Export and Import of Goods under GST – Law, Procedures, ITC Refunds and Compliance (with Recent Amendments)
1. Introduction and scope
This article examines the legal framework, procedures, and risk areas relating to export and import of goods under the Goods and Services Tax (GST) regime, with a focus on input tax credit (ITC) refunds, recent amendments, and emerging case‑law themes.¹ It is written as a practitioner‑oriented note for taxpayers and professionals who advise on export–import transactions and wish to align their documentation and advisory practices with the latest statutory developments.
For ease of citation, each section is separately numbered and key provisions are described in footnote‑ready form (e.g., “Section 16, IGST Act, 2017 – zero‑rated supplies”). ¹ Simple numerical examples are included to illustrate computation of tax and refunds in common fact patterns.
2. Statutory framework – exports and imports under GST
2.1 Constitutional and statutory scheme
(1) Article 269A of the Constitution deems supplies in the course of import into India as inter‑State supplies, which are liable to Integrated GST (IGST).
(2) Section 7 of the Integrated Goods and Services Tax Act, 2017 (IGST Act) treats import of goods as inter‑State supply and Section 5 of the IGST Act provides for levy of IGST on such inter‑State supplies.
(3) Section 2(5) of the IGST Act defines “export of goods” as taking goods out of India to a place outside India, which is the foundational definition for zero‑rating.
(4) Section 16 of the IGST Act declares “zero‑rated supplies” to include (a) export of goods or services or both, and (b) supply of goods or services or both to a Special Economic Zone (SEZ) developer or SEZ unit.
(5) Section 16 of the Central Goods and Services Tax Act, 2017 (CGST Act) lays down entitlement to ITC, while Section 17 and Section 17(5) prescribe apportionment and blocked credits.
(6) Section 3(7) of the Customs Tariff Act, 1975 provides that IGST is leviable on imported goods in addition to customs duties, and such IGST is collected at the time customs duty is levied under the Customs Act, 1962.
2.2 Zero‑rated supplies vs exempt supplies
(1) “Zero‑rated supplies” under Section 16 of the IGST Act entitle the registered person to claim ITC and refund in respect of supplies which are taxed at a zero rate of output tax (exports and certain SEZ supplies).
(2) “Exempt supplies” under Section 2(47) of the CGST Act cover supplies attracting nil rate of tax, or wholly exempt by notification, and non‑taxable supplies; such supplies generally do not permit ITC on inputs and input services, and credit, if taken, must be reversed under Section 17(2).
(3) Thus, exports of taxable goods are “zero‑rated” and not “exempt”, enabling full ITC and refund, whereas exports of inherently exempt goods (e.g., certain unprocessed foodgrains) carry no output tax and have limited or no refund of ITC.
3. Recent legislative and policy developments
3.1 SEZ supplies restricted to authorised operations
(1) Finance Act, 2021 amended Section 16 of the IGST Act to provide that supplies to SEZ units or developers will qualify as zero‑rated only when made for “authorised operations”, with effect from 1 October 2023.
(2) Notification 27/2023-Central Tax dated 31 July 2023 operationalised this amendment, requiring that SEZ supplies be duly endorsed by the Specified Officer as being for authorised operations to retain zero‑rated character.
(3) In practice, vendors supplying to SEZs must secure endorsement on invoices or other prescribed documents; absence of such endorsement has resulted in denial of zero‑rating and consequent rejection of refunds.
3.2 Omission of Rules 89(4A), 89(4B) and 96(10)
(1) Notification No. 20/2024‑Central Tax dated 8 October 2024 omitted Rule 89(4A), Rule 89(4B) and Rule 96(10) of the CGST Rules, 2017, which had previously restricted refunds where specified exemption benefits were availed on inputs or input services.
(2) These omissions, recommended by the 54th GST Council Meeting, simplify export refund policy by removing overlapping restrictions on claiming refund under Rule 96 and Rule 89 where advance authorisation, EPCG or similar schemes had been used.
