In global trade, things go wrong.

Goods get rejected.
Contracts fall through.
Buyers return shipments.

For Indian exporters, the logistics and cost impact is bad enough. But what most don’t see coming is the GST trap quietly waiting in the background — one that can easily turn your refund into a compliance risk.

The IGST Refund Dilemma: What’s the Problem?

Under GST, exports are treated as zero-rated supplies. Exporters have two options:

1. Export without paying tax, and claim refund of accumulated ITC, or
   
2. Export with payment of IGST, and claim a direct refund of that IGST from the government.
   

Most choose the second route because it’s faster, cash-flow-friendly, and doesn’t depend on sluggish ITC reconciliations.

But what happens when those exported goods get returned?

Here’s where most exporters get it wrong.

“Can’t I Just Issue a Credit Note?“

Not if the goods went outside India and the refund is already credited.

Section 34 of the CGST Act does allow credit notes when goods are returned or found defective — but only in cases where the buyer is a registered person under Indian GST.

In exports, the buyer is a foreign entity. They don’t exist inside the GST framework. So issuing a GST credit note in this context is legally invalid — and practically useless.

Even worse?

Once you’ve claimed and received your IGST refund, there’s no provision to reverse or adjust that tax. The GST system does not permit reversal of a zero-rated supply for refund purposes through a credit note.

So, if you issue one anyway, it:

• Won’t reflect in GSTR-1,
  
• Won’t reduce your tax liability,
  
• And won’t re-credit your ledger.
  

You’re just inviting scrutiny.

Real-World Risk: Notices & Revenue Recovery

If GST authorities spot an invalid credit note or mismatched data in your returns, it could lead to:

• Demand notices under Section 73/74
  
• Blocking of further refunds
  
• Interest + penalties for wrongful claims
  

In short, you’ll spend more time explaining than exporting.

What You Should Do Instead

If goods are returned post-export:

1. Treat them as re-imports under the Customs Act.
   
   • File a Bill of Entry
     
   • Pay customs duty (you may be exempt under Notification No. 45/2017-Cus if conditions apply)
     
2. Issue a commercial credit note to your overseas customer.
   
   • This is a non-GST document, used purely for accounting or contractual settlement.
     
3. Adjust your accounts, not your GST returns.
   
   • Since the tax cycle is closed, you’re settling this outside the GST ecosystem.
     
4. Maintain full documentation for audit trail.
   
   • Invoice, refund proof, return shipping details, re-import documents, credit note copy.
     

Key Takeaways

• Don’t issue a GST credit note once IGST refund is claimed on export.
  
• There is no GST reversal mechanism for exports post-refund.
  
• Follow re-import rules, and handle settlements commercially.
  
• Stay compliant, stay audit-ready.
  

IGST Refund – Final Word

GST was built for simplicity, but export-return scenarios fall into grey zones most businesses aren’t ready for.

If you’re dealing with cross-border returns, don’t guess. Get it right — or risk losing your refund, your reputation, and your peace of mind. Get in touch with Pitchers Global