Deemed exports under GST are transactions in which goods or services supplied in India are considered as exports for GST purposes. This means that the goods or services are intended to be used in the manufacturing or production of goods that are to be exported outside India.

Examples of Deemed exports include supplies made to Export Oriented Units (EOUs), Special Economic Zones (SEZs), and supplies made to certain categories of organizations specified by the government.

The objective of providing a deemed export status to such transactions is to encourage and promote the Export of goods and services from India. This is done by providing various benefits and incentives to the supplier, such as exemption or refund of GST on the supply of goods or services, duty drawback, and other export promotion schemes.

The benefits of Deemed exports can vary depending on the specific type of transaction. However, some of the most common benefits include exemption from GST on the supply of goods or services, refund of GST paid on the supply of goods or services, duty drawback (a refund of customs duties paid on imported inputs), and access to export promotion schemes.

LAW-

For a supply to become eligible for benefits of refund under GST. It should. Comply with Section 16 extracts of which are reproduced as under-

“(1) “zero rated supply” means any of the following supplies of goods or services or both, namely:–

(a) Export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.”

So, in case where supplies are made internally, let us say to an export oriented unit or to a unit which has obtained an EPCG authorization will not get the benefit of being Zero rated. To promote exports and to facilitate ease it was necessary to ensure that GST paid on procuring goods do not increase the working capital burden of the exporter and also the incidence of GST does not get passed on to the importing nation. Thus in this situation section 147 Comes to rescue and its provisions-

“Section 147. Deemed exports.

The Government may, on the recommendations of the Council, notify certain supplies of goods as Deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.”

Notification No.48/2017-Central Tax Dated: 18th October, 2017, has been issued in this regard, which provides that following supplies made internally shall be considered as Deemed exports-

S.No.	Description of supply
(1)	(2)
1.	Supply of goods by a registered person against Advance Authorisation Provided that goods so supplied, when exports have already been made after availing Input tax credit on inputs used in manufacture of such exports, shall be used in manufacture and supply of taxable goods (other than nil rated or fully exempted goods) and a certificate to this effect from a Chartered accountant is submitted to the jurisdictional commissioner of GST or any other officer authorised by him within 6 months of such supply,; Provided further that no such certificate shall be required if Input tax credit has not been availed on inputs used in manufacture of export goods.
2.	Supply of Capital goods by a Registered person against Export Promotion Capital goods Authorisation
3.	Supply of goods by a registered person to Export Oriented Unit
4.	Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.

Now let us understand this with the help of an illustration-

Suppose Komal Ltd has obtained EPCG license allowing him to import Capital goods free of custom duties. Now as per the authorization received Komal Ltd shall procure Capital goods and shall deploy such goods for production of articles which will ultimately be exported. Now Komal Ltd Purchases imported machinery lets say through Sinha Ltd as per the EPCG authorization. This case is a perfect case for refund of GST levied on Import of such machinery. Search EPCG authorization though exempts custom levies but does not exempt the IGST portion leviable on search imports.

Before delving into the refund aspect of GST paid on such machinery let us first take a brief look into some of turnover conditions that an EPCG holder has to fulfil-

In the EPCG Scheme, the Export Obligation period is of 6 years.

Export Obligation is fulfiled by the authorisation holder only by exporting goods, which are manufactured using the said machinery. Export obligation cannot be fulfiled by the export of alternate products not mentioned on the EPCG License.
Export Obligation imposed in the EPCG Scheme is of two types-
- Specific Export obligation-SEO
- Average Export obligation-AEO

Specific Export Obligation (SEO)

Under Specific export obligation, an exporter has to export goods equal to 6 times of the actual duty saved amount within 6 years starting from the EPCG license issue date.

In SEO, the Export Obligation should be completed block-wise:-

1st Block: The first four years from the issue of the license is said as 1st block and in this block, the exporter has to complete a minimum 50% of the Export Obligation.

2nd Block: The last two year i.e. 5th and 6th year from the issue of the license are said as 2nd block and in this block, the exporter has to complete the remaining Export Obligation.

If the Authorisation holder fails to fulfil the 1st block, he can extend by paying 2% of composition fees on the duty saved value proportionate to the unfulfilled portion of the Export Obligation.

