let’s explore the practical mechanisms for claiming these refunds. The GST law provides exporters with two primary options to handle their export transactions and subsequent refund claims. Choosing the right option depends on the exporter’s business model, cash flow situation, and compliance comfort level. As part of a broader strategy, this can tie into the Launch of Your Startup Right – Mastering GST Registration in India.

Options for Exporters: Understanding Your Choices

Exporters essentially have two pathways for managing GST on their exports:

Option 1: Exporting under Letter of Undertaking (LUT)

• Explanation: A Letter of Undertaking (LUT) is a document submitted by an eligible exporter to the GST authorities, allowing them to export goods or services without paying Integrated GST (IGST) on the export transaction itself. It is essentially an undertaking that the exporter will fulfil all export requirements under GST law. Generally, any registered taxpayer engaged in export can file an LUT, provided they have not been prosecuted for tax evasion exceeding a certain limit.
• Refund Mechanism: Since no IGST is paid on the export under this option, the exporter cannot claim a refund of output tax (as none was paid). Instead, the ITC accumulated on inputs and input services used for these exports remains unutilized. The exporter can then file an application to claim a cash refund of this accumulated unutilized ITC. This option is beneficial for exporters who do not wish to block their working capital by first paying IGST and then waiting for a refund.
• Procedure: The process primarily involves filing Form GST RFD-11 online on the GST Portal to obtain the LUT Acceptance Reference Number (ARN) for a financial year. Subsequently, for claiming the accumulated ITC refund, the exporter needs to file Form GST RFD-01 electronically on the GST portal, providing details of export invoices and supporting documents.

Option 2: Exporting on Payment of IGST

• Explanation: Under this option, the exporter chooses not to execute an LUT. Instead, they pay the applicable IGST on the value of the goods or services being exported, just like they would for a domestic supply. They can utilize their available ITC to pay this IGST liability, and if the ITC is insufficient, pay the balance in cash.
• Refund Mechanism: After paying the IGST on export, the exporter can claim a refund of the IGST paid on the exported goods or services. This option might be simpler for businesses with sufficient ITC accumulation from domestic supplies or those who find the LUT compliance process cumbersome, although it does involve an initial cash outflow (or ITC utilization) which is later refunded.
• Procedure: For the export of goods, the refund process under this route is significantly streamlined. The Shipping Bill filed by the exporter with the Customs authorities (through the ICEGATE Portal) is deemed to be the refund application itself, provided certain conditions are met. The crucial requirement is that the exporter must accurately declare the details of the export invoice and the IGST paid amount in both their GSTR-1 (specifically Table 6A) and their GSTR-3B return, and these details must match the information filed in the Shipping Bill. The GST portal shares the relevant data with the Customs system (ICEGATE), which then processes the refund after verifying the export details. For the export of services, a separate refund application in Form GST RFD-01 is typically required even if IGST is paid.

Here’s a quick comparison:

Feature	Export under LUT	Export on Payment of IGST
IGST on Export	Not paid	Paid (can use ITC or cash)
Refund Claimed	Accumulated Unutilized ITC	IGST Paid on Export
Primary Form	GST RFD-01 (for refund)	Shipping Bill (for goods), RFD-01 (for services)
Working Capital	Less blockage	Initial blockage (IGST paid)
Upfront Action	File LUT (GST RFD-11)	Pay IGST while filing GSTR-3B
Streamlining	Less streamlined (RFD-01 needed)	Highly streamlined for goods

Step-by-Step Guide: How to Claim ITC on Exported Goods and Services

Understanding the specific steps involved in each refund route is crucial for ensuring a smooth process and timely receipt of funds. The procedure differs significantly depending on whether you export under an LUT or by paying IGST. Knowing how to claim ITC on exported goods and services correctly is vital for compliance.

Claiming Refund under LUT Route:

This route involves claiming a refund of the ITC that has accumulated because the output (export) was made without charging IGST. The ITC refund process for exported goods and services under LUT generally involves these steps:

1. File LUT: Before the start of the financial year or before commencing exports under LUT, file Form GST RFD-11 on the GST Portal to obtain the ARN for your Letter of Undertaking. This LUT is typically valid for one financial year.
2. Execute Exports: Make your export supplies (goods or services) without charging IGST on the invoice. Ensure your invoice clearly mentions “Supply Meant for Export under Bond or Letter of Undertaking without Payment of Integrated Tax” and includes the LUT ARN.
3. File GST Returns: Accurately report these zero-rated supplies in your monthly/quarterly GSTR-1 (typically in Table 6A) and GSTR-3B returns. Ensure you correctly claim eligible ITC on your inputs in GSTR-3B.
4. Calculate Refund Amount: Determine the amount of accumulated unutilized ITC attributable to your zero-rated supplies for the relevant tax period, using the formula prescribed in Rule 89(4) of the CGST Rules.
5. File Refund Application (Form GST RFD-01): Log in to the GST Portal and navigate to Services > Refunds > Application for Refund. Select ‘Refund of unutilized ITC on account of Exports without payment of tax’ and the relevant tax period. Fill in the required details, including the calculated refund amount and bank account information for receiving the refund.
6. Upload Supporting Documents: Attach scanned copies of required documents. This typically includes:
   • Declaration under Rule 89(2)
   • Statement 3 (details of export invoices for goods/services)
   • Copy of GSTR-2A/2B for the relevant period (as evidence of ITC)
   • Bank Realisation Certificates (BRCs) or Foreign Inward Remittance Certificates (FIRCs) as evidence of receipt of export proceeds in foreign currency (mandatory for export of services, and often required for export of goods under LUT).
   • The ARN of the LUT filed.
   • Undertaking regarding Section 16(2)(c) and Section 42(2) (related to ITC conditions).
   • Self-certified copies of invoices entered in Statement 3 whose details are not available in GSTR-2A/2B.
7. Submit and Track: Submit the application using DSC or EVC. An Application Reference Number (ARN) will be generated. You can track the status of your application on the GST portal. Tax authorities will scrutinize the application and may issue deficiency memos if clarification or additional documents are needed before sanctioning the refund.

Claiming Refund under IGST Payment Route:

This route involves claiming back the IGST that you paid on your export supply. The process, especially for goods, is designed to be more automated.

1. Execute Exports: Make your export supplies (goods or services) and issue a tax invoice charging the applicable IGST. The invoice should mention “Supply Meant for Export on Payment of Integrated Tax”.
2. File GSTR-1: Accurately report the details of these export invoices, including invoice number, date, value, port code, Shipping Bill number/Bill of Export number, date, and IGST paid, in Table 6A of your GSTR-1 return for the relevant tax period. Accuracy here is paramount.
3. File GSTR-3B: Report the total export turnover and IGST liability in your GSTR-3B return. Ensure you pay the IGST liability declared (either through utilization of available ITC or by cash payment). Filing GSTR-3B for the relevant period is mandatory for refund processing.
4. File Shipping Bill / Bill of Export (For Goods): When exporting goods, file the Shipping Bill (for sea/air cargo) or Bill of Export (for land cargo) with the Customs authorities via the ICEGATE Portal. Crucially, ensure that the GSTIN and the IGST amount declared in the Shipping Bill exactly match the details provided in your GSTR-1. Declare “Y” (for Yes) in the Shipping Bill when asked if you intend to claim refund against IGST payment.
5. Automatic Processing (Goods): Once you file both GSTR-1 and GSTR-3B correctly, and the Customs system validates the Export General Manifest (EGM – proof that goods have left India), the GST Network (GSTN) transmits your GSTR-1 export data to ICEGATE. ICEGATE then validates the GSTR-1 data against the Shipping Bill data. If they match and other conditions are met, the refund is processed automatically and credited to the bank account registered with Customs. No separate RFD-01 application is needed for goods exported under this route.
6. Separate Application (Services): For export of services made on payment of IGST, a separate refund application in Form GST RFD-01 needs to be filed on the GST Portal, selecting ‘Refund on account of Export of Services with payment of tax’. Required documents include Statement 2 (details of invoices), BRCs/FIRCs, and relevant declarations.
7. Monitor Status & Address Discrepancies: You can track the refund status on both the GST Portal and the ICEGATE portal. Common reasons for delays or rejection in the IGST payment route (especially for goods) include mismatches between GSTR-1 and Shipping Bill data (e.g., invoice number, IGST amount), incorrect SB/port details in GSTR-1, non-filing or late filing of GSTR-3B, or non-filing of EGM by the shipping line/airline. Promptly rectify any errors highlighted.