(3) Subsequent litigation (e.g., Bombay High Court in 2025) has considered the effect of omission on pending proceedings, with courts indicating that in absence of a saving clause, certain recovery actions based solely on the omitted rules may not survive.
3.3 Emerging GST 2.0 rate structure (2025–26)
(1) The 56th GST Council Meeting announced a rationalised rate structure (“GST 2.0”) realigning many goods into a unified 18% slab from 2025, with higher rates (up to 40%) reserved for luxury and sin products.
(2) For exporters and importers, this rationalisation affects accumulation of ITC (especially where high‑rate inputs feed into lower‑rate outputs) and may reduce inverted duty disputes in several sectors.
4. Export of goods – zero‑rating and available routes
4.1 Legal definition and basic conditions
(1) Export of goods requires taking goods out of India to a place outside India, supported by customs‑filed shipping bill, Export General Manifest (EGM), and matching GST returns.
(2) Export is a zero‑rated supply and not an exempt supply, so the exporter can avail ITC on inputs and input services used for such exports and seek refund under the rules.
4.2 Route 1 – export with payment of IGST (Rule 96)
(1) Under this route, the exporter issues a tax invoice charging IGST, reports the supply as zero‑rated with tax in GSTR‑1, pays IGST liability through GSTR‑3B, and treats the shipping bill as a deemed refund application under Rule 96(1).
(2) Customs, through ICEGATE, processes refund once EGM is filed and data between shipping bill, GSTR‑1 and GSTR‑3B match, and the sanctioned IGST is credited directly to the exporter’s bank account.
(3) No separate application in Form GST RFD‑01 is ordinarily required, but mismatches or non‑filing of returns can lead to withholding or delay of refunds.
Example 4.1 – IGST‑paid export
A registered exporter sells machinery worth ₹10,00,000 to a foreign buyer, charging IGST at 18%, and pays ₹1,80,000 IGST in GSTR‑3B.¹ the shipping bill shows FOB value of ₹10,00,000 and is correctly linked to the GST invoice. ¹ Once EGM is filed and returns match, customs processes refund of ₹1,80,000 to the exporter’s bank account under Rule 96.
4.3 Route 2 – export without payment of IGST under LUT/bond (Rule 89(4))
(1) The exporter furnishes a Letter of Undertaking (LUT) in Form GST RFD‑11 for the financial year (or bond with security where LUT is not permitted), and supplies goods without charging IGST on the export invoice.
(2) Exports are reported as zero‑rated supplies “without payment of tax” in GSTR‑1, and the exporter files RFD‑01 claiming refund of accumulated ITC attributable to such exports under Rule 89(4) of the CGST Rules.
(3) The refund formula under Rule 89(4) limits refund to:
Refund=Turnover of zero‑rated supply × Net ITC Adjusted total turnover
where “Net ITC” excludes ineligible credits and capital goods, and “Adjusted total turnover” is defined in the rules.
Example 4.2 – LUT export and Rule 89(4) formula
Assume in a tax period:
- Turnover of zero‑rated supplies (exports without payment of tax): ₹50,00,000.
- Adjusted total turnover (domestic plus zero‑rated): ₹1,00,00,000.
- Net ITC (on all inputs and input services, excluding blocked credits): ₹9,00,000.
Refund under Rule 89(4) = ₹50,00,000 × ₹9,00,000 ÷ ₹1,00,00,000 = ₹4,50,000. ¹ the balance ITC of ₹4,50,000 remains in the credit ledger for utilisation against domestic output tax.
4.4 Choosing between the two routes
(1) The IGST‑paid route (Rule 96) often provides faster, automated refund via ICEGATE and is generally preferred where exporters have sufficient cash flow to pay IGST upfront or large domestic liabilities to absorb ITC.
(2) The LUT route (Rule 89(4)) is usually preferred by exporters facing cash‑flow constraints, as it avoids upfront payment of IGST and enables periodic refund of accumulated ITC.
