Rule 89(4) under the CGST Rules, 2017 deals with the refund of accumulated Input Tax Credit (ITC) when exports are made without payment of IGST under a Letter of Undertaking (LUT) or Bond.
Key Points of Rule 89(4):
- Applicability:
It applies when goods or services are exported without payment of tax, and the exporter claims refund of unutilized ITC. - Refund Formula (As per Rule 89(4)):
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC / Adjusted Total Turnover - Meaning of Key Terms:
- Net ITC: Input tax credit availed on inputs and input services during the relevant period (excluding capital goods).
- Turnover of zero-rated supply of goods: Value of export of goods made without payment of tax.
- Turnover of zero-rated supply of services: Value of export of services calculated as per GST rules.
- Adjusted Total Turnover: Total turnover in a State or Union Territory, excluding exempt supplies and turnover of supplies for which refund is claimed.
- Conditions:
- Exporter must have a valid LUT or Bond.
- Proper export documentation such as shipping bills and invoices must be maintained.
- Refund must be claimed within two years from the relevant date.
Key Points of Rule 89(4B):
- Purpose:
To prevent double benefits when exporters receive goods or services on which tax has already been paid. - Eligibility:
- Exporters making zero-rated supplies without payment of IGST under LUT or Bond.
- Refund claim pertains only to unutilized ITC on inputs or input services used in making exports.
- Restriction:
- If the supplier has already claimed a refund of tax paid on such supplies, the recipient cannot claim the same refund again.
- Ensures that refund benefits are not duplicated between supplier and recipient.
- Documents Required:
- LUT or Bond copy.
- Invoices for inputs and input services.
- Proof of export such as shipping bills or bank realization certificates.
- GSTR-1 and GSTR-3B returns for the relevant period.
Summary Table
| Particulars | Rule 89(4) | Rule 89(4B) |
|---|---|---|
| Applicability | Export without payment of IGST (LUT/Bond) | Inputs received with tax payment used in zero-rated supply |
| Type of Refund | Refund of unutilized ITC | Refund of unutilized ITC (with restriction on double refund) |
| Key Formula | (Zero-rated turnover × Net ITC) / Adjusted turnover | Same formula but with restriction |
| Objective | Promote exports without tax burden | Avoid double refund benefits |
| Supporting Documents | Shipping bill, LUT, ITC statement | Same plus proof of input tax payment |
Conclusion
Rule 89(4) enables exporters to claim refund of unutilized ITC on exports made without payment of tax, ensuring liquidity and export competitiveness.
Rule 89(4B) ensures fairness and prevents double refund benefits between suppliers and recipients.
Both rules are vital for maintaining compliance and managing working capital effectively in the GST system.
