'Input tax credit refund available for zero rated export of exempted items'

Q. We are a “hospital service provider” registered under GST. We wish to procure capital goods, both imported and indigenous, under EPCG authorisations, as we have sufficient foreign exchange earnings to fulfill the export obligation. For indigenous procurement of capital goods, we are paying CGST/SGST/IGST, as applicable. Can we get refund of the same?
 

Yes. You may get the EPCG authorisation invalidated for import of items you want to source domestically and get invalidation letter or ARO. Supplies against EPCG authorisation are deemed exports as per notification 48/2017-CT dated October 18, 2017. Rule 89 of the CGST Rules, 2017 allows either the recipient or supplier of such supplies to claim refund of tax paid thereon. Notification 49/2017-CT dated October 18, 2017 prescribes the evidence required for claiming refund on such deemed exports. 

Q. We manufacture and export 99 per cent of reusable sanitary pads (HS Code 96190090). Earlier the product attracted 12 per cent GST, so we were able to claim refund of input credit of raw materials. Now the government has exempted sanitary pads from payment of GST, because of which we are not able to get refunds of GST paid on the new materials. On account of this the cost of the product has gone up by seven per cent, and we fear we may lose the export market as Chinese products are already available quite cheap. How can we recover the input tax paid on the raw material used?
 

As per section 16(2) of the IGST Act, 2017 credit of input tax may be availed for making zero- rated supplies, notwithstanding that such supply is an exempt supply. Also, as per section 2(47) of the CGST Act, exempt supply includes non-taxable supply. Further, as per section 16(3) of the IGST Act, a registered person making zero-rated supply shall be eligible to claim refund when he either makes supply of goods or services, or both, under bond or letter of undertaking (LUT), or makes such supply on payment of integrated tax. So, you would be eligible for refund of unutilised input tax credit in such cases in accordance with Rule 89 of the CGST Rules, 2017.

Q. We imported certain machinery on duty payment, which we found defective. The supplier has agreed to give a replacement. Please advise us on the procedure to re-export for replacement, so that upon import of machinery by way of replacement, we do not have to pay import duty.
 

You can re-export the imported goods under claim of drawback under Section 74 of the Customs Act, 1962 read with the provisions of Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995. There is no exemption notification for replacement goods. 

Q. Can we effect some export shipment without IGST payment under LUT and some shipments on payment of IGST under refund claim? If answer is in the affirmative, please advise relative provision of GST law.
 

Yes. You can do so. There is no bar in the GST laws to do so.