(3) With the omission of Rules 89(4A), 89(4B) and 96(10), many earlier complexities around double benefits and specified exemptions have reduced, but exporters should still ensure that the same tax element is not refunded twice in the supply chain.
5. Import of goods – levy, ITC and illustration
5.1 Tax incidence on imports
(1) Under the combined operation of Article 269A of the Constitution, Section 5 of the IGST Act and Section 3(7) of the Customs Tariff Act, all imports of goods are deemed to be inter‑State supplies and are liable to IGST in addition to Basic Customs Duty (BCD) and other customs levies.
(2) At the time of filing Bill of Entry, the importer typically pays BCD, Social Welfare Surcharge, IGST on the customs value plus duties, and compensation cess where applicable (e.g., for specified luxury or sin goods).
5.2 ITC entitlement on IGST paid at import
(1) Registered importers are entitled to ITC of IGST paid on imported goods where such goods are used or intended for use in the course or furtherance of business and are not covered by the blocked credit provisions of Section 17(5) of the CGST Act.
(2) Correct declaration of GSTIN in the Bill of Entry is crucial, as IGST credit flows into GSTR‑2B only when customs data is properly linked through ICEGATE.
(3) IGST paid at import is typically a pass‑through credit and not a cost, except where outward supplies are wholly exempt or non‑taxable, or where the credit is ineligible or reversed under Section 17.
Example 5.1 – Computation of IGST on imports and ITC
An importer purchases components from abroad with a CIF value of ₹5,00,000.
- BCD @ 10% = ₹50,000.
- Assessable value for IGST = ₹5,00,000 + ₹50,000 = ₹5,50,000 (ignoring other surcharges for simplicity).¹
- IGST @ 18% on ₹5,50,000 = ₹99,000.
Total tax outgo at customs = ₹50,000 BCD (non‑creditable) + ₹99,000 IGST (creditable as ITC).¹ If the importer uses the components in taxable supplies, the ₹99,000 appears in GSTR‑2B and can be availed as ITC in GSTR‑3B, offsetting domestic GST liability.
6. Refund of input tax on exports – procedures
6.1 Categories of refund relevant to exporters
(1) Refund of IGST paid on export of goods or services (Rule 96 – IGST‑paid export route).
(2) Refund of unutilised ITC on zero‑rated supplies made without payment of tax under LUT/bond (Rule 89(4)).
(3) Refund of unutilised ITC in cases of inverted duty structure (Rule 89(5)), which generally operates separately from zero‑rated export refunds and is not the primary vehicle for export of goods.
6.2 Practical steps – refund of IGST on exports (Rule 96)
(1) Report export invoices in Table 6A of GSTR‑1, ensure corresponding tax liability is paid in GSTR‑3B, and file the shipping bills with correct linkage to GSTIN and invoice numbers.
(2) After EGM is filed, the shipping bill is treated as the refund application, and customs processes the refund electronically, crediting IGST to the exporter’s bank account upon successful validation.
(3) Common errors include mismatch of invoice numbers or values between GSTR‑1, GSTR‑3B and shipping bills, or non‑filing of returns, which can result in suspension of refunds until reconciled.
6.3 Practical steps – refund of accumulated ITC (Rule 89(4))
(1) Preconditions include a valid LUT/bond for the year, actual export of goods, correct reporting of zero‑rated supplies “without payment of tax” in GSTR‑1, and availability of ITC in the electronic credit ledger.
(2) The exporter files Form GST RFD‑01 on the portal, selecting the category “Refund of ITC on export of goods or services without payment of tax”, and may club multiple months within the same financial year as permitted.
(3) Supporting details generally include:
-
- Statement of export invoices with shipping bill details.
- Foreign exchange realisation evidence (e.g., BRC/FIRC) in case of services.
- Statement of inward supplies reflecting ITC claimed (with GSTR‑2B correlation).
- Declaration in respect of unjust enrichment, where required.
(4) Acknowledgement is issued in RFD‑02, deficiencies (if any) in RFD‑03, provisional refund order in RFD‑04 (usually up to 90%), final sanction in RFD‑06 and adjustment order in RFD‑07 where amounts are set‑off against outstanding dues.
