The zero-rated supply as a concept for the very first time is incorporated by the GST regime. This can be regarded as one of the innovative ideas as per GST law. Where the law makers have intended to differentiate between the exports from that of any other “goods or services”. “zero rated supply” is that the complete supply chain of one particular zero rated supply is connoted to be free from tax. That is there is no imposition of tax burden either upon the input nor the output side . Which is completely different from that of the exempt supplies. Where only the tax that is exempted is output tax, the same held in the case of “Sandeep Patil v. UOI” . The objective of the zero-rate supply is to make sure that the goods and the services of the Indian origin are competitive in the international arena and thereby ensuring that by imposing taxes it does not add up to that of the exports cost.
Section 2(23) of the IGST have the same meaning as that of section 16 of said act, with regard to the “zero-rated supply”. section 16 (1) of the IGST act 2017 have connoted zero rated supply as the supply of the goods or services or both; that is one the export of those goods or services or both; or two the supply of the goods or services to SEZ unit or developer . Coming to the export of goods as connoted, section 2(5) of the IGST act as the term having its cogent expression, meaning taking the goods outside of India. Section 2(6) of the act defines export of services, meaning whereby the supplier is in India, the recipient is outside India, “place of supply” is outside India, the payment that is received for such service is outside India and also the supplier or the recipient of such service should not be merely establishments of that of a distinct person . Thereby the export of a service must necessarily qualify all the said conditions, to categorize as a service provided outside India. The SEZ unit or developer as connoted in section 16 of the IGST act 2017, is defined in section 2(19) & 2(20) of IGST act 2017, as one having same meaning as assigned in special economic zone act, 2005.
“Zero rated supply” mechanism of levying tax upon the supply of the goods or services where the tax is not required to be paid and person who is making that supply is entitled to claim the benefit of the “input tax credit” with respect to the inputs as well as the input services that are been utilized in order to make “supply” . This article will critically evaluate the key features of the zero-rated supply to understand the importance of such provisions & and also will try to come up with possible steps to overcome any grey areas & challenges in implementation of provisions of zero-rated supply to its fullest utility.
TO DISTINQUISH AMONG “ZERO RATED, NIL, EXEMPT, NON-GST SUPPLY”
One important step in the indirect tax regime is the introduction of GST. The object being to eradicate the double taxation & move forward for the national market. There is slight yet significant difference between “NIL & zero-rated supply” and “NIL & exempt supply” . The distinct is important as it is relevant for the calculation of the amount of threshold exemption with regard to the registration of person u/s 22 of CGST act, because the aggregate turnover of 20-10 lakhs is of the inclusion of that of the exempt supply, the nontaxable supply but non-GST supply isn’t included and also necessary to know whether to generate the E-way bill or not.
Section 2(47) of CGST act 2017, “says that a supply of the goods or services or both whereby NIL rate or those can be exempted from taxation via a notification under section 11 of CGST act or section 6 IGST act 2017 is exempt supply”. So, it is hereby evident that the definition is inclusive & exhaustive parse. The key elements for exempt supply; one there must be a supply, two supply of goods or services or both, three the supply so made must be a nil rated supply (or) four such supply must be wholly exempted from the purview of tax as provided under section 11 or 6 of CGST & IGST act respectively & five includes the non-taxable supply. So, from the definition we can say that the “NIL rated & Non-taxable supply are under the umbrella of exempt supply”. The exemption so provided by the government under section 11 or 6 of the acts can be absolute or subject to some conditions. Nevertheless, the government has the power to partially exempt some goods or services, but they cannot be recognized as “exempted supply”.
Now the only difference between the exempted & NIL rated supply is that in exempted supply, in the tariff schedule the rate of levying is higher than the zero percent, but the amount of tax paid is NIL because of the exemption notification, but in NIL rated supply the very rate of levying is NIL so tax rate is also NIL, that is there is no need of any sort of notification for exemption.
