An Export in International Trade means Goods and Services produced in one country and sold to buyers in another country (Foreign buyer). India’s Exports & Imports complete the term International Trade and together it decides the country’s Trade Balance. When the country’s export exceeds the imports it leads to Trade Surplus, however it accounts to Trade Deficit when the country’s imports are more than the exports.
With an objective to spur economic growth and cross border trade, it’s imperative to make India’s Exports globally competitive. ‘The Atmanirbhar Bharat Abhiyan’ promoted by the Prime Minister of India also aims to make India self-reliant. The emphasis is not just on ‘Make in India’ but ‘Make in India, for the World’. By the virtue of this mission, Government intends to incentivise companies manufacturing domestically to ramp up the exports. Thus, exports have always been the core area drawing government’s attention for new policy formulations.
In order to make Indian export globally competitive, GST treats exports as:
> Export shall be considered as Interstate supply and will be covered under the IGST Act
> Zero rated supply making the entire supply tax free
Zero rated supply will also include any supply of goods to Special Economic Zone Unit/ Developer which means these supplies will have zero tax under GST. Supply of goods to Nepal or Bhutan also qualifies under exports from India, hence categorised as zero rated supply and will have all the benefits which a zero rated supply enjoys under GST.
Zero rated supply cannot be equated with the supplies having 0% tax rate. As per CGST Act, no input credit can be claimed against supplies having 0% tax rate. But this restriction is not applicable on zero rated supply. For every exporter, it is mandatory to have GST registration i.e. a person who is unregistered under GST laws cannot make Zero Rated Supplies.
An Exporter has two options to export goods or services:
As per GST laws, exporter has the option to pay IGST on exports and claim for the refund later. There are two variants in the refund:
> Unutilised Input Tax Credit on goods: The Input Tax Credit (ITC) which could not be availed can be claimed by filing form RFD-01 (when filed online) or RFD-01A (for manual filing).
> IGST paid on export of goods: For refund of IGST paid, it is not required to file the refund application separately. Shipping bill filed by an exporter on the Indian Customs Electronic Commerce Gateway (ICEGATE) shall be deemed to be an application for refund. This application will be considered for refund only if the person carrying the exported goods files an export manifest stating the number and date of shipping bills and applicant has filed a valid return in Form GSTR – 3 or GSTR-3B as applicable along with the self-assessed tax. Refund is initiated after the Table 6A of GSTR-1 is filled. Details entered in Table 6A of GSTR -1 should tally with the information in Shipping Bill filed in ICEGATE. Once the GST officer is satisfied with the details, refund amount is credited to the bank account of the applicant
The refund can be claimed within 2 years from the relevant date
|S.No.||Type of Refund||Relevant Date|
|1.||Tax paid on the goods exported out of India|
|a. Goods sent through ship or air||Date on which Ship or aircraft leaves India|
|b. Goods sent through land||Date on which goods crosses the Indian border|
|c. Goods sent through post||Date on which goods are dispatched by the post office|
|2.||Unutilised Input Tax Credit||End of the Financial year in which claim for refund arises|
A registered supplier also has an option to export goods under Bond or Letter of Undertaking (LUT) and can claim refund of unutilised Input Tax Credit.
Earlier the facility of LUT submission was available to specified category of exporters but post release of GST Circular No. 8/8/2017 dated 4th Oct 2017 all the exporters were eligible for it except in few instances where it was required to furnish Bonds. Any person who is charged for a tax evasion of INR 2.5 Crore and above is not eligible for LUT. Also, in cases where taxpayer does not comply with the conditions specified in LUTs within the required time, Bonds need to be submitted. The validity of LUT is 1 year. A fresh LUT needs to be furnished every financial year. LUT can be submitted online while Bonds need to be furnished manually in hardcopy.
Registered Supplier can submit a Bond or LUT in a specified format in Form RFD-11 on the letterhead of registered supplier to the jurisdictional commissioner prior to the exports. Acknowledgement Reference number (ARN) is received once LUT is accepted. In case of Bonds, additionally a bond on stamp paper along with Bank Guarantee and other supporting documents will also be furnished. There is no need for a separate bond for each transaction; instead a Running Bond can be submitted in which terms and conditions remain same for all transactions. E.g. Taxpayer gives a Running Bond of 1 Crore. This means he can export goods worth of tax up to 1 crore in numerous transactions. Once the conditions of a particular transaction are met, the bond is free for that amount and can be reused for next set of transactions.
