EXPORT OF GOODS UNDER BOND / LETTER OF UNDERTAKING / PAYMENT OF IGST (CONSOLIDATED PROVISIONS AS AT JULY 8, 2017)

Scope of Zero Rates Supplies

1. The following two categories of supplies are recognised as ‘Zero Rated Supplies’ (Sec 16 of the IGST Act)

  • Export of goods or services or both
  • Supply of goods or services or both to a SEZ Developer or a SEZ Unit

2. ‘Export of goods’ means taking goods out of India to a place outside India (Sec 2(5) of IGST Act)

3. ‘Export of services’ means the supply of any service when,–

  • the supplier of service is located in India;
  • the recipient of service is located outside India;
  • the place of supply of service is outside India;
  • the payment for such service has been received by the supplier of
  • service in convertible foreign exchange; and
  • the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of IGST Act

Input tax Credit on Zero Rated Supplies

1. With a view to incentivize exports, Sec 16 of the IGST Act provides that input tax credit can be availed for making Zero Rated Supplies.

2. The availing of ITC is subject to the restrictions laid down under Sec 17(5) of the CGST Act, like in case of any ordinary supply as well.

3. The ITC for Zero Rated Supply can be availed even if the supply is an exempt supply.

Refund of Input tax Credit availed on Exports

1. A registered person who makes Zero Rated Supplies like Exports has no output liability. Hence, the ITC availed by him keeps accumulating.

2. In order to get convert the ITC into cash, he has following three different options:

  • Supply the goods or services or both under a Bond and claim refund of unutilised IGST.
  • Supply the goods or services or both under a Letter of Undertaking (also called in short generally as ‘LUT’) and claim refund of unutilised IGST.
  • Supply goods or services or both on payment of IGST and claim refund of such tax paid on goods or services or both supplied.

Option 1 – Supply under a Bond

1. A Bond (in nature of Indemnity bond) in Form GST RFD-11 is executed on non-judicial stamp paper between the exporter and the Government through President of India. As a transition provision, exports may be allowed under existing Bonds till July 31, 2017, by which date, the abovementioned Form GST RFD-11 has to be furnished for future exports.

2. The Bond need not be given separately for each export as this would make the compliance burdensome. The Bond would be like a running Bond (with debit / credit facility)

3. The Bond should sufficiently cover the amount of tax involved in the export based on estimated tax liability as assessed by the exporter himself. The exporter shall ensure that the outstanding tax liability on exports is within the bond amount. In case the bond amount is insufficient to cover the tax liability in yet to be completed exports, the exporter shall furnish a fresh bond to cover such liability.

4. As an ease of compliance, the Bond shall be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter (though Rule 96A(1) requires to be filed with the Jurisdictional Commissioner)

5. In the Bond, the exporter undertakes that he shall export the goods / services and observe all the provisions of the Act / Rules in respect of export of goods / services.

6. A Bank Guarantee will have to be furnished to the Commissioner as a security under the Bond. The Jurisdictional Commissioner may decide about the amount of Bank Guarantee depending upon the track record of the exporter.  If Commissioner is satisfied with the track record of an exporter then furnishing of bond without bank guarantee would suffice. In any case the bank guarantee should normally not exceed 15% of the bond amount.

7. The Bonds also will state that in the event of breach or failure in performance, the Government shall invoke the bank guarantee to make good all the loss / damages.

8. The Bond has to be furnished prior to the export. Once the Bond is furnished, the exporter can carry out the export of goods / services

9. No tax will be paid on the export supply and the invoice shall carry a declaration as ‘SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX’

10. The format of Form GST RFD-11 along with format of the Bond to be executed is available in Circular No 26/2017 – Customs dated July 1, 2017

11. Presently, the module for furnishing of GST FORM RFD-11 is not available on the GST common portal. Hence, the Form GST RFD-11 has to be downloaded from cbec.gov.in and furnished manually to the jurisdictional Deputy/Assistant Commissioner.

12. Form ARE-1, which all along was an important statutory document to avail export benefits, both under Excise and Customs Laws, is now dispensed off with the onset of GST, except that it will now apply only to commodities to which provisions of Central Excise Ac t continue to be applicable.

