Zero Rated Supply in GST [Section 16 of IGST Act, 2017]

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(1) Meaning of “Zero Rated Supply” in GST [Section 16(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.

(2) Credit of Input Tax in GST [Section 16(2)]:

Credit of input tax may be availed for making zero-rated supplies,  notwithstanding that such supply may be an exempt supply. However, input tax credit is not available on certain  items specified under section 17(5) of the CGST Act. called Blocked Credits. 

(3) Person making Zero Rate Supply eligible to claim Refund under any of Two option available [Section  16(3)]:

A registered person making zero rated supply shall be eligible to claim refund under either of the  following options, namely:— 

(a)          he may supply goods or services or both under bond or Letter of Undertaking, subject to such  conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and  claim refund of unutilised input tax credit; or 

(b)          he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be  prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or  both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act  or the rules made thereunder. 

Supply of goods or services or both to a Developer of SEZ or a Unit in SEZ to be treated at par with export 

Supply of goods or services or both to a developer of SEZ or a unit located in SEZ shall be treated at par with  Export. Such supply shall also be considered as zero rated supply. The procedure for supplying goods or services  to SEZ shall be same as applicable in case of export of goods or services. 

Thus, zero rated supply i.e. export of goods or services or both or, supply of goods or services or both to SEZ  shall attract zero rate of tax. In simple words, effectively no tax shall be payable by a person engaged in making  zero rated supply.

Further, in view of section 16(2), the person engaged in effecting zero rated supplies shall be  entitled to avail the credit of taxes paid by him on procurement of inputs and input services used or intended to be  used by him in effecting zero rated supply. A person who is engaged in export of such goods or services or supply  of such goods or services to SEZ which are otherwise exempt from whole of the tax leviable thereon, shall also be  entitled to claim the tax credit of inputs and input services used by him. These provisions have been made in line  with the motto of the Government to export the goods and services but not taxes. 

Further, a person engaged in effecting zero rated supplies shall have the following two options:— 

  1. He may either export the good or services or supply to SEZ without payment of tax by furnishing a bond  or a letter of undertaking (LUT) and claim refund of unutilised input tax credit, or 
  2. He may export the good or services or supply to SEZ on payment of integrated tax by utilising the input  tax credit and then claim refund of tax paid on such goods or services or both.

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