7. Products, zero‑rating and export duty restrictions
7.1 Coverage of zero‑rating
(1) As a principle, all taxable goods exported from India qualify as zero‑rated supplies, regardless of the domestic GST rate, provided the transaction satisfies the definition of export of goods and is not prohibited.
(2) This includes typical export sectors such as engineering goods, textiles and garments, IT hardware, pharmaceuticals, processed foods and industrial machinery, subject to any specific export duty or cess that may restrict refund entitlement.
7.2 Goods subject to export duty – impact on refunds
(1) Amendments notified with effect from late 2024 have clarified that where export duty is payable on the exported goods, refund of tax (including ITC) relating to such goods may be restricted, even though the supply remains zero‑rated in principle.
(2) In such cases, exporters need to treat export duty as a cost element and must carefully examine tariff notifications to verify whether their products fall under categories for which refund of unutilised ITC is barred.
8. Compliance requirements for exporters and importers
8.1 Exporters – key compliance checkpoints
(1) Registration and LUT: exporters must hold a valid GST registration and file LUT/bond before effecting exports without payment of IGST; delay or omission can lead to disputes on the eligibility of the LUT route.
(2) Return filing: timely and accurate filing of GSTR‑1 and GSTR‑3B, with correct classification of supplies as “zero‑rated” and proper reflection of export invoice details, is essential to avoid blockage of refunds.
(3) Reconciliation: regular reconciliation between GSTR‑1, GSTR‑3B, ICEGATE data, shipping bills and bank realisation statements is a core internal control to manage refund risk.
(4) SEZ documentation: where supplies are made to SEZ units or developers, suppliers must secure the Specified Officer’s endorsement confirming that supplies are for authorised operations, failing which zero‑rating may be denied.
8.2 Importers – key compliance checkpoints
(1) Accurate declaration of GSTIN on Bills of Entry ensures that IGST paid at customs flows correctly into GSTR‑2B as available ITC.
(2) Importers should reconcile IGST paid at customs with ITC figures in books and GSTR‑2B, as differences may trigger notices on suspected excess or ineligible credit.
(3) Any subsequent customs reassessment or supplementary duty payment may require corresponding correction of ITC to maintain parity between books, returns and customs records.
9. Penalties, interest and recovery exposure
9.1 Wrongful refunds and ITC – Sections 73/74 and 122
(1) Where export‑related refunds or ITC on imports are found to be wrongly availed or erroneously refunded, the department may initiate proceedings under Section 73 (non‑fraud cases) or Section 74 (fraud, wilful misstatement, suppression), seeking recovery with interest and penalty.
(2) Section 122 of the CGST Act provides for penalty for offences such as issuing invoices without supply of goods, availing or utilising ITC without actual receipt of goods or services, and obtaining refund fraudulently; such penalties can equal the tax amount involved in serious cases.
9.2 Interest and refund rejection
(1) Section 50 of the CGST Act mandates interest on delayed payment of tax and on ITC wrongly availed and utilised, which can be substantial where export refunds have been released and later found inadmissible.
(2) Even in non‑fraud situations, refund claims can be partially or fully rejected, with the rejected portion adjusted against other dues through RFD‑07 and separate recovery proceedings initiated where necessary.
10. Recent trends and themes in case‑law
10.1 Substantial benefits vs procedural lapses
(1) High Courts have generally upheld the principle that substantive benefits of zero‑rating should not be denied solely for minor procedural lapses, such as delay in filing LUT, where actual export is established and the revenue is not prejudiced.
(2) However, courts have simultaneously stressed the importance of documentary congruence, and refund claims have been rejected where exporters failed to correlate export invoices with shipping bills or misclassified domestic supplies as exports.
10.2 SEZ supplies and authorised operations
(1) Post‑1 October 2023, disputes have arisen on what constitutes “authorised operations” in SEZs and the evidentiary value of endorsements by SEZ officers; in some cases, refunds were denied where endorsements were absent or ambiguous.
