Zero Rated Supplies under GST

Zero Rated Supplies under GST

In order to promote exports, Government provides many benefits and reliefs to export houses time and again. One such benefit provided by current Government is treatment of export of goods and/or services as "Zero Rated Supplies". Any supply of goods and/or services as an export shall be treated as "Zero Rated Supplies" even though such supplies are taxable under GST in domestic market. This move reduces the prices of commodities or services being exported and increases competitiveness of our product / services in the international market. Moreover, higher exports also means greater balance of payment for Government.

Zero Rated Supplies under GST

Export of Goods / Services:

As per section 2(5) of IGST Act, 2017 "Export" means taking goods out of India to a place outside India". Application of zero rate implies that the exporter does not have to charge any GST on outward supplies being export. However, he would be able to take input tax credit for inputs used for effecting export.

Deemed Export:

As per Section 147 of CGST Act, "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."
In the Notification no. 48/2017 Central Tax as on 18th Oct 2017, CBEC has notified four type of supplies as "Deemed Export". These are listed below:

1) Supply of goods by a registered person against Advance Authorisation
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 (EOU)
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


“Advance Authorisation” means an authorisation issued by the Director General of Foreign Trade under Chapter 4 of the Foreign Trade Policy 2015-20 for import or domestic procurement of inputs on pre-import basis for physical exports.
Export Promotion Capital Goods Authorisation means an authorisation issued by the Director General of Foreign Trade under Chapter 5 of the Foreign Trade Policy 2015-20 for import of capital goods for physical exports.
“Export Oriented Unit” means an Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-Technology Park Unit approved in accordance with the provisions of Chapter 6 of the Foreign Trade Policy 2015-20.

All Deeded Export transactions shall be treated as "Zero Rates Supplies" under GST.

Supply to SEZ Unit or SEZ Developer:

As per section 16 of IGST Act, 2017 all supplies made to an SEZ unit or developer shall be treated as "Zero Rated Supplies". Let us first understand what is an SEZ unit and SEZ developer:

Special Economic Zone (SEZ):

As per Section 2(19) of IGST Act, Special Economic Zone shall have the same meaning as assigned to it in clause (za) of Section 2 of the Special Economic Zones Act, 2005.

  • SEZ stands for Special Economic Zone. A special economic Zone is a specially established and developed trade area. It is governed by Special Economic Zone Act 2005 and Special Economic Zones Rules, 2006. The core purpose of SEZ is to promote trade and commerce. An SEZ is treated as a foreign territory even though it is located within the geographical boundaries of India. Most importantly it is a duty free area. This means no tax shall be applicable for the units operating within this territory.
  • Section 26 of the SEZ Act grants exemption, to every SEZ Unit and developer, from any duty of customs under Customs Act, 1962 on goods or services imported into or exported from India, as well as exemption from any tax liveable under GST Regime.
  • SEZ Unit: An SEZ Unit is a business unit operational within SEZ. It may be a manufacturing concern or a service oriented business unit.
  • SEZ Developer: An SEZ developer is an entity which is involved in development of an SEZ unit. It could be a person or a State Government which has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer
  • The Developer or Co-Developer shall have at least twenty-six percent of the equity in the entity proposing to create business, residential or recreational facilities in a Special Economic Zone in case such development is proposed to be carried out through a separate entity or a special purpose vehicle being a company formed and registered under the Companies Act, 1956 (1 of 1956).

Treatment of transactions and ITC for "Zero Rated Supplies":

A supplier effecting zero rated supply for any reasons stated above, has two options in relation to claiming refund of zero rated supplies.

1. Pay integrated tax on supplies made to SEZ and then claim refund on the taxes paid.
2. Supply goods / services under Bond or Letter of Undertaking (LUT) without payment of IGST. Then claim ITC for the GST paid on inputs and input services in relation to such supplies.

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