The company has exported made ups of 50 crores on payment of IGST during year 2024-25 carrying a GST rate of 5%. Further, the company had availed…

As per section 16 (3) of the IGST Act, 2017, a registered person making zero rated supply may supply goods and/or services under bond or Letter of Undertaking (LUT) without payment of IGST and claim refund of unutilized ITC. Further, notified class of persons may make zero-rated supply or notified class of goods or services may be exported, on payment of IGST and refund of such tax paid on goods and/or services supplied may be claimed. Accordingly, suppliers of textiles made-ups are permitted to export on payment of IGST and claim refund of such tax paid. Rule 89 (4) of the CGST Rules, 2017 stipulates that in the case of zero-rated supply of goods or services or both without payment of tax under bond/LUT in accordance with the provisions of section 16 (3) of the IGST Act, 2017, refund of ITC shall be granted as per the following formula: Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) / Adjusted Total Turnover X Net ITC Here, Net ITC means ITC availed on inputs and input services during the relevant period other than the ITC availed for which refund is claimed under sub-rules (4A) or (4B) or both. Thus, refund of ITC on capital goods is not allowed. However, in case of export on payment of IGST, entire IGST paid would be refunded and ITC on input, input services and capital goods can be utilized for making payment of IGST. Refund under both the cases will be computed as follows: Export under LUT or bond Tax liability 0 Refund of unutilized ITC - 1.64 crore Export on payment of IGST Tax liability - 2.50 crore Set off by using ITC - 2.00 crore Set off by payment of cash - 0.50 crore Refund of IGST paid - 2.50 crore In export under bond/LUT, ITC of input and input services amounting to 1.64 crore is refundable. In case of export on payment of IGST, refund of IGST paid of 2.50 crore is available and IGST payable in cash is 0.50 crore. In terms of procedural requirements, a separate refund application has to be filed electronically for exports under LUT. However, for exports on payment of IGST, refund is automatically granted by customs on valid filing of GSTR-3B and GSTR-1 and validation of tax invoice data with shipping bills and other information. Further, in case of export under LUT, no tax is to be deposited by the company and refund of ITC has to be applied by way of separate application. Therefore, it does not involve any cash outflow at the time of export. In case of export on payment of IGST, it involves cash outflow of 50.00 lakh which is refunded subsequently. Therefore, it involves temporary blockage of working capital for certain period of time. However, since refund process is system driven and automated as provided in rules under this route, it results in quicker refunds including refund of entire ITC and cash deposited.