Key Documentation for ITC Refund Claims India

Regardless of the route chosen, maintaining proper documentation is non-negotiable for successful ITC refund claims India. Missing or incorrect documents are the most common reasons for delays or rejections. Key documents include:

• Export Invoices: Must comply with Rule 46 of the CGST Rules and specifically mention whether the export is made with or without payment of IGST, along with the LUT ARN if applicable. Include details like description, quantity, value, tax rate (even if zero under LUT), HSN code, etc.
• Shipping Bills (for goods) / Bills of Export (for goods): Endorsed by Customs authorities, containing details like Let Export Order (LEO) date, number, and EGM details. This is primary evidence of the physical export of goods.
• Air Waybills / Bills of Lading (for goods): Evidence of shipment provided by the carrier.
• Bank Realisation Certificates (BRC) / Foreign Inward Remittance Certificates (FIRC): Issued by your bank, these are crucial evidence that payment for the exported goods or services has been received in convertible foreign exchange. Mandatory for refund claims related to export of services and often required for goods exported under the LUT route.
• Letter of Undertaking (LUT) ARN: If exporting under LUT, the valid ARN for the financial year must be available and quoted.
• Purchase Invoices (Input Invoices): Documentary evidence for the ITC being claimed as accumulated or utilized for paying IGST. Authorities may ask for these during scrutiny.
• Relevant GST Returns: Copies of filed GSTR-1 and GSTR-3B for the period for which the refund is claimed, showing the declaration of export turnover and ITC details.
• Proof of Place of Supply (for Services): Documents like service agreements, contracts, client communication, etc., proving the recipient is located outside India and the place of supply is outside India as per IGST Act provisions.
• Refund Application (Form GST RFD-01): A printout or digital copy of the application filed on the portal, along with all attached statements and declarations (like Statement 2, 3, 3A, 5B as applicable).

Keeping these documents organized and readily available is essential not just for filing the claim but also for responding to any queries from the tax department during processing or potential audits later. For a broader understanding of taxation in your business activities, you can explore TAXATION SERVICES IN INDIA.

Ensuring GST Compliance for Exported Services in India and Goods

Claiming refunds is only one part of the equation; maintaining consistent GST compliance is equally critical for exporters. Non-compliance can lead to penalties, interest, suspension of refund processing, and potential legal issues. Ensuring proper compliance for exported services in India and goods involves meticulous attention to invoicing, return filing, documentation, and timelines.

Essential Compliance Requirements for Exporters

Several core compliance areas demand attention from all exporters, regardless of whether they deal in goods or services or use the LUT/IGST payment route.

Proper Invoicing

Export invoices have specific requirements under GST Rule 46. Beyond standard invoice details (GSTIN, name, address, date, HSN, description, quantity, value), export invoices must include:

• Recipient’s Name and Address (located outside India)
• Delivery Address (outside India)
• A specific endorsement:
  • “SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS ON PAYMENT OF INTEGRATED TAX” or
  • “SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”
• If exporting under LUT, the LUT ARN should ideally be mentioned.
• Currency of transaction should be clear.

Incorrect or incomplete invoices can lead to refund rejection or compliance issues.

Timely Filing of GST Returns

This is perhaps the most critical compliance aspect impacting refunds.

• GSTR-1: Export details must be accurately reported in the correct tables (usually Table 6A for exports, Table 6B for SEZ supplies) within the due date. Any mismatch between GSTR-1 and actual export documents (like Shipping Bill) will halt IGST payment route refunds. For LUT route refunds, accurate reporting establishes the zero-rated turnover base for calculation.
• GSTR-3B: This return summarizes your tax liabilities and ITC claimed. Timely filing and payment of taxes (if applicable, like under the IGST payment route) are mandatory for refund processing. The turnover declared in GSTR-3B should reconcile with GSTR-1. Consistent delays in filing can lead to penalties and interest, and block refund claims.

Maintaining Proof of Export

Simply issuing an invoice isn’t enough; you must prove the goods actually left India or the services were delivered outside India and payment was received appropriately.

• Goods: Retain copies of Shipping Bills/Bills of Export with the Let Export Order (LEO) date, Export General Manifest (EGM) details, and Bills of Lading/Air Waybills.
• Services: Maintain service agreements, invoices, proof of delivery (like project completion reports, email confirmations), and crucially, BRCs/FIRCs proving payment receipt in foreign currency. The definition of “export of services” under Section 2(6) of the IGST Act must be strictly met (supplier in India, recipient outside India, place of supply outside India, payment in convertible foreign exchange unless permitted otherwise by RBI, entities not merely establishments of the same person).