This Bond or LUT is nothing but a kind of promise that a taxpayer makes to pay taxes along with interest if goods are not exported within 3 months of issuing the export invoice. Tax needs to be paid within 15 days from the end of this 3 months period. Once the exports are made after 3 months, benefits are given back to the exporter.
Refund for unutilised Input Tax Credit can be claimed by filing the form RFD 01/ RFD 01A. It is permissible to claim refund even if exports are made after 3 months.
Deemed Exports are those specified supplies of goods which are notified by the government on the recommendation of Council under section 147 of CGST Act 2017. Supply of such goods does not leave India and the payment for it is received in Indian Currency or convertible foreign currency. Also, goods for such supplies should be manufactured in India. This means that such supplies are treated as exports even if goods are not moved out of India.
Certain supplies are categorised as DEEMED EXPORTS by notification 48/2017-Customs published by Central Board of Excise and Customs (CBEC). These are:
> Supply of goods by a registered person against Advance Authorisation.
> Supply made to an Export Oriented Undertaking (EOU) or Hardware Technology Park Unit, Software Technology Park Unit, Biotechnology Park Unit.
> Supply of Capital goods by a registered person against Export Promotion Capital Goods Authorisation.
> Supply of gold by a bank or Public sector undertaking against Advance Authorisation as per Customs Law.
Return Filing under GST is to be done in the same manner as it is stated for Exports under GST. Unlike exports, deemed exports are not treated as zero rated supplies, i.e. such supply cannot be made by furnishing Bonds/LUT without paying taxes. IGST needs to be paid prior to export for which refund can be claimed later. Refund can be claimed either by the recipient or by the supplier. Once supplier decides to claim refund, recipient should provide an undertaking that no refund (Tax/ ITC) shall be claimed by him. Refund is to be claimed by filing the form RFD 01 long with the supporting documents.
Merchant exporter is a person who does not have its own manufacturing unit. Instead, it buys goods from Indian production units and sells them overseas. The major focus of merchant exporters is on exporting goods and not services.
Since Merchant Exporter is located in India and supplies goods outside India, it is mandatory for him to get registered under GST. There are two ways in which exports can be made by Merchant Exporter:
> No payment of IGST and making export by furnishing Bond/LUT. Refund for unutilised ITC can be claimed later.
> Pay IGST and export goods. IGST and unutilised ITC can be claimed afterwards. But this option is possible only if the Merchant Exporter has not opted to buy goods from the manufacturer under a Special Relief Scheme at 0.1% GST.
Filing of shipping bill with customs is considered as an application for refund if export manifest is submitted along with the valid return under GST.
Government through Notification 41/2017 dated 23/10/2017 has provided a relief to Merchant Exporter to buy goods from domestic manufacturer at a discounted rate of 0.1% subject to certain conditions:
> Domestic manufacturer should supply the goods on a tax invoice stating GST charged @ 0.1%
> Supplied goods should be exported within 90 days from the issue of invoice
> Shipping bill should possess GSTIN and Tax Invoice number of the supplier
> Merchant Exporter should compulsorily get registered with an Export Promotion Council/Commodity Board
> A copy of the order placed by the merchant exporter to the manufacturer at a concessional rate should be submitted to the Jurisdictional Tax Officer of the registered supplier
> Merchant Exporter shall instruct the goods to move directly from the registered supplier to the Port/ Inland Container Depot/Airport/Land Custom Station from where the goods will be exported or to the registered warehouse from where goods will move to the Port/ Inland Container Depot/Airport/Land Custom Station and will be then exported. If goods are procured from multiple suppliers, goods shall directly move to registered warehouse from all the suppliers and then move to the Port/ Inland Container Depot/Airport/Land Custom Station and will be then exported.
> Tax Invoice shall be endorsed by Merchant exporter on receipt of goods and also obtain an acknowledgement from the warehouse operator for the receipt of goods. The above two documents will then be submitted to the registered supplier and Jurisdictional Tax Officer
> After the export of goods, the shipping bill along with the Export General Manifest should be filed with registered supplier and Jurisdictional Tax Officer.
Illustration 1 – Merchant Exporter exports goods under LUT/Bond without payment of Tax and avails Special Relief Scheme
Merchant Exporter procures goods from the registered supplier at 0.1% GST and exports the same without payment of tax. After the export is made Merchant Exporter can claim refund of unutilised ITC.
Illustration 2 – Merchant Exporter procures goods from supplier who buys it from another supplier and exports without payment of Tax.
