Under the pre GST regime era, Section 66B of the Finance Act, 1994, was the charging section for levy of service tax and it specifically provided that service tax is leviable only on those services which were provided or agreed to be provided in the taxable territory, i.e., India except the state of Jammu and Kashmir. In other words, service tax was not applicable if the place of provision of service was outside India as per the provisions of the Place of Provision of Service Rules. Therefore, services which did not qualify as export (as per the applicable provisions of Service Tax Rules, 1994) were remained non-taxable.   

Under the GST regime, the concept of Zero-rated supply has been introduced, which is directly linked to export of goods or services. Zero-rated supply means the supply of goods or services which are exported, including supplies to SEZ (Special Economic Zone) or its developer, shall not be attributable to GST. In simple words, it can be said that, any supply made by a registered person as an export of goods or services, in terms of Sections 2(5) and 2(6) of the IGST Act, 2017, or supply to an SEZ, qualifies for Zero-rated supply under the GST regime.

This relevant provision is contained in Section 16(1) of CGST Act, 2017, under which it has been stated that the Zero-rated supplymeans any of the following supplies of goods and services or both, namely: –

(a)       Export of goods and services or both; or

(b)       Supply of goods or services or both to a Special Economic Zone unit; or

(c)       Supply of goods or services or both to a Special Economic Zone developer.

It is relevant to mention here that subject to the provisions of Section 17(5) of the CGST Act, 2017 (block credit where ITC cannot be availed), credit of input tax is permitted for making Zero-rated supplies, notwithstanding that such supply is an exempt supply. In other words, in case of Zero-rated supply, the registered taxpayer is not only absolved from charging GST on output supplies, but also enjoys the benefit of ITC (tax suffered on input / input services).  

Section 2(47) of the CGST Act, 2017 (exempt supply) provides that, when a supply attracts nil rate of duty or is specifically exempted by a notification or kept out of purview of tax, is said to be an exempted supply. The provisions of GST do not permit availment / utilization of credit on the inputs / input services used for making exempt supplies. In case of exempted supplies, although the output suffers nil tax, the inputs and input services have already suffered the tax and since the availment of tax on input side is not permitted, it becomes a cost for the suppliers. Therefore, such exempted supplies (where no GST is levied on output supply) are not construed as Zero-rated supplies.

The government never intends to burden the export with tax. Thus, to achieve this, the government shall either not charge tax on exports of goods or services or both and claim the refund of input tax credit of taxes paid on inward supplies; or by allowing the refund of tax charged on the exports made. Thus, a registered person making Zero-rated supply can 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 unutilized 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 CGST Act, 2017.