Adherence to Timelines

GST law prescribes timelines for various actions:

• Export Realization: Payment for exported goods should generally be realized within nine months (extendable by RBI) from the date of export. For services, it’s typically one year. Failure to realize payment within the stipulated time can lead to issues, potentially requiring repayment of refund claimed.
• Refund Application: An application for refund (Form GST RFD-01) must be filed within two years from the ‘relevant date’. The definition of ‘relevant date’ varies:
  • For goods exported by sea/air: Date on which the ship/aircraft leaves India.
  • For goods exported by land: Date on which goods pass the frontier.
  • For goods exported by post: Date of dispatch by the Post Office.
  • For services exported (where payment received after completion): Date of receipt of payment in foreign currency.
  • For services exported (where payment received before completion): Date of issue of invoice.

Filing beyond this two-year window will lead to the claim being time-barred.

Specific Considerations for Exported Goods and ITC Compliance

While the general principles apply, exported goods and ITC compliance have some unique aspects, primarily linked to the integration with the Customs system:

• Shipping Bill – GSTR-1 Link: As emphasized earlier, the accuracy and matching of data between the Shipping Bill filed on ICEGATE and Table 6A of GSTR-1 are absolutely critical for refunds under the IGST payment route. Any discrepancy in invoice number, date, taxable value, IGST amount, port code, or Shipping Bill number/date will cause the refund to be withheld until rectified through amendment filings.
• E-way Bill: While exports themselves don’t require an E-way bill for the final leg out of the country, the movement of goods within India from the supplier’s factory/warehouse to the port, airport, or land customs station might require an E-way bill if the consignment value exceeds the threshold (typically ₹50,000), depending on the state’s specific rules. Compliance with domestic E-way bill rules during this initial movement is also important.
• Customs Procedures: Exporters must also comply with all requirements of the Customs Act, 1962, regarding documentation, declarations, examination of goods, and procedural formalities at the port of export.

Specific Considerations for Refunds for Exported Services Compliance in India

Refunds for exported services compliance in India hinge heavily on meeting the definition of export and proving it unequivocally:

• Meeting the Definition: Exporters must ensure all five conditions under Section 2(6) of the IGST Act are met for their service to qualify as an export. This includes verifying the recipient’s location, ensuring the place of supply is outside India as per Section 13 of the IGST Act, and receiving payment in convertible foreign exchange (or Indian Rupees where permitted by RBI). Careful assessment of the place of supply rules is particularly crucial for services.
• Robust Documentation: Since services are intangible, documentation is even more critical. Beyond invoices, key documents include:
  • Master Service Agreements or specific contracts clearly defining the scope of work, deliverables, recipient location, and payment terms.
  • Invoices with detailed service descriptions.
  • Proof of service delivery (e.g., project reports, milestone acceptance emails, system logs).
  • BRCs/FIRCs are almost always mandatory as primary evidence of receiving payment in foreign currency for service exports, irrespective of whether the LUT or IGST payment route is used for the refund claim.

Record Keeping

Maintaining meticulous and organized records is a fundamental compliance requirement that supports all other aspects. Exporters must retain:

• All purchase invoices on which ITC has been claimed.
• Copies of all export invoices issued.
• Shipping Bills, Bills of Export, Air Waybills, Bills of Lading.
• BRCs / FIRCs.
• Service agreements (for service exporters).
• Copies of filed GSTR-1, GSTR-3B, and annual returns (GSTR-9/9C).
• Copies of filed refund applications (RFD-01) and related correspondence (acknowledgements, deficiency memos, sanction orders).
• LUT documents, if applicable.
• Relevant bank statements showing receipt of foreign currency.

These records must be maintained for the period specified under GST law (currently, at least six years from the due date of filing the annual return for the relevant year) and should be readily available for verification during departmental audits or assessments. Proper record-keeping not only ensures compliance but also significantly speeds up the process of responding to queries and substantiating refund claims.

Conclusion

Successfully navigating the world of exports under the Indian GST regime requires a clear understanding of ITC on exported goods and services. The zero-rating principle ensures that exports remain competitive by allowing businesses to either export without paying IGST upfront (using an LUT) or claim a refund of the IGST paid. Both methods ultimately provide the benefit of neutralizing the domestic tax impact. Choosing between the LUT route (refund of accumulated ITC) and the IGST payment route (refund of IGST paid) depends on the exporter’s specific circumstances, particularly cash flow considerations and procedural preferences.

Regardless of the chosen path, meticulous compliance is paramount. This involves accurate invoicing, timely filing of GSTR-1 and GSTR-3B, maintaining robust proof of export (Shipping Bills for goods, BRCs/FIRCs especially for services and LUT route), and adhering to prescribed timelines for payment realization and refund application filing. Correctly managing these processes not only ensures compliance but also significantly improves a business’s cash flow by facilitating timely ITC refund claims India, making valuable working capital available sooner.

