Consequences of failure in export of goods or failure in realizing export proceeds in respect of services exported
1.1 Covid-19 Pandemic has adversely impacted on all business sectors worldwide, resulting to which industries are facing various difficulties such as manufacturers are neither able to manufacture the goods (lack of proper labour) nor able to supply (including export) the goods. Similarly service industries are also badly affected due such pandemic spread all over world and not able to realise their consideration in due course of time. Presently we are covering the relevant provisions GST applicable on exporters in a situation:
a. Where the exporters (Goods/Service) are unable to realize the consideration in due course from their customers located outside India for the export takes place before Covid-19 impact.
b. Where the exporters have already removed the goods from their business premises (by raising Tax Invoice) but good have not exported physically yet.
2.0 EXPORT OF GOODS & SERVICES UNDER LUT:
2.1 As per Section 16 of IGST Act, export of goods & services is a Zero rated supply with the certain conditions and the a registered person may make Zero rated supply goods or services or both under Letter of Undertaking (‘LUT’), without payment of integrated tax (‘IGST’) and claim refund of unutilised input tax credit (‘ITC’).
3.0 PRE-CONDITION FOR MAKING EXPORT UNDER LUT OPTION:
3.1 As per CGST Rule 96A(1), the registered person before exporting goods, in order to ‘not to pay IGST’ (executes LUT) binds himself to pay the due IGST along with the interest as specified U/s 50(1) of CGST Act within a period of :
For export of goods:
a. 15 days after the expiry of 3 months, or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export, if the goods are not exported out of India.
For Export of Services:
b. 15 days after the expiry of 1 year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange or in Indian rupees, wherever permitted by RBI.
4.0 FAILURE IN PERFORMING THE CONDITION LAID FOR EXPORTING GOODS & SERVICE UNDER LUT: – Rule 96A(1)
4.1 As can be noted from the above, CGST Rule 96A(1) that, there is a conditional benefit provided to an exporter to carry out his export transaction by not paying IGST and for availing the benefit the exporter is required to take certain initiative i.e. exporter of goods is required to make export within 3 months from the date export invoice & in case of exporter of services, it is required to realize the export proceeds within 1 Year from the date of issue of export invoices.
4.2 Due to failure in performing the above condition the liability of payment of Tax along with interest will arises on the exporter.
(a) Liability on the Exporter of goods having LUT for the delay in export of goods against the invoices which has been issued earlier beyond the time limit of 3 months: As per CGST Rule 96A, if there is any delay in export of goods beyond the time limit of 3 months from the date of issuance of export invoice, then the exporter of goods is required to pay due tax along with interest within 15 days of expiry of 3 months from the date of invoice.
(b) Liability on the Exporter of services having LUT, for non-realisation of export proceeds: If the payment of such services is not received within one year from the date of export invoice by the exporter in convertible foreign exchange or in Indian rupees, wherever permitted by RBI then the exporter of services is required to pay tax along with interest within 15 days of expiry of 1 year from the date of invoice.
5.0 FURTHER CONSEQUENCES OF FAILURE IN COMPLIANCE TO PAY THE DUE TAX ALONG WITH INTEREST WITHIN 15 DAYS IN CASE OF EXPORT OF GOODS ONLY (NOT APPLICABLE FOR NON REALISATION OF CONSIDERATION ON ACCOUNT OF EXPORT OF SERVICE) (AS STATED IN ABOVE PARA) – RULE 96A(3).
5.1 As per Rule 96A(3), the exporter having failed to pay the due tax with interest in case of failure to export the goods within 3 month from the date of export invoice, the export as allowed under Bond/LUT (option to export goods without payment of IGST) shall be withdrawn forthwith i.e. immediately.
5.2 Please note that as result of such withdrawal of LUT/Bond, the exporter cannot export its goods without payment of IGST for subsequent transaction of export of goods during the material period of withdrawal of LUT.
5.3 The said sub-Rule further provides that amount as failed to be paid shall be recovered in terms of the provision of Section 79 of CGST Act. However, as per Rule 96A (4) of the CGST Rules, the withdrawal of LUT/Bond shall be restored, immediately after the exporters pays the amount due.
6.0 NOW THE QUESTION ARISES THAT WHETHER THERE ANY EXEMPTION IS AVAILABLE FOR THE EXPORTER OF GOODS FOR NON COMPLIANCE IN TERMS OF EXPORT OF GOODS WITHIN 3 MONTHS OR FOR EXPORTER OF SERVICES FOR NON-REALISATION OF SALES PROCEEDS WITHIN ONE YEAR IN CASE OF EXPORT OF SERVICES?
6.1 Various measures has been initiated by Govt (keeping view the COVID-19 Pandemic) and vide Notification No. 35/2020-CT dated 03.04.2020 it is notified that where, any time limit for competion or compliance of any action, by any authority or by any person, has been specified in, or prescribed or notified under the CGST Act, which falls during the period from the 20th Day of March, 2020 to the 29th Day of June, 2020, and where completion or compliance of such action has not been made within such time, then, the time limit for completion or compliance of such action, shall be extended up-to the 30th day of June, 2020.
6.2 However, it provides that such extension of time shall not be applicable for the compliances as
required under Section 39(1) and Section 50 along with other notified provisions of the CGST Act.
6.3 Please note that Section 39(1) deals with the provision for furnishing return wherein the taxpayer is required to report his outward supply & tax on it, ITC availed and tax payable & paid details.
6.4 Further, Section 50 provides for charge of interest in case of delay in payment of Tax within due date. As per the above said notification there is no exemption provided for liability for making payment of tax and interest thereon.
7.0 HOW TO FIND THE WAY FOR NOT MAKING THE PAYMENT OF GST ALONG WITH INTEREST TILL THE DATE OF EXPORT OF GOODS & REALISATION OF EXPORT PROCEEDS IN CASE OF EXPORT OF SERVICES?
7.1 As noted above that under Rule 96A of the CGST Rules, a discretionary power has been given to the Commissioner to extend the due date of compliance of export of goods or realising export of service proceeds within the stipulated period of time. Hence, the Exporter should approach the Commissioner along with the application, in order avoid unnecessary tax burden, interest liability and other consequences as noted above.
7.2 Further, a Circular No 125/44/2019-GST dated 18.11.2019, CBIC has addressed certain difficulties which can be co-related to the current situation wherein it has been reported that the exporters have been asked to pay Integrated tax where the goods have been exported but not within three months from the date of the issue of the invoice for export.
7.3 In this regard, it is emphasized that exports have been zero rated under the IGST Act and as long as goods have actually been exported even after a period of three months, payment of integrated tax first and claiming refund at a subsequent date should not be insisted upon.
7.4 In such cases, it is stated to the jurisdictional Commissioner who may grant the extension of time limit for export as provided in CGST Rule 96A on post facto basis keeping in view the facts and circumstances of each case. The same principle should be followed in case of export of services.
Course of Action
In view of above clarification and position of law, intention of the Government is to provide additional period to fulfil the export obligation & not impose any tax burden on exporter for genuine reason. Being, the current situation is an unforeseen situation by which the exporter of goods or services are unable to materialise their obligation toward Zero rated supply under LUT option the exporter may approach their Jurisdictional Commissioner to grant additional time limit to fulfil the obligation.