Option 2 – Supply under a Letter of Undertaking (LUT)

1. Option 1 i.e. furnishing of Bond supported by a Bank Guarantee results in blocking of working capital since Bank would ask the exported for a margin money deposit against the Guarantee.

2. For this reason, every exported would want to exercise Option 2 i.e. export again LUT in lieu of a Bond.

3. However, the Government is selective in giving this option and at present, the following registered person shall alone be eligible for submission of LUT in place of a Bond (Refer CBEC Notification No 16/2017 – Central Tax dated July 7, 2017)

  • a status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020; or
  • who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than Rs 1 Crore, in the preceding financial year, and he has not been prosecuted for any offence under the CGST Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds Rs 2.5 lakhs.

4. A Letter of Undertaking in Form GST RFD-11, addressed to the President of India has to be executed by the Registered Person. As a transition provision, exports may be allowed under existing LUT’s till July 31, 2017, by which date, the above mentioned Form GST RFD-11 has to be furnished for future exports.

5. As an ease of compliance, the LUT shall be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter (though Rule 96A(1) requires to be filed with the Jurisdictional Commissioner)

6. In the LUT, the exporter would undertake the following: (a) To export goods within 3 months from invoice date (b) To receive consideration for export of services in foreign currency within 1 year from invoice date (c) To observe all the provisions of the Act / Rules in respect of export (d) In event of failure to do the export he shall pay IGST along with interest @ 18% on the IGST from the invoice date till date of payment

7. The LUT has to be furnished prior to the export. Once the LUT is furnished, the exporter can carry out the export of goods / services

8. No tax will be paid on the export supply and the invoice shall carry a declaration as ‘SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX’

9. The LUT will be valid for 12 months and should be furnished for each financial year in duplicate.

10. No Bank Guarantee is required to be furnished to the Commissioner. However, if the exporter fails to comply with the conditions of the LUT, he may be asked to furnish a Bond.

11. The format of Form GST RFD-11 along with format of the LUT to be executed is available in Circular No 26/2017 – Customs dated July 1, 2017

12. Presently, the module for furnishing of GST FORM RFD-11 is not available on the GST common portal. Hence, the Form GST RFD-11 has to be downloaded from cbec.gov.in and furnished manually to the jurisdictional Deputy/Assistant Commissioner.

13. Form ARE-1, which all along was an important statutory document to avail export benefits, both under Excise and Customs Laws, is now dispensed off with the onset of GST, except that it will now apply only to commodities to which provisions of Central Excise Ac t continue to be applicable.

Option 3 – Payment of IGST and claim refund of such tax paid on export supply

1. The exporter prepares an invoice showing the amount of IGST payable on the value of exports

2. The invoice shall state “SUPPLY MEANT FOR EXPORT ON PAYMENT OF INTEGRATED TAX”

3. The IGST liability shown on the invoice is only for presentation purpose and not required to be collected from the customer

4. The exporter uses the balance availed in his ITC ledgers to discharge the IGST liability shown on the export invoice. There is no cash outflow as the IGST liability is discharged by utilisation of available ITC.

5. The IGST liability, thus discharged, is then claimed as refund.

[Disclaimer: This Article is prepared on July 8, 2017 and summarises the legal position under the following:

1. The Integrated Goods & Service Tax Act, 2017

2. The Central Goods & Service Tax Act, 2017

3. The Central Goods and Services Tax Rules, 2017

4. Circular – Customs – 26/2017 dt July 1, 2017 – Exports Procedures and Self-sealing of containers

5. Circular – CBEC – 2-2-2017 dt July 4, 2017 – Issues related to furnishing of Bond and LUT for Exports

6. Circular – CBEC – 4-4-2017 dt July 7, 2017 – Issues relating to Bond / LUT for exports without payment of IGST

7. Notification – CBEC – 16/2017 Central Tax dt July 7, 2017 – Conditions for submission of LUT in place of bond]

( The author CA. Jatin Sanghvi is a Chartered Accountant based in Chennai, email ID : jatinsanghvi@jsaca.com )

Author Bio

Qualification: CA in Practice
Company: JATIN SANGHVI & ASSOCIATES
Location: Chennai, Tamil Nadu, IN
Member Since: 08 Jul 2017 | Total Posts: 1

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Tags : goods and services tax (3894) GST (3486) GST Rules (64) IGST (151)

37 responses to “GST: Export under Bond or Letter of Undertaking- Procedures upto 08.07.2017”

  1. Subhash chandrakant chavan says:

    Hi i m Subhash Chavan
    I Required GST Bond Debit & Credit Register Format. can you help me.

