The objective of deemed exports is to ensure that the domestic suppliers are not in a disadvantageous position vis-à-vis foreign suppliers in terms of the fiscal concessions. The underlying theory is that foreign exchange saved must be treated at par with foreign exchange earned by placing Indian manufacturers at par with foreign suppliers. Further deemed export benefits are extended to create a level-playing field to domestic manufacturers.
“Deemed Exports” for the purpose of FTP
“Deemed Exports” for the purpose of this FTP refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange. Supply of goods specified in Paragraph 7.02 of FTP regarded as “deemed exports” for the purpose of FTP provided goods are manufactured in India.
Supply of goods specified in Paragraph 7.02 of FTP: “Deemed Exports” for the purpose of FTP
Supply of goods under following categories (a) to (d) by a manufacturer and under categories (e) to (h) by main / sub-contractors shall be regarded as “deemed exports”:
A. Supply by manufacturer:
(a) Supply of goods against Advance Authorization / Advance Authorization for annual requirement / DFIA;
(b) Supply of goods to EOU / STP / EHTP / BTP;
(c) Supply of capital goods against EPCG authorization;
B. Supply by main / sub-contractor(s):
(e) (i) Supply of goods to projects financed by multilateral or bilateral Agencies / Funds as notified by Department of Economic Affairs (DEA), MoF, where legal agreements provide for tender evaluation without including customs duty.
(ii) Supply and installation of goods and equipment (single responsibility of turnkey contracts) to projects financed by multilateral or bilateral Agencies / Funds as notified by Department of Economic Affairs (DEA), MoF, for which bids have been invited and evaluated on the basis of “Delivered Duty Paid” (DDP) prices for goods manufactured abroad.
(iii) Supplies covered in this Paragraph shall be under International Competitive Bidding (ICB) in accordance with procedures of those Agencies / Funds.
(iv) A list of agencies, covered under this Paragraph, for deemed export benefits, is given in Appendix7A.
(f) (i) Supply of goods to any project or for any purpose in respect of which Customs have issued Notifications and had permitted import of such goods at zero customs duty (with exemption of both BCD and CVD) subject to conditions specified therein Benefits of deemed exports shall be available only if the supply is made under procedure of ICB.
(ii) Supply of goods required for setting up of any mega power project, as specified in the customs notification and subject to conditions mentioned therein, shall be eligible for deemed export benefits provided such mega power project conforms to the threshold generation capacity specified in the above said Notification.
(iii) For mega power projects, ICB condition would not be mandatory if the requisite quantum of power has been tied up through tariff based competitive bidding or if the project has been awarded through tariff based competitive bidding.
(g) Supply of goods to United Nations or International organization for their official use or supplied to the projects financed by the said United Nations or an International organization approved by Government of India in pursuance of section 3 of United Nations (Privileges and Immunities Act), 1947. List of such organization and conditions applicable to such supplies is given in the relevant Customs notifications. A list of agencies, covered under this Paragraph, is given in Appendix-7B.
(h) Supply of goods to nuclear power projects provided:
(i) Such goods are required for setting up of any nuclear power project as specified in the relevant customs notification and subject to conditions mentioned therein.
(ii) The project should have a capacity of 440 MW or more.
(iii) A certificate to the effect is required to be issued by an officer not below the rank of Joint Secretary to Government of India, in Department of Atomic Energy.
(iv) Tender is invited through national competitive bidding (NCB) or through ICB
Benefits for Deemed Exports
Deemed exports shall be eligible for the following benefits, subject to terms and conditions as given in HBP and ANF-7A:
(a) Advance Authorization / Advance Authorization for annual requirement / DFIA.
(b) Deemed export drawback for BCD.
(c) Refund of terminal excise duty for excisable goods mentioned in Schedule 4 of Central Excise Act 1944 provided the supply is eligible under that category of deemed exports and there is no exemption.
(d) Terminal excise duty refund on fuel.
Criteria for claiming ‘Deemed Export’ Benefits
In respect of supply of intermediate goods to Advance Authorization / DFIA holder, against invalidation letter, issued, application to obtain Advance Authorization for import of duty free inputs to be made.
In respect of supply of goods to Advance Authorization / DFIA, against Advance Release Orders (ARO), procedure given shall be followed.
In respect of supply of goods to an EPCG authorization holder, against Invalidation letter, application for Advance Authorization / DFIA shall be made as per procedures given.
Terminal Excise duty refund on Fuel
For supply of High Speed Diesel (HSD) from depots of domestic oil public sector undertakings, terminal excise duty shall be refunded on the basis of duty paid certificate issued by concerned domestic oil public sector undertaking in the given format. Duty refund will be allowed for quantity of HSD procured by EOU / EHTP / STP / BTP unit for its production activities, as certified by concerned DC / Bond authorities.
“Deemed Exports" for the purpose of GST
Deemed exports are not zero rated supplies by default, unlike the regular exports. Hence all supplies notified as supply for deemed export will be subject to levy of taxes i.e. such supplies can be made on payment of tax and cannot be supplied under a Bond / LUT. However, the refund of tax paid on the supply regarded as Deemed export is admissible to either the supplier or the recipient. The application for refund has to be filed by the supplier or recipient (subject to certain conditions) of deemed export supplies, as the case may be.
The Central Government in exercise of powers conferred under Section 147 of the CGST Act, has issued Notification No. 48/2017-Central Tax dated 18.10.2017 wherein the following categories of supply of goods has been declared as Deemed Exports:
Description of Supply
01. Supply of goods by a registered person against Advance Authorization.
02. Supply of capital goods by a registered person against Export Promotion Capital Goods authorization.
03. Supply of goods by a registered person to Export Oriented Unit.
04. 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 Authorization.
1. When refund application by recipient of ‘deemed exports’ can be filed?
Ans. If the recipient of ‘deemed exports’ has paid the tax amount on inward supplies received which is qualified as deemed exports and have taken credit of tax paid in their electronic credit ledger, then the recipient of deemed exports can claim refund of tax amount paid by them, which has been posted as input tax credit in their electronic credit ledger, by providing the declaration that the supplier has neither claimed nor shall claim any refund with respect to the said supplies.
2. What are the relied upon documents which I have to upload with refund application of recipient of deemed export?
Ans. The supplier has to upload documents as are required to be filed along with Form RFD-01A, as notified under CGST Rules or Circulars issued in the matter and other such documents as the refund sanctioning authority may require. Statement 5B shall be uploaded mandatorily with the details of invoices for which refund is to be claimed. Taxpayers have an option to upload up to 4 documents with the refund application, of size up to 5MB each. Therefore, any supporting document can be uploaded by the taxpayer, if required.
3. To whom should a supplier to file his application with.
Ans. The taxpayer shall file the refund application in Form RFD-01A on GST portal. Taxpayer shall choose ground of refund as recipient of deemed exports for claiming refund. After filing, refund application shall be assigned to Refund Processing Officer and applicant can track the status of refund application on GST Portal.
4. When / how will the refund Form RFD-01A be processed?
Ans. Once the ARN is generated on filing of refund application in Form RFD- 01A, the refund application along with the documents attached while filing the form would be assigned to Refund Processing Officer for processing the refund. The taxpayer can track the status of refund application using track status functionality. The application will be processed and refund will be disbursed by the Jurisdictional Authority after scrutiny.