Average Export Obligation (AEO)

In AEO, the average turnover of same & similar products maintained in the preceding three financial years before the license issued should be maintained in each financial year until we fulfill the Specific Export Obligation (SEO).

In this obligation, the DGFT wants you to maintain the export performance you already achieved in previous financial years.

As already discussed, the EPCG scheme is introduced with the objective to increase exports, therefore AEO makes sure the average is maintained and SEO makes sure that there is an increase in exports.

Now coming to the aspect of refund of GST paid. The 3rd proviso to Rule 89(1) of CGST Rules, 2017 allows for refund of tax paid in case of a deemed export supply to the recipient or the supplier of deemed export supplies. The said proviso is reproduced as under:

“Provided also that in respect of supplies regarded as Deemed exports, the application may be filed by,–

(a) the recipient of deemed export supplies; or

(b) the supplier of deemed export supplies in cases where the recipient does not avail of Input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund”

The amended para 41 of Circular No. 125/44/2019 – GST dated 18/11/2019 is reproduced as under:

“41. Certain supplies of goods have been notified as Deemed exports vide notification No. 48/2017-Central Tax dated 18.10.2017 under section 147 of the CGST Act. Further, the third proviso to rule 89(1) of the CGST Rules allows either the recipient or the supplier to apply for refund of tax paid on such deemed export supplies.

In case such refund is sought by the supplier of deemed export supplies, the documentary evidences as specified in notification No. 49/2017- Central Tax dated 18.10.2017 are also required to be furnished which includes an undertaking that the recipient of deemed export supplies shall not claim the refund in respect of such supplies and shall not avail any Input tax credit on such supplies.

Similarly, in case the refund is filed by the recipient of deemed export supplies, an undertaking shall have to be furnished by him stating that refund has been claimed only for those invoices which have been detailed in statement 5B for the Tax period for which refund is being claimed and the amount does not exceed the amount of Input tax credit availed in the Valid return filed for the said Tax period. The recipient shall also be required to declare that the supplier has not claimed refund with respect to the said supplies.

The procedure regarding procurement of supplies of goods from DTA by Export Oriented Unit (EOU) / Electronic Hardware Technology Park (EHTP) Unit / Software Technology Park (STP) Unit / Bio-Technology Parks (BTP) Unit under deemed export as laid down in Circular No. 14/14/2017-GST dated 06.11.2017 needs to be complied with.”

As can be understood from aforementioned refund of tax paid can be claimed by either of the following persons:

1. Supplier of goods, or

2. Recipient of goods.

In case refund application is filed by a supplier which in our case is Sinha Ltd., such application shall be accompanied by document as mentioned in Notification No.49/2017-Central Tax Dated: 18th October, 2017-

S.No.99 [No.49/2017-Central Tax] Dated: 18th October, 2017

G.S.R. (E).- In exercise of the powers conferred by clause (g) of sub-rule (2) of rule 89 of the Central Goods and Services Tax Rules, 2017 read with notification No.48/2017 (S.No.98) Central Tax, dated the 18th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 1305 (E), dated the 18th October, 2017, the Central Government hereby notifies the following, as detailed in column (2) of the Table below, as evidences which are required to be produced by the supplier of deemed Export supplies for claiming REFUND, namely:-

S.No.	Evidence
(1)	(2)
1.	Acknowledgment by the jurisdictional Tax officer of the Advance Authorisation holder or Export Promotion Capital Goods Authorisation holder, as the case may be, that the said deemed Export supplies have been received by the said Advance Authorisation or Export Promotion Capital goods Authorisation holder, or a copy of the tax invoice under which such supplies have been made by the supplier, duly signed by the recipient Export Oriented Unit that said deemed Export supplies have been received by it.
2.	An undertaking by the recipient of deemed Export supplies that no Input tax credit on such supplies has been availed of by him.
3.	An undertaking by the recipient of deemed Export supplies that he shall not claim the REFUND in respect of such supplies and the supplier may claim the REFUND.