  2. bharti says:

    Sir……..
    1)please tell me whether we require export bills for the purpose of submitting bond without payment of integrated tax. And if yes then how will it be possible in case of a newly incorporated private company wishing to export for the first time.
    However gstin is there but .

    ?????

  3. Mr. Vinesh Chandvania says:

    EXPORT OF GOODS UNDER BOND / WITHOUT PAYMENT OF IGST /GST AS PER NOTIFICATION 41/2017 FOR MERCHANT EXPORTER

  4. bharat Parekh says:

    How merchant exporter will survivie if export invoice has to be filed to the registerd supplier jurisdication tax office , is there any way to avoid this procedure

  5. Rajesh Chavan says:

    Hi i m Rajesh
    I Required GST Bond Debit & Credit Register Format. can you help me.

  6. S JEGADEESAN says:

    Dear Sir,

    Where should I fill up the Taxable Value of Export Invoice under Export of Invoice Tap in GSTR -1 While the Service is export without payment of IGST (Under LUT)

    i.e. So many Tax rate is available below the Invoice Particulars Line in GSTR 1

    0%
    5%
    12 %
    18%
    28%

    Where should I fill up when the service is exported under LUT? Whether against 0 % or against 18%

  7. V.Janardhanan says:

    address shown in GST registration, can be stated as the address for LUT bond registration.

  8. P Ramasamy says:

    LUT letter not filed on 31st Jul 2017. We filed on 1st Aug 2017 and got LUT on 2nd Aug 2017. Is any issue for export invoice on 31st Jul 2017. ( Need to pay IGST on 31st Jul 17 Invoies
    Pl any one clarify

  9. STANDARD ENGINEERS says:

    what are documents required to acompany desptched of goods to SEZ under bond and who will certify proof of export to SEZ ?

  10. Jolly K Mathai says:

    Sir,
    We are exporting material to Nepal through Transport company.
    But the problem with us is ,we are not yet clear how to prepare invoice for Nepal.We have been dispatched few consignment with showing of IGST in invoice. Some body is told us it is not permissible to export . So Please let us know how to prepare Export invoice to Nepal
    .

  11. Vinod Kumar says:

    Thanks for the Article.

    My question is:

    I have obtained LUT from respective authority, after obtaining if my export gets cancelled what should be done?

  12. Ankitst says:

    Dear Sir
    In “Supply meant for export under payment of IGST”
    whether IGST should be charged and if charged if it is only for presentation as IGST Payable,Than it will be automatically added with net amount,So the Gross amount will be net+IGST=Gross amt.But SEZ sale should be zero rated..
    SO WHAT SHOULD BE THE INVOICE FORMAT when i am using tally erp 9 new Gst release.

  13. Karan shah says:

    Dear sir

    Can any one explain clause (2) of notification no. 16/2017 of central tax rate with help of example?

    Whether 1 cr limit is for 10% of export turnover or total receipt from export turnover should be more than 1 cr irrespective of % of export turnover?

  14. SAIFUDDIN says:

    DEAR SIR,
    WE ARE SUPPLYING SANITARY FITTINGS TO A
    UNIT UNDER SEZ AND THE TAX LIABILITY UNDER GST IS 28% BUT OUR CUSTOMER IS INSISTING FOR SUPPLIES UNDER ZERO RATED TAX APPLICABLE FOR SEZ UNIT.
    KINDLY EXPLAIN CLEARLY GST GUIDLIANCE FOR SEZ UNIT.

  15. Mayank Vaish says:

    Hi jatin ji,
    1.Can we use credit of SGST ( carryforward ITC) for payment of IGST in export?

    2. If we have exported without LUT, while we have shipping bill( proof of export) and use our vat stock so there will be any problem in getting VAT ITC.

