A big relief to the exporters, as getting GST refunds will be easy due to clarity on the classification of remittances received in special Ruppe Vostro Accounts (SRVAs). Also, one can claim IGST refunds on supplies to SEZ units, as recommended by the GST Council. Experts believe these recommendations will facilitate the unblocking of working capital.
Rupee Vostro Accounts keep a foreign entity’s holdings in an Indian bank in Indian rupees. When an Indian importer wants to make a payment to a foreign trader in rupees, the amount will be credited to this Vostro account, and when an Indian exporter needs to be paid for supplying goods or services, this Vostro account will be debited, and the amount will be credited to the exporter’s account. As of the current date, Special Rupee Vostro accounts are permitted with 22 countries.
In its meeting on Saturday, the GST Council recommended issuing a circular to clarify the admissibility of export remittances received in the Special INR Vostro account, as permitted by RBI, for the purpose of “consideration of supply of services to qualify as export of services.” According to Saurabh Agarwal, Tax Partner with EY, this clarification will bring respite to the exporters whose GST refunds were stuck for a long time due to disputes in respect of this particular aspect and were also being subjected to GST demands. Echoing the same sentiment, Divakar Vijayasarathy, Founder and CEO, DVS Advisors, says: “This would help in cases where the government has agreed to a rupee trade, for example, Russia, where rupee-rubble trade was agreed upon by both the countries.”
Sanjay Chhabria, Director, (Indirect Tax) with Nexdigm felt this clarification should mitigate disputes arising from refund applications, where the GST officers would seek to deny the benefit on the ground that receipt of consideration in INR did not meet the condition prescribed for the purpose of qualifying as ‘exports of services’.
Supply to SEZ
Meanwhile, the Council also recommended amending a notification (No. 1/2023-Integrated Tax dated July 31, 2023, and coming into effect from October 1, 2023) so as to allow the suppliers to a Special Economic Zone developer or a Special Economic Zone unit for authorised operations to make supply of goods or services on payment of integrated tax and claim the refund of tax so paid. However, this will not be applicable to commodities such as pan masala, tobacco, gutkha, etc.
Abhishek Jain, Partner with KPMG in India said with the revised provisions for zero rate supplies from 1 October, there was ambiguity on the possibility of claiming a refund of GST paid on supplies made by domestic suppliers to SEZ. “With explicit inclusion of such supplies for rebate route, the ambiguity on this comes to a rest and helps prevent apprehended potential working capital concerns for domestic industry engaged in SEZ supplies,” he said.
Karthik Mani, Partner with BDO India said that there was an uncertainty as to whether the supplies can be made to SEZ developers/units on payment of tax with a subsequent claim of refund of such tax, due to language employed by the notifications issued in this regard. “The announcement of the GST Council to retrospectively amend the notifications issued to allow the supplies to be made to the SEZ on payment of IGST and claim refund of such tax paid clarifies the issue and grants certainty to the taxpayers,” he said.