Further Circular No. 125/44/2019 – GST requires the following documents to be filed in case refund application is filed by the supplier-

6	Refund to supplier of tax paid on deemed export supplies	Statement 5(B) under rule 89(2)(g)	Documents required under Notification No. 49/2017-Central Tax dated 18.10.2017 and Circular No. 14/14/2017-GST dated 06.11.2017
		Declaration under rule 89(2)(g)
		Undertaking in relation to sections 16(2)(c) and section 42(2)
		Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) otherwise

Whereas if refund application is filed by the recipient which in our case is Komal Ltd., the following mentioned documents shall be filed by him-

7	Refund to recipient of tax paid on deemed export supplies	Statement 5(B) under rule 89(2)(g)	Documents required under Circular No. 14/14/2017-GST dated 06.11.2017
		Declaration under rule 89(2)(g)
		Undertaking in relation to sections 16(2)(c) and section 42(2)

Relevant extracts of Circular 14/14/2017-GST are reproduced as under-

“2. For supplies to EOU / EHTP / STP / BTP units in terms of Notification No.48/2017 Central Tax dated 18.10.2017, the following procedure and safeguards are prescribed -

(i) The recipient EOU / EHTP / STP / BTP unit shall give prior intimation in a prescribed proforma in "Form–A" (appended herewith) bearing a running serial number containing the goods to be procured, as pre-approved by the Development Commissioner and the details of the supplier before such deemed Export supplies are made. The said intimation shall be given to –

(a) the registered supplier;

(b) the jurisdictional GST officer in charge of such registered supplier; and

(c) its jurisdictional GST officer.

(ii) The registered supplier thereafter will supply goods under tax invoice to the recipient EOU / EHTP / STP / BTP unit.

(iii) On receipt of such supplies, the EOU / EHTP / STP / BTP unit shall endorse the tax invoice and send a copy of the endorsed tax invoice to –

(a) the registered supplier;

(b) the jurisdictional GST officer in charge of such registered supplier; and

(c) its jurisdictional GST officer.

(iv) The endorsed tax invoice will be considered as proof of deemed Export supplies by the Registered person to EOU / EHTP / STP / BTP unit.

(v) The recipient EOU / EHTP / STP / BTP unit shall maintain records of such deemed Export supplies in digital form, based upon data elements contained in "Form-B" (appended herewith). The software for maintenance of digital records shall incorporate the feature of audit trail. While the data elements contained in the Form-B are mandatory, the recipient units will be free to add or continue with any additional data fields, as per their commercial requirements. All recipient units are required to enter data accurately and immediately upon the goods being received in, utilized by or removed from the said unit. The digital records should be kept updated, accurate, complete and available at the said unit at all times for verification by the Proper officer, whenever required. A digital copy of Form – B containing transactions for the month, shall be provided to the jurisdictional GST officer, each month (by the 10th of month) in a CD or Pen drive, as convenient to the said unit.

3. The above procedure and safeguards are in addition to the terms and conditions to be adhered to by a EOU / EHTP / STP / BTP unit in terms of the Foreign Trade Policy, 2015- 20 and the duty exemption notification being availed by such unit.

4. It is requested that suitable trade notices may be issued to publicize the contents of this circular.

5. Difficulty, if any, in implementation of the above instructions may please be brought to the notice of the Board.”

Miscellaneous-

For obtaining a refund of tax paid on Deemed exports, the supplier or recipient is required to file an application in Form GST RFD – 01 with supporting documents. Manual filing and processing of refund claims in case of deemed export supplies are permitted till the refund module is fully operational. The refund claim can be filed within two years from the date on which return relating to such deemed export supplies is furnished electronically.

Deemed Exports are different from Exports-
1. Deemed exports are only applicable to goods and not services.
2. Deemed exports cannot be made under Bonds or LUT (Letter of undertaking)
3. Goods need not be taken outside the country
4. Taxes on such supplies are required to be paid at the time of supply, however, the refund of the same can be claimed later.

5. If a refund has been claimed by the supplier then the recipient cannot claim ITC for the same.

CA Pranay Jain is a young and aspiring Chartered accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at linkedin.com/in/capranayjain

CA Pranay Jain

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Deemed export under GST

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