In this scenario there are two suppliers. Merchant Exporter procures goods from supplier 1 at concessional rate of 0.1% GST. This supplier 1 procures from another supplier 2 at the standard tax rates under GST. In this case, apart from Merchant Exporter claiming the refund of unutilised ITC, Supplier 1 would also claim refund under Inverted Tax Structure (This structure arises in the case where the rate of tax on input goods is higher than rate of tax on output). i.e. supplier 1 sells at a concessional rate but procures at the standard rate of tax.
Illustration 3– Merchant Exporter exports after paying IGST and procures goods at normal tax rates
After the exports is made paying IGST, Merchant exporter can claim for refund of unutilised ITC and IGST paid.
Exports of Goods from India is governed by clause (a) of sub section (1) and sub section (3) of Section 7 of Foreign Exchange Management Act 1999 ( 42 of 1999) read with Foreign Exchange Management (Current Account Transactions) Rules, 2000 further read with FEMA Notification No 23(R)/2015-RB dated January 12, 2016. These notifications released by Reserve bank of India along with prevailing Foreign Trade Policy released by Directorate General of Foreign Trade (DGFT) lays guidance to conduct Export Trade from India.
Exporters from India need to have Importer Export Code (IEC allotted by DGFT) in order to export goods. Exporters are required to furnish complete transaction details to RBI through Authorised Dealer Category – I bank including the amount representing the full export value of goods.
> All Exports contracts shall be denominated either in freely convertible currency or Indian Rupees.
> Export proceeds shall be realised in freely convertible currency.
> Export proceeds against specific exports may be realised in Indian Rupee provided funds are received through freely convertible Vostro account of non-resident bank in any country other than member of Asian Clearing Union or Nepal or Bhutan. (vostro account is the account held by a foreign bank with a domestic bank in domestic currency)
> It is obligatory for exporters to realize and repatriate full value of goods into India within 9 months from the date of exports.
> RBI has allowed AD Category-I banks to extend the period for export realization beyond stipulated timelines for up to a period of 6 months at a time.
> In view of current Covid pandemic, the Government of India has increased the realization period to 15 months for exports made till 31st July 2020.
> For goods exported to warehouse established outside India, export proceeds are to be realized and repatriated within 15 months from date of shipment of goods.
> Amount representing the full export value of goods exported shall be received through an AD Bank in the manner specified in Notification No. FEMA 14 (R)/2016-RB dated 02 May 2016.
> When payment for goods sold to overseas buyers is received during their visits:
AD Category-I banks have been allowed to offer the facility of export realization by entering into standing arrangements with OPGSPs adhering to following conditions:
> Carrying out due diligence of OPGSP and value of exported goods not exceeding USD 10,000.
> AD Category – I banks providing this facility shall open a Nostro collection account for receipt of export payment. In case exporters are required to open notional accounts with OPGSP, no funds can be retained in such accounts and all receipts should be automatically pooled in the Nostro collection account opened by AD bank.
> Balances held in Nostro collection account will be repatriated to exporters account in India immediately on receipt of confirmation from importer’s end or maximum within 7 days from the date of credit in the collection account post payment of fee, charges to the OPGSP if any.
> Start-ups can realize receivables of their overseas subsidiary and repatriate them through OPGSP
Export invoices raised in freely convertible currency can also be settled in the currency of beneficiary though which convertible does not have direct exchange rate subject to below conditions:
> Exporter shall be customer of AD Bank.
> Signed Invoice/Contract in freely convertible currency.
> Beneficiary is agreeable to receive the payment in the currency of beneficiary instead of the original invoiced currency as full and final settlement.
> AD is satisfied with underlying transaction and the counterparty is not from a country or jurisdiction in the updated FATF (Financial Action Task Force) public statement
> Exporter receiving an advance payment from a buyer outside India should ensure to export the goods within 1 year from the date of receipt of advance.
> Rate of Interest (in case payable) on such advance payment cannot exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points.
> In case the exporter fails to ship the goods partially or fully within the stipulated time frame, refund of advance payment post 1 year would require prior approval of RBI.
> AD Category-I banks may allow exporter to receive advance payment for a period beyond 1 year where the manufacturing and shipment of goods will take more than 1 year and the export agreement allows such time frame.
> AD Category-I banks can also allow exporter with minimum satisfactory track record of 3 years to receive long term export advance for maximum period of 10 years for execution of long term supply contracts subject to meeting certain conditions.