The key takeaway for small businesses and individuals involved in exports is that accuracy and timeliness in documentation and return filing are critical. Minor errors or delays can lead to significant hold-ups in receiving refunds. While the system aims to facilitate exporters, the onus of providing correct information and documentation lies squarely with the taxpayer. Navigating export refunds and compliance can indeed be complex, involving coordination between GST and Customs portals and adherence to specific rules. If you find these processes challenging, consider seeking expert help. Contact TaxRobo today for professional assistance with your GST filings, ITC refund applications, and ensuring overall compliance for exported services in India and goods. Our experts can help you streamline your export processes and maximize your eligible refunds.

Frequently Asked Questions (FAQs)

FAQs on ITC Refunds and Export Compliance

Q1: What is the time limit for claiming an ITC refund on exports?

Under GST law, the time limit for filing a refund application (Form GST RFD-01) is two years from the ‘relevant date’. The definition of ‘relevant date’ depends on the mode of export:

• For goods exported by sea or air: The date on which the ship or aircraft leaves India.
• For goods exported by land: The date on which the goods pass the frontier (border).
• For goods exported by post: The date of dispatch of goods by the concerned Post Office.
• For services exported:
  • If payment is received after the service completion: The date of receipt of payment in convertible foreign exchange.
  • If payment is received before the service completion: The date of issue of the invoice.

Filing the claim after this two-year period will result in the claim being rejected as time-barred.

Q2: Can I claim an ITC refund if I export goods/services that are exempt from GST domestically?

This depends. It’s crucial to differentiate between ‘exempt’ and ‘zero-rated’. Exports are treated as ‘zero-rated’ supplies, meaning the output tax is nil, but ITC on inputs is available as a refund. ‘Exempt’ supplies also have nil output tax, but ITC on inputs is generally not available. If a good is exempt domestically (e.g., basic food grains), its export is still considered zero-rated. Therefore, you can claim a refund of the ITC accumulated on inputs used specifically for exporting these goods, provided you meet all other conditions (like exporting under LUT or paying IGST and claiming refund). However, if the inputs themselves were exempt supplies on which no GST was paid, there would be no ITC to claim. The focus is on the zero-rating status of the export supply itself.

Q3: What happens if my ITC refund claim is rejected or faces a deficiency memo?

If the tax officer finds discrepancies or requires clarification while processing your refund application (Form RFD-01), they will issue a ‘Deficiency Memo’ (Form GST RFD-03). You need to rectify the deficiencies mentioned and file a fresh refund application. If the claim is rejected (partially or fully) via an order (Form GST RFD-06) after scrutiny or a show-cause notice process, the order will state the reasons for rejection. You have the right to appeal against such an order to the Appellate Authority within the prescribed time limit if you disagree with the decision. Responding promptly to memos and providing accurate documentation is key to avoiding rejection.

Q4: Do I need a Letter of Undertaking (LUT) to export services without paying IGST?

Yes. The option to export goods or services without paying IGST is available only upon furnishing a Letter of Undertaking (LUT) in Form GST RFD-11 on the GST Portal. This applies equally to both the export of goods and the export of services. If you are an eligible exporter (meeting conditions like no recent prosecution for significant tax evasion) and wish to export services without the initial cash outflow of IGST, you must file an LUT for the relevant financial year. Without a valid LUT, you would have to export services on payment of IGST and then claim a refund.

Q5: Is a Bank Realisation Certificate (BRC) / FIRC mandatory for claiming an ITC refund?

Yes, BRCs/FIRCs are generally considered mandatory proof of receipt of payment in convertible foreign exchange and are crucial for processing export refunds, especially in the following cases:

• Export of Services: It’s essential evidence to satisfy one of the key conditions defining “export of services” under the IGST Act. Refund claims (both under LUT and IGST payment routes) for services typically require BRC/FIRC submission.
• Export of Goods under LUT: When claiming a refund of accumulated ITC for goods exported under LUT, tax authorities often insist on BRC/FIRC submission as proof that export proceeds have been realized within the stipulated time.
• While the automated refund process for goods exported on payment of IGST primarily relies on Shipping Bill and GSTR data matching, authorities reserve the right to ask for BRC/FIRC later, especially if payment realization timelines are not met as per FEMA guidelines. Therefore, obtaining and preserving BRCs/FIRCs is a critical compliance requirement for all exporters.