Exports have been the area of focus in all policy initiatives of the Government for more than 30 years. Now with the Make in India initiative, exports continue to enjoy this special treatment because exports should not be burdened with domestic taxes. On the other hand, GST demands that the input-output chain not be broken and exemptions have a tendency to break this chain. Zero-rated supply is the method by which the Government has approached to address all these important considerations.
In this article, I have tried to explain the basic provision, rules as well as notification which are very important to understand the GST on the export of Goods as well as services.
What is Export of Goods under GST?
As per IGST Act Section 2(5) Export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India. Export means trading or supplying of goods and services outside the domestic territory of a country.
What is Export of Services under GST?
As per IGST Act Section 2(6) “Export of services” means the supply of any service when, –
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange;
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person
Supply of services having place of supply in Nepal or Bhutan, against payment in Indian Rupees is exempted even if the payment is received in Indian Currency looking at the business practices and trends.
How are Exports treated under GST Law?
Under the GST Law, export of goods or services has been treated as:
GST will not be levied in any Kind of Exports of Goods or Services.
What is Zero rated Supply? – Sec.16 (1) IGST ACT
(1) “zero rated supply” means any of the following supplies of goods or services or both, namely:––
(a) Export of goods or services or both; or
(b) Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
Zero-rated supply does not mean that the goods and services have a tariff rate of ‘0%’ but the recipient to whom the supply is made is entitled to pay ‘0%’ GST to the supplier.
In other words, as it has been well discussed in section 17(2) of the CGST Act that input tax credit will not be available in respect of supplies that have a ‘0%’ rate of tax. However, this disqualification does not apply to zero-rated supplies covered by this section.
These provisions of zero-rated supplies are introduced in the statute on the basis of the prevalent Central Excise and Service Tax laws. It is widely believed that introduction of this provision will alleviate the difficulty of a supplier who exempts goods or services or both in terms of export competitiveness.
This provision also specifically expresses that taxes are not exported. Care must be exercised that while paying taxes, such taxes are not collected from the recipient of goods or services or both. This would result in unjust enrichment.
The exporter may utilize such credits for discharge of other output taxes or alternatively, the exporter may claim a refund of such taxes as per section 54 of CGST or Rules made there under. .
How Exporter can claim refund for Zero rated supply?
A guidance note relating was released by the Indian government which has helped in clearing doubts regarding the claim of input tax credit on zero-rated exports. An exporter dealing in zero-rated goods under GST can claim a refund for zero-rated supplies as per the following options:
How Exporter can claim refund under Option -1 LUT Method?
He may export the Goods/services under a Letter of Undertaking, without payment of IGST and claim refund of unutilized input tax credit; (Rule 96A of CGST Rules)
(1) 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 in FORM GST RFD-11 Bond and LUT Format to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest specified under sub-section (1) of section 50 within a period of—
Who can export without payment of IGST by furnishing only Letter of Undertaking (LUT) in place of Bond?
(a) fifteen days after the expiry of three months from the date of issue of the invoice for export, if the goods are not exported out of India; or
(b) fifteen days after the expiry of one 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
(2) The details of the export invoices contained in FORM GSTR-1 furnished on the common portal shall be electronically transmitted to the system designated by Customs and a confirmation that the goods covered by the said invoices have been exported out of India shall be electronically transmitted to the common portal from the said system.
Procedural Requirement for LUT Method:
|Format of Letter of
|:||FORM GST RFD-11 (as per Rule 96A CGST Rule)|
|Submission to||:||The jurisdictional Commissioner,|
|Validity Period||:||Financial Year|
|How||:||On letter head of the registered person|
|Executed by||:||Working partner, Managing Director or the Company Secretary, Proprietor, A person duly authorized by such working partner or Board of Directors of such company or proprietor.|
Refund of integrated tax paid on goods or services exported out of India. – Rule 96 CGST Rules.
(1) The shipping bill filed by an exporter of goods shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed only when:-
(a) the person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering the number and the date of shipping bills or bills of export; and
(b) The applicant has furnished a valid return in FOR1L GSTR-3 or FOR1L GSTR-3B, as the case may be;
(2) The details of the relevant export invoices in respect of export of goods 48 contained in FORM GSTR-1 shall be transmitted electronically by the common portal to the system designated by the Customs and the said system shall electronically transmit to the common portal, a confirmation that the goods covered by the said invoices have been exported out of India.
Exempts the inter-State supply of taxable goods (hereafter in this notification referred to as “the said goods”) by a registered supplier to a registered recipient for export, from so much of the integrated tax leviable thereon under section 5 of the Integrated Good and Services Tax Act, 2017 (13 of 2017), as is in excess of the amount calculated at the rate of 0.1 per cent. Subject to fulfillment of the following conditions, namely –
(It is to be noted there are similar notification in Central rate vide no. 40/2017- Central Tax (Rate), date 23-10-2017 issued and in respective state as well)
Important Condition for the above notification are as follows:
(i) The registered supplier shall supply the goods to the registered recipient on a tax invoice;
(ii) The registered recipient shall export the said goods within a period of ninety days from the date of issue of a tax invoice by the registered supplier;
(iii) The registered recipient shall indicate the Goods and Services Tax Identification Number of the registered supplier and the tax invoice number issued by the registered supplier in respect of the said goods in the shipping bill or bill of export, as the case may be.
The Government may, on the recommendations of the Council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.
Some supplies have been notified as deemed export vide above notification as below:
|1.||Supply of goods by a registered person against Advance Authorization|
|2.||Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization|
|3.||Supply of goods by a registered person to Export Oriented Unit|
|4.||Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorization.|
He is chartered accountant from Raipur Chhattisgarh practicing in indirect tax and is national empanelled faculty of indirect tax committee of ICAI, New Delhi.
(Author may be contacted at firstname.lastname@example.org or on + 91 9827152729)