In the course of international trade, there arise times when the goods supplied from India to overseas buyers may return due to various reasons such as defective quality, wrong shipment, mismatch in specification, cancellation of order, non-receipt of payment, buyer’s non-acceptance, or any commercial impossibility. These legitimate commercial challenges have been accepted and defined under “exports” under Goods and Services Tax (GST) law, and the Government of India has made provisions for the same.
A frequently asked question in this context is whether the exporter who has claimed IGST refund on the exported goods, can issue a credit note for returned goods. A part or the number of exported items can be returned due to rejection, non-payment, cancellation of order, or other similar reasons.
Exports are treated as zero-rated supplies under Section 16(1)(a) of the Integrated Goods and Services Tax Act, 2017, which provides exporters with two options:
- Export without payment of IGST under a LUT (Letter of Undertaking) and claim refund of unutilized Input Tax Credit (ITC); or
- Export with payment of IGST and claim refund of the paid tax.
In the second scenario, once the exporter pays IGST on the invoice and successfully exports the goods, the refund is processed through the Customs GST portal linked with Indian ICEGATE and the GSTN portal, based on the shipping bill and declaration under Rule 96 of the CGST Rules.
On the other hand, Section 34(1) of the Central Goods and Services Tax (CGST) Act, 2017 permits a registered person to issue a credit note where:
The taxable value or tax charged in the original tax invoice exceeds the actual taxable value or tax payable;
- The goods are returned by the recipient; or
- The goods or services are found to be deficient.
However, when the recipient is located outside India and the exporter has claimed GST refund, there is no mechanism in the GST law to issue a credit note under Section 34(1) and make the necessary adjustments against a paid and refunded invoice. Moreover, claiming such credit notes may lead to discrepancies in reconciliations and further scrutiny.
Further, Section 34(1) mentions that any credit note issued must be reported in returns and adjusted in tax liability through the credit mechanism. The tax paid on exports is already refunded by the Government; hence, such adjustment may not be possible or legally permissible.
Therefore, even if the exporter receives the goods back, and raises a credit note, the adjustment of Input Tax Credit against the original invoice and the already refunded tax amount is not possible. This again leads to a situation of double benefit or tax fraud, and the provisions of the GST law are silent on mechanisms for such situations.
To conclude:
- There is no mechanism in the GST law to map a credit note on exports where IGST has already been refunded.
- Any reversal of IGST through a credit note in such cases is not recognized and cannot be adjusted through the GST returns.
- Issuance of credit notes for returned exports is not a viable solution once the refund is processed.
However, if the exporter still wants to rectify any of the regulatory issues they must approach the proper jurisdictional officer with full documentation. They may take legal recourse based on principles of equity and natural justice where errors may have occurred on genuine grounds and are not based on any wrongful intent.
To address the hardship caused by such returns, the exporter may issue a commercial debit note linked to the shipping invoice. Although not acknowledged in the GST returns, this method may help maintain proper documentation and compliance.
Conclusion:
A GST credit note cannot be issued for returned export goods where IGST refund has already been claimed and processed, due to the absence of any legal provision in the current GST law framework. Exporters must therefore rely on commercial documentation like debit notes for internal records and compliance, while maintaining clarity with shipping, logistics, refund processing, and customs documentation. Proper records and compliance with customs and commercial laws are essential to handle such situations efficiently.
