ZERO RATED SUPPLY

Section 16 – Zero Rated Supply
Sub-Section (1) Meaning	Meaning “Zero rated supply” means any of the following supplies of goods or services or both, namely:— (a) export of goods or services or both; or (b) supply of goods or services or both to a SEZ Developer or a SEZ Unit* .
Sub-Section (2)	Input Tax Credit Input Tax Credit may be availed for making zero-rated supplies, subject to the provisions of section 17(5) i.e. input tax credit blocked as per said section cannot be availed but all other credits can be availed. Further, even if supply qualifies as exempt supply but it is exported or supplied to SEZ Developer or SEZ Unit (for authorised operations w.e.f. from the date to be notified) then also such exempt supply shall be considered as zero-rated for the purpose of availing input tax credit. Thus, input tax credit can be availed [subject to section 17(5)] in case of exempt supplies which are exported or supplied to SEZ Developer or Unit (for authorised operations w.e.f. from the date to be notified).
Sub-Section (3)	Refund A registered person making zero rated supply shall be eligible to claim refund either of unutilised input tax credit or of integrated tax paid on such zero-rated supplies as under: (a) Refund of unutilised input tax credit:      registered person 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 unutilised input tax credit; (b) Refund of integrated tax paid on zero-rated supply:      registered person may supply goods or services or both - • subject to such conditions, safeguards and procedure as may be prescribed, • on payment of integrated tax, • claim refund of such tax paid on goods or services or both supplied. For claiming the refund the registered person shall follow the provisions of section 54 of the Central Goods and Services Tax Act, 2017 read with relevant rules prescribed for the same. It may further be noted that the refundable amount shall be paid to the applicant, instead of crediting to the Fund, for refunds in case of zero-rated supplies. However, effective from 1st February, 2019, such payments to applicant instead crediting to Fund shall be applicable to exports and not in cases of refunds for supplies to SEZ Developer or Unit. Note: The Finance Bill, 2021 has proposed to substitute the said sub-section (3) and also new sub-section (4) is proposed to be introduced. The said proposed sub-section (3) and (4) will be effective from the date to be notified. The proposed sub-section (3) and (4) are as under: Sub-section (3): Refund of unutilised input tax credit – • A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit •  on supply of goods or services or both, •  without payment of integrated tax, •  under bond or Letter of Undertaking, •  in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed. Further, the registered person making zero rated supply of goods shall receive the sale proceeds within the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange. If the sale proceeds is not realised within the prescribed time limit then he shall be liable to deposit the refund amount along with applicable interest as per section 50 of the CGST Act, within 30 days after the expiry of said time limit prescribed. Sub-section (4): Refund of integrated tax paid on zero-rated supply – The Government may, on recommendation of the Council, and subject to such conditions, safeguards and procedures, by notification, specify - •  a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so paid •  a class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax  so  paid

* In Union Budget 2021, it was proposed that supply of goods or services or both “for authorised operations” to a SEZ Developer or a SEZ Unit shall be considered as zero rated supplies. The said proposed amendment shall be effective from the date to be notified.