Generally connoted that every activity can be divided as taxable & non-taxable supply, which is not true. So, for ones which are not supply first of all can be regarded as the “non-GST supply”, but this term is not defined. So, activities which are mentioned under schedule III or through notification u/s 7(2) (b) of the act can be regarded as non-GST supply because they are not supply of goods nor services. For instance, the salary that is paid to one’s employees, the purchase of property etc. Adding on there are some goods which are outside the purview of levy of tax as per section 9 of the act. In instance of supply of alcohol, it is excluded from the purview of tax owing to the constitutional definition. So, it to be treated as “non-GST supply”. Also, certain petroleum products like crude oil, ATF etc.
ANALYSIS OF ZERO-RATED SUPPLY
Section 16(1) IGST act says “zero rated supply” is the supply of goods or services or both and namely a) “export of the goods or services or both”, b) “supply of goods or services or both to SEZ developer or unit”.
2(5) of the CGST says “export of goods”, which are regarded as “zero rated supplies”. “In the Gujarat Authority for Advance Ruling (GST), Ahmedabad”, whereby the exporter need not pay tax on such supplies and are at the same time eligible for the claim of Input-Tax Credit (ITC). Here only the “movement of goods” from India to outside India is relevant. Hereby the exporter can claim the refund. The refund is for the input tax that is paid, which is utilized for making zero rated supply. In accordance to section 16(3) the exporter has the following options. One is to export the goods under LOT by not paying IGST and thereby claim the refund of the “unutilized input tax credit”. Two is to export the goods by paying the GST and thereby claiming the refund. “export of service” (2(6)) means the supply of the service whereby the recipient and place of supply is outside India, and supplier is within India. The exporter of service can claim the refund as in manner of export of goods. SEZ & SEZ developer in accordance to section 19 & 20 of the IGST act. SEZ is a dedicated zone whereby the business set ups enjoy simple form of taxation regime. They are located in country’s border, for tax purposes they are treated as foreign territory.
THE NEW PROPOSITION TO ZERO RATED SUPPLY
Finance bill 2021 has proposed certain changes to “section 16 of the IGST act 2017”. Whereby the supply of goods & services are not zero rated but only to some specific “authorized operations” & now all exporters are eligible to refund, but with this amendment only some specific exporters are only eligible for refund who are been notified and other being is that such exporters can claim such refund only if such exports are actually linked to that of the realization of the “foreign exchange”. It can be noted that the budget 2021 is not with regard to the increase in tax rates but trying to amend in such a way that there is stringent application of the provisions in order to track fake invoices and frauds.
CONCLUSION AND SUGGESTIONS
The very important objective of incorporation of the zero-rated supply can be realized to the full extent, if the IGST refund is actually sanctioned timely to the claimants, if not then the overall transaction cost will be high, and ultimately the products price will raise and it will thus be very difficult for the domestic market producers to compete with that of the international marketers.
In the realm of “open economy” the law cannot drive at what price the exporter should be charging for supplies made by him. As long as there is foreign exchange for those zero-rated supplies, no sort of restrictions to be made to curb the refund of ITC. Such restrictions make illegal, illogical and demotivates the supplier ultimately defeats the objective of making zero rated supply. The amendment of rule 89(4) restricting the claim of refund will be ultra vires to section 16(3) of the IGST act parse. There are also several challenges as discussed above. There is mention of “jurisdictional officers” by there is no clarity for the same. The same can be mitigated to an extent; by one positive step that the government can do is to come up with timely circulars which has a binding effect upon the department by clarifying any sort of controversies in the rules made.
Thereby ultimately the objective of making zero rated supplies will be diluted, and thus the aim can’t be achieved through the GST regime. With time legislations are trying best to eradicate fraud and to make provisions to their fullest utility yet what is challenging is the implementation part.
1 MAHESH C PUROHIT, Issues in the Introduction of Goods and Services Tax, 45 Economic and Political Weekly 12–15 (2010)
2 2019 SCC Online Bom 2843
3 R KAVITA RAO & PINAKI CHAKRABORTY, Goods and Services Tax in India: An Assessment of the Base, 45 Economic and Political Weekly 49–54 (2010)
5 Value of Zero-rated supply, https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=9380 (last visited Feb 28, 2021)
6 Supra (i)
7 Supra (iii)
8 2018 SCC OnLine Guj AAR-GST 30
9 Budget amendments to zero rated supplies under GST, https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=9686 (last visited Mar 1, 2021)
10 Supra (vi)