Library / Goods and Services Tax: The Professional's Master Guide
47. Case Study 3: IT Services Exporter and Refund under Rule 89(4)
47.1 Facts
Kaveri Softech Pvt. Ltd., Bengaluru, Karnataka, develops software for overseas clients. It filed its LUT in RFD-11 for FY 2026-27 on 25 March 2026. For April to June 2026 it made the following supplies.
Client | Invoiced in quarter | Realised in quarter | Status |
|---|---|---|---|
Alpine Data GmbH, Germany | 1,40,00,000 | 1,40,00,000 | e-BRC matched |
Harbor Retail Inc., USA | 1,60,00,000 | 1,10,00,000 | Rs. 50 lakh realised in July |
Thames Analytics Ltd., UK | 1,00,00,000 | 1,00,00,000 | e-BRC matched |
Harbor Retail Inc., March 2026 invoice | 0 | 30,00,000 | e-BRC matched |
Total export clients | 4,00,00,000 | 3,80,00,000 |
It also invoiced Rs. 12,00,000 to its own branch office in London for support work (cost Rs. 10,50,000), and Rs. 8,00,000 to a Bengaluru client. ITC for the quarter was IGST Rs. 12,00,000, CGST Rs. 9,00,000 and SGST Rs. 9,00,000 on inputs and input services, plus IGST Rs. 3,00,000 on laptops (capital goods). The opening ledger balance was nil.
47.2 Issues
- Whether each foreign supply meets the five conditions of an export of services in section 2(6) of the IGST Act.
- Tax on the London branch supply and on the domestic supply.
- Refund of unutilised ITC for the quarter under rule 89(4), the ledger limit and the order of debit.
- Matching of invoices with foreign inward remittance.
47.3 Analysis and computation
An export of services needs: supplier in India, recipient outside India, place of supply outside India, payment in convertible foreign exchange (or in Indian rupees where RBI permits), and supplier and recipient not merely establishments of a distinct person under Explanation 1 to section 8. The three foreign clients are independent companies and all five conditions are met. A CBIC circular of 2021 also clarified that an Indian subsidiary serving its foreign parent is not a mere establishment of the parent, so group companies can export to each other.
The London branch fails the fifth condition. It is part of the same company. The supply is still an inter-State supply under section 7(5)(a) because the supplier is in India and the place of supply is outside India, so IGST is payable. Because the parties are establishments of the same company, the invoice value is tested under the valuation rules; the London branch cannot take Indian credit, so the second proviso to rule 28 does not help. With no comparable price, rule 30 gives cost plus 10%, which is Rs. 11,55,000. The invoice value of Rs. 12,00,000 is higher and is adopted.
IGST on London branch supply: 12,00,000 x 18% | Rs. 2,16,000 |
CGST on Bengaluru client: 8,00,000 x 9% | Rs. 72,000 |
SGST on Bengaluru client: 8,00,000 x 9% | Rs. 72,000 |
Output tax, paid from the credit ledger | Rs. 3,60,000 |
Turnover of zero-rated services under rule 89(4) is receipts based: payments received in the period for services supplied, plus services completed in the period against earlier advances, less advances for services not yet completed. The Rs. 50 lakh from Harbor Retail realised in July goes to the next quarter's claim. Adjusted total turnover adds the non-zero-rated services at invoice value.
Turnover of zero-rated supply of services (receipts) | Rs. 3,80,00,000 |
Non-zero-rated services: London branch 12,00,000 + domestic 8,00,000 | Rs. 20,00,000 |
Adjusted total turnover | Rs. 4,00,00,000 |
Net ITC on inputs and input services (laptops excluded) | Rs. 30,00,000 |
Refund = 3,80,00,000 x 30,00,000 / 4,00,00,000 | Rs. 28,50,000 |
Illustration 210: Ledger limit and order of debit Step 1: Closing IGST = 12,00,000 + 3,00,000 less 2,16,000 = Rs. 12,84,000. Closing CGST = 9,00,000 less 72,000 = Rs. 8,28,000; SGST the same. Total Rs. 29,40,000. Step 2: The refund is the lowest of the formula amount (Rs. 28,50,000), the balance at the end of the quarter and the balance when the claim is filed. Here it is Rs. 28,50,000. Step 3: The ledger is debited first from IGST (Rs. 12,84,000) and the rest equally from CGST and SGST (Rs. 7,83,000 each). Step 4: Balance left: CGST Rs. 45,000 and SGST Rs. 45,000, total Rs. 90,000. Step 5: Provisional refund under rule 91 at 90% = Rs. 25,65,000; the balance Rs. 2,85,000 after scrutiny. |
47.4 Compliance and documentation
- Export invoices endorsed "Supply meant for export under LUT without payment of IGST", reported in Table 6A of GSTR-1 as exports without payment.
- RFD-01 for the quarter within two years of the relevant date, which for services is the date of receipt of payment. Statement 3 lists each invoice with the e-BRC or FIRC number, date and amount.
- Where the realised rupee amount differs from the invoice value because of exchange rates or bank charges, use the realised amount and keep the working.
- LUT for FY 2027-28 to be filed before the first export of that year.
Key point Lessons Test the "mere establishment" condition client by client. A foreign branch is not an export customer; a foreign subsidiary can be. Rule 89(4) is receipts based for services. Chase realisation before the quarter ends, or the claim moves to a later quarter. Tax paid on domestic supplies from the ledger reduces the balance available for refund. |
Chapter summary • Three clients qualify as exports; the London branch does not and bears IGST at 18%. • Refund for the quarter works out to Rs. 28,50,000 on receipts of Rs. 3,80,00,000. • The ledger is debited IGST first, then CGST and SGST equally. • e-BRC matching invoice by invoice is the backbone of the claim. |
© Vipin Nair. This guide is for reading online only. Copying, downloading, printing and redistribution are not permitted. For study and general reference; not legal, tax or investment advice.