Deemed Exports: Definition, Differences, and Tax Treatment

What are Deemed Exports?

Deemed exports have been defined under section 2 (39) of the CGST Act as

“Deemed exports” means such supplies of goods as may be notified under Section 147.”

Whereas according to section 147

“The Government may, on the recommendations of the council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.”

This means government has the power to declare some supplies as deemed export even if the goods are manufactured in India and are not exported outside, but supplied within India in exchange for Indian or Foreign currency.

Why are deemed exports different from Exports?

1. Deemed exports are not applicable to supplies of services but of goods.
2. Deemed exports may not be made under letter of undertaking or bonds.
3. In case of Deemed exports goods may not be necessarily transferred outside the boundary of India.

Conditions to qualify as deemed Exports:-

1. Applies solely to the provision of commodities (not to the provision of services).
2. It is not necessary to export goods from India.
3. According to Section 147 of the Central Commodities and Services Tax Act, 2017 (CGST Act), the Central Government must declare such a supply of commodities as Deemed Exports.
4. Products must be produced or manufactured in India.
5. Payment can be made in convertible foreign currency or Indian rupees.
6. At the moment of supply, the tax must be paid.
7. Either the provider or the recipient may request a refund of the tax they paid on these supplies.

Treatment of taxability under the GST regime

Supplies that are deemed export are not zero-rated. GST will be applied at the point of supply to all deemed export supplies. Without paying tax, supplies cannot be made under a Bond or LUT. On such a supply, the tax must be paid then it could be claimed in the form of a refund.

Any of the following people may request a refund of taxes paid:-

1. Goods supplier
2. Goods recipient

Note: If the supplier is claiming for refund of tax paid, then, in that case, recipient is not allowed to claim an input tax credit (ITC).

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