    Waiting for reply.
    Mayank vaish

  16. Shelly says:

    1.How will sign. letter of undertaking for export of goods?

    can we file shipping bill in non drawback or white shipping bill category?

    or
    Letter of undertaking is must? In case if I don’t want to submit bond.

  17. Yasodha says:

    sir,
    what document require for supply of goods to SEZ unit

  18. Sanika Desai says:

    The article is very well written. It provided a lot of clarity on the topic of exports

  19. Sumit Khanna says:

    In para 3 of Option 2, it has been mentioned “in case where the amount of tax evaded exceeds Rs 2.5 lakhs” where as it should be 2.5 Crores.

  20. Anuj says:

    LUT ko reneiw karnwane k liye kya karna padega bank guarntee deni padegi ya nahi aur pahle Annexure 63 Diya jata tha aur ab kay karna hai clear kare Pl……………..

  21. Akshay Patel says:

    During SEZ supply do we need to declare IGST value which is exempted though it is zero ?

  22. Abhay Dagli says:

    Jatinji
    1) We are into Exports – Please clarify do we have to Charges IGST in Export Invoice (Export is not Zero Rated)- as in Previous Tax regime no Tax chargeable on Exports.

  23. Ajay says:

    Will it applicable on bulk mailing services. In this category item value is nil.

  24. airheaters says:

    Please give the format of Bank Guarantee. My bank has not given such guarantee in past.

  25. gaurav says:

    where is the format of Bank guarantee needed with Bond for Export under GST as bank is not cleared about the format of bank guarantee . Please let me know. Thanka

  26. Mukesh J. says:

    Hi Jatin Ji,
    I am a freelancer providing web designing services to overseas clients. My business comes under export of services. My invoices are sometimes as small as $25. Is bank guarantee must for people like us? Or can we submit bond without BG? Look forward to your reply. Thanks in advance!

  27. Stephy Davis says:

    Very clearly covered the provisions for export of Services / goods under LUT/bond/ payment of IGST
    The sentence “……..and he has not been prosecuted for any offence under the CGST Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds Rs 2.5 lakhs.” – as per notification the words are :where the amount of tax
    evaded exceeds two hundred and fifty lakh rupees.

  28. Shgaun says:

    Do we need to charge IGST in case of supply of goods or services from SEZ to outside India?

  29. Kutub says:

    Hello,

    Need to know if purchase is made against H Form in Q1 and Sale is in Q2 under GST then what will be the format for Export Invoice .
    What we need to mention under Invoice heading ?
    “Supply Meant For Export On Payment Of IGST”
    OR
    “Supply Meant For Export Under Bond Or Letter Of Undertaking Without Payment Of IGST”

  30. SAVITHA says:

    PLEASE LET US KNOW FOR EXPORT BILL SHOULD GIVE WE GIVE SEPERATE INVOICE NO. FROM DOMESTIC , OR CONTINUATION OF INVOICE NOS . FOR ALL EXPORTS ,DOMESTIC PLEASE REPLY TO BELOW EMAIL SIR AT EARLIEST BECAUSE WE HAVE TO DO EXPORT

  31. Abhishek says:

    Hi Jatin ji

    Thanks for the detailed explanation. Please clarify following points :

    1) Can an exporter of services continue to export without payment of IGST if there is no credit avaliable in ITC;
    2) If a person is 100% exporter, is he required to get himself registered in GST.

    • Shgaun says:

      Hi Abhishek:
      1.Yes you can export in this case, provided you have entered LUT or Bond as the case may be.
      2. You will have to get yourself register under GST even if you are 100% exporter.

      for more info please contact on cashagungandhi@gmail.com

  32. Jagdip Shah says:

    The sentence “……..and he has not been prosecuted for any offence under the CGST Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds Rs 2.5 lakhs.” as mentioned under option 2 applies to both as per Notification No. 16/2017-Central Tax dated 07.07.2017. CA Jatin Sanghvi may clarify if I am incorrect in understanding the contents of the said notification

  33. Mehul unagar says:

    Sir, also share a article related to 2 Zero rated that is Supplies to SEZ

  34. Chintan Purabia says:

    What is the proof of export documents or forms to be required to export to Bhutan?

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