Another circular No. 5/5/2017, dated the 11th August, 2017 is being issued to bring more clarity on the issues related to furnishing of Bond/Letter of Undertaking for Exports.
Rule 96A of CGST Rules, 2017 talks about the refund of integrated tax paid on export of goods or services under bond or Letter of undertaking. Let’s understand further this Rule for better clarity.
Who are required to furnish Bond/ LUT?
Any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking.
LETTER OF UNDERTAKING
What is the Eligibility criteria to export under LUT??
Any registered person who has received a minimum foreign inward remittance of 10% of export turnover in the preceding financial year is eligible for availing the facility of LUT provided that the amount received as foreign inward remittance is not less than Rs. one crore. This means that only such exporters are eligible to LUT facilities who have received a remittance of Rs. one crore or 10% of export turnover, whichever is a higher amount, in the previous financial year.
| Let’s understand the above mentioned eligibility with illustrations:
– An exporter had a turnover of Rs. 5 crore in the previous financial year. He would be eligible for LUT facility if remittance received against this export is Rs. 1.0 crore or more (10% of export turnover is less than Rs. 1 crore) – An exporter had a turnover of Rs. 15 crore in the previous financial year. He would be eligible for LUT facility if remittance received against this export is Rs. 1.5 crore or more (10% of export turnover is more than Rs. 1 crore) – An exporter has export turnover of Rs. 40 crore. He has received Rs. 2 Crores as foreign inward remittances in FY 2016-17 which is 5% of the export turnover. He will not be eligible for LUT facility as remittance received is less than 10% of export turnover, even though it is in excess of Rs. 1 crore. – An exporter has an export turnover of Rs. 2 crore. He has received Rs. 80 lacs as foreign inward remittances in FY 2016-17 which is 40% of the export turnover. He will not be eligible for LUT facility as remittance received is less than Rs. 1 crore – An exporter has received Rs. 1 Crore 10 lacs as foreign inward remittances in FY 2016-17 which is 20% of the export turnover. In this scenario, he will be eligible for LUT facility. |
Please Note: STATUS HOLDERS are eligible for LUT facility regardless of whether he satisfies the above conditions.
What is the form for LUT??
They are generally submitted on the letterhead containing signature and seal of the person or the person authorized in this behalf.
What is time limit for acceptance of LUT??
As LUT is a priori requirement for export, including supplies to a SEZ developer or a SEZ unit, the LUT should be processed on top most priority and should be accepted within a period of three working days from the date of submission of LUT/bond along with complete documents by the exporter.
What shall be the treatment if the transactions are with EOUs??
Zero rating is not applicable to supplies to EOUs and there is no special dispensation for them. Therefore, supplies to EOUs are taxable under GST just like any other taxable supplies. The EOUs, to the extent of exports, are eligible for zero rating like any other exporter.
Whether Forward inward remittance shall be in Indian Rupee??
It’s being clarified that acceptance of LUT instead of a bond for supplies of goods to Nepal or Bhutan or SEZ developer or SEZ unit will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with applicable RBI guidelines. It may also be noted that supply of services to SEZ developer or SEZ unit will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange.
Who shall be the Jurisdictional officer??
In previous circulars, it’s clear that LUT shall be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter. The exporter is at liberty to furnish the LUT before Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented. It is reiterated that the Central Tax officers shall facilitate all exporters whether or not the exporter was registered with the Central Government in the earlier regime.
What are the documents required for furnishing LUT??
Documents submitted as proof of fulfilling the conditions of LUT shall be accepted unless there is any evidence to the contrary. Self-declaration shall be accepted unless there is specific information otherwise. For example, a self-declaration by the exporter to the effect that he has not been prosecuted should suffice for the purposes of notification No. 16/2017 – Central tax dated 7th July, 2017. Verification, if any, may be done on post facto basis. Similarly, Status holder exporters have been given the facility of LUT under the said notification and a self-attested copy of the proof of Status should be sufficient.
BOND
Who shall furnish Bond??
If an exporter fails to comply with the conditions of the LUT he may be asked to furnish a bond.
What is time limit for acceptance of Bond??
Same as LUT (as mentioned above)
What is the form for Bond??
Bonds are furnished on non-judicial stamp paper.
What shall be the amount of Bank guarantee??
Bank guarantee should normally not exceed 15% of the bond amount. However, the Commissioner may waive off the requirement to furnish bank guarantee taking into account the facts and circumstances of each case. It is expected that this provision would be implemented liberally. Some of the instances of liberal interpretation are as follows:
- an exporter registered with recognized Export Promotion Council can be allowed to submit bond without bank guarantee on submission of a self-attested copy of the proof of registration with a recognized Export Promotion Council
- In the GST regime, registration is State-wise which means that the expression ‘registered person’ used in the said notification may mean different registered persons (distinct persons in terms of sub-section (1) of section 25 of the Act) if a person having one Permanent Account Number is registered in more than one State. It may so happen that a registered person may not satisfy the condition regarding foreign inward remittances in respect of one particular registration, because of splitting and accountal of receipts and turnover across different registered person with the same PAN. But the total amount of inward foreign remittances received by all the registered persons, having one Permanent Account Number, maybe Rs. 1 crore or more and it also maybe 10% or more of total export turnover. In such cases, the registered person can be allowed to submit bond without bank guarantee.
Who shall be the Jurisdictional officer??
Same as LUT (as mentioned above)
| Non relevance of form CT-1
It is learnt that there is lack of clarity about treatment of CT-1 form which was earlier used for purchase of goods by a merchant exporter from a manufacturer without payment of central excise duty. The scheme holds no relevance under GST since transaction between a manufacturer and a merchant exporter is in the nature of supply and the same has not been exempted under GST even on submission of LUT/bond. Therefore, such supplies would be subject to GST. The zero rating of exports, including supplies to SEZ, is allowed only with respect to supply by the actual exporter under LUT/bond or payment of IGST. |
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| References | ||
| Notification | Notification/circular No. | Date |
| CBEC clarifies on furnishing of Bond/Letter of Undertaking for Export | Circular No. 5/5/2017 – GST | 11th August, 2017 |
| LOU in place of a bond for export without payment of IGST- Conditions | Notification No. 16/2017– Central Tax | 7th July, 2017 |
| Bond/ Letter of Undertaking for exports without IGST payment- Reg. | Circular No. 4/4/2017-GST | 7th July, 2017 |
| GST: Reg. Furnishing of Bond/ Letter of Undertaking for Exports | Circular No. 2/2/2017-GST | 4th July, 2017 |
Hope this information will help you in your Professional endeavors. For further assistance/query, feel free to write to us.
Author: C S Ekta Maheshwari is the Author of this article and is Company Secretary by profession. The Author can be reached at csektamaheshwari14@gmail.com
Disclaimer:
The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.
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What if the Exports are made for the First Time if Not the status Holder
Hi,
What if the exporter is having 7 branches across 6 states, is he required to obtain statewise LUT or one obtaines fron the place where the registered office is under jurisdiction.
This is in respect of exports, and assuming all the required conditions as prescribed are getting satisfied.
We, M/s. M. K. International are providing Customs/Excise Consulting services to SEZ / STPI and EOU units. In GST Dept. are we required to give Bond and B.G. OR LUT is sufficient?