Exporters can realize export proceeds from third parties (different from actual buyer) subject to following conditions:
> Firm irrevocable order backed with tripartite agreement between buyer, supplier and third party is in place.
> AD being satisfied with underlying transaction and checks made as per FATF guidelines.
> Third party payment should be routed through banking channel.
> Exporter should declare the third party name in Export Declaration Form (EDF) from whom the proceeds are to be realised.
> In case of shipments being made to Restricted Cover countries of Group II (like Sudan, Somalia, etc) payments for the same can be received from open cover country.
> Exports of Goods through Custom Ports
Exporter submits two copies of Export Declaration Form (EDF) to customs at Non-Electronic Data Interchange (EDI) Port. Custom officials certify the value of goods declared and give running serial number on the EDF. Customs retains the original EDF for transmission to RBI and returns duplicate copy to exporter. At the time of shipment of goods, exporter submits the duplicate copy of EDF to customs for certifying the quantity in the form. Upon certification customs returns the duplicate copy to exporter for onward submission to AD. Exporter shall submit duplicate copy of EDF along with relevant shipping documents to AD within 21 days from the date of export for dispatching it to overseas bank for collection. After the documents have been sent for collection, the AD shall report the transaction through Export Data Processing and Monitoring System (EDPMS) to RBI.
> Exports of Goods through EDI Ports
In this case the Shipping Bill is submitted in duplicate to Commissioner of Customs. Post verification, customs hands over Exchange Control (EC) copy to exporter for onward submission to AD within 21 days from date of export. In cases where EC copy of shipping bill is not printed and data is integrated with EDPMS, submission of EC copy of shipping bill to AD is not required. The manner of disposal of EC copy of shipping bill will be same as that of EDF except in cases where EC copy is not generated as the data is integrated with EDPMS.
> Exports of Goods through Posts
In case of exports of goods through posts, original copy of EDF is to be countersigned by the AD. The AD shall countersign the EDF after ensuring that the parcel is addressed to their branch or correspondent bank in the country of import and return the original copy to the exporter who in turn will submit the EDF to the post office with parcel. The duplicate copy of EDF shall be retained by the AD and the exporter shall submit the relevant shipping documents to the AD within 21 days from date of export. The concerned overseas branch or correspondent bank shall deliver the parcel to the consignee against payment or acceptance of the bill.
AD Category-I banks may approve EDF for exports for the below categories without approaching RBI for approval:
> Goods exported for the purpose of Exhibition/Trade Fair outside India. Unsold exhibit items may also be sold at discounted price outside the exhibition/trade fair in the same country or some other country. It is also permissible to gift unsold items up-to the value of USD 5,000 per exporter per exhibition/trade fair. Exporter shall submit the relative bill of entry for unsold items within one month of re-import into India. Exporter shall report the goods sold as well as realized value to the AD.
> Goods being exported on reimport basis after repairs/testing/maintenance etc subject to the condition that exporter submits bill of entry within one month of reimport to AD. In case goods being exported for testing are destroyed during testing, exporter needs to arrange destruction certificate from the testing agency in lieu of bill of entry.
AD Category-I banks may allow exporters for reduction in invoice value post-dispatch of documents for collection subject to:
> Reduction does not exceed 25% of the invoice value
> Reduction is not related to export of commodities subject to floor price stipulations
> Exporter is not in the RBI’s Exporter Caution list
> Exporter to surrender proportionate incentives if availed
For Exporters with more than 3 years of satisfactory track record, invoice reduction is allowed without any percentage capping subject to meeting the above conditions and export outstanding does not exceed 5% of the average annual export realization during preceding 3 financial years.
Exporters may either Self Write off or approach AD category-I bank to write off export dues outstanding for more than 1 year with appropriate supporting documentary evidence and adherence to certain conditions. Basis eligibility the limit prescribed for write off of unrealised bills is as below:
|Particulars||Limit||Limit (%) in relation to|
|Self-Write Off by Exporter ( Other than Status Holder)||5%||Total Exports proceeds realized during the calendar year preceding the year in which write off is being done|
|Self-Write Off by Status Holder Exporter||10%|
|Write off by AD Category-I Bank||10%|
About the Author
Author is Neeraj Bhagat, FCA helping foreign companies in setting up of business in India and complying with various tax laws applicable to foreign companies while establishing a business in India. He is also founder of Neeraj Bhagat & Co. Chartered Accountants, a Chartered Accountancy firm established in the year 1997 with its head office at New Delhi.