Page 47 - GSTL_2nd April 2020_Vol 35_Part 1

2020 ] TAXING EXPORTS UNDER GST J13

TAXING EXPORTS UNDER GST

By
Srikant S. Shenoy
CHARTERED ACCOUNTANT

It is a cardinal rule that taxes should not be ex-
ported. Zero rating of exports under GST law is designed
to achieve this objective. GST law is administered both by
Centre and the States and the question arises who has the
jurisdiction over the zero rating of exports.
The term “export of goods” has been defined in Section 2(5) of the Inte-
grated Goods and Services Tax Act, 2017 (“IGST Act”) as “taking of goods out of
India to a place outside India”. The term “export of services” has been defined in
Section 2(6) of the IGST Act as supply of services where -
• The supplier of service is located in India.
• The recipient of service is located outside India.
• The place of supply of service is outside India.
• The payment for such service is received in convertible foreign ex-
change.
• The supplier of service and recipient of service are not distinct per-
sons in terms of Explanation 1 in Section 8 of IGST Act.
In case of both export of goods as well as export of services the place of supply
would be outside India. Section 7(5)(a) of the IGST Act states that in a supply of
goods or services or both, in which the supplier is located in India and place of
supply is outside India, the transaction shall be treated as a supply in the course of
Inter-State trade or commerce. Thus it appears the said section would cover trans-
actions in the nature of exports. This is in contrast to Sections 7(2) and 7(4) of IGST
Act where the word import is specifically mentioned. Section 5 of the IGST Act
levies tax on all inter-State supplies. Though Section 16 treats export of goods and
export of services as “zero rated supply”, the IGST Act nowhere mentions that ex-
port of goods or export of services are not taxable. However under Section 16(3) of
IGST Act the exporters have an option to either pay IGST at the time of making
export of goods or services and then apply for refund of such tax paid by them or
in the alternative they have an option to execute a bond/Letter of Undertaking
(“LUT”) for making export of goods or services without payment of taxes and then
claim refund of input tax credit availed on supplies used for making such export of
goods or export of services. Though the above options provided under the GST
Law help in achieving the cardinal rule mentioned before, it is interesting that
there is no levy of GST under the IGST law on export of goods or export of ser-
vices.
To understand this provision one needs to examine the powers given
under the Constitution for levying GST on inter-State trade and commerce. Arti-
cle 246A(1) empower the Parliament and the State Legislatures to make laws
with regard to Goods and Services Tax. Clause (2) states that Parliament alone
shall have exclusive power to make laws with regard to goods and services tax
on supply made in the course of inter-State trade or commerce. The Central
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