(2) Practitioners increasingly need to frame submissions highlighting both the legal amendments and the factual record of usage of supplies in authorised SEZ activities when contesting denial of zero‑rating.
10.3 Omission of restrictive rules and pending proceedings
(1) After omission of Rules 89(4A), 89(4B) and 96(10), courts have considered whether pending show‑cause notices and recovery actions based exclusively on those rules can continue, with some decisions indicating that in absence of a saving clause, such proceedings may lapse.
(2) Exporters facing historic disputes under the omitted rules should evaluate whether recent judgments can be invoked to seek dropping of proceedings or setting aside of recovery orders.
11. Practical advisory – examples and checklists
11.1 Example – choosing between IGST‑paid and LUT route
Assume an exporter has:
- Monthly export turnover: ₹1,00,00,000.
- Average domestic taxable turnover: ₹20,00,000.
- Monthly Net ITC (inputs and input services): ₹18,00,000.
Scenario A – IGST‑paid route
Exporter charges IGST @ 18% on exports and pays ₹18,00,000 IGST in GSTR‑3B, which is refunded under Rule 96 in 15–30 days. ¹ Cash flow impact is that the exporter needs working capital to pay the IGST upfront, but domestic ITC can be utilised to some extent.
Refund=1,𝟎𝟎,𝟎𝟎,𝟎𝟎𝟎×𝟖,𝟎𝟎,𝟎𝟎𝟎,12𝟎,𝟎𝟎,𝟎𝟎𝟎=𝟓,𝟎𝟎,𝟎𝟎𝟎
Scenario B – LUT route
Exporter does not pay IGST on exports and applies for refund of accumulated ITC under Rule 89(4).¹ If adjusted total turnover is ₹1,20,00,000 (exports plus domestic), the refund is:
leaving ITC of ₹3,00,000 to set off domestic liability. ¹ Here, cash‑flow strain at the point of export is lower, but refund processing may take longer and is more documentation‑intensive.
11.2 Practitioner checklist – exports
- Verify product classification, domestic rate and any export duty or cess that may bar refund.
- Decide export route (IGST‑paid vs LUT) based on cash‑flow and ITC profile, and document the rationale in internal notes.
- Put in place a reconciliation matrix between GSTR‑1, GSTR‑3B, shipping bills, ICEGATE, and bank realisation, reviewed at least monthly.
- For SEZ supplies, ensure that “authorised operations” and officer endorsements are captured and archived with contracts and invoices.
11.3 Practitioner checklist – imports
- Ensure each Bill of Entry correctly reflects GSTIN, HSN, value and duty structure, and that IGST amounts reconcile with the credit ledger.
- Periodically cross‑verify customs challans and ICEGATE reports with GSTR‑2B and internal purchase registers, rectifying mismatches promptly.
- For high‑value capital goods and inputs, assess whether any customs exemption or concessional rate notification affects the quantum of ITC.
12. Conclusion
Exports under GST are deliberately structured as zero‑rated supplies to remove domestic tax costs from international trade, while imports are treated as inter‑State supplies attracting IGST that is, in principle, fully creditable in the hands of registered businesses.¹ The law offers two primary routes for exporters—IGST‑paid exports with automated refund under Rule 96 and LUT/bond exports with accumulated ITC refund under Rule 89(4)—each carrying distinct implications for cash flow, documentation and scrutiny.¹cleartax+3
Recent amendments restricting SEZ zero‑rating to authorised operations and omitting restrictive refund rules, coupled with evolving jurisprudence on procedural lapses, have made product classification, documentation quality and route selection more critical than ever.¹ In a context of intensified departmental review of export refunds and ITC on imports, taxpayers and their advisors must institute robust internal controls—spanning registration, LUT, contracts, invoicing, reconciliations and legal review—to fully utilise zero‑rating benefits while managing penalty and litigation risks in the dynamically evolving GST landscape.¹taxguru+4
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