Importance of Merchant Export Scheme for Exporters after changes in GST Rate

Importance of Merchant Export Scheme for Exporters after changes in GST Rate w.e.f. 18-7-2022 and Compliances thereon for the manufacturer and for the Exporter

GST on Food Grains –

The changes relating to the GST rate, in pursuance of recommendations made by the GST Council in its 47th meeting, are coming into effect from the 18th of July, 2022.  Particularly in respect of food items like pulses, flour, cereals, etc. (specified items falling under Chapters 1 to 21 of the Tariff), as has been notified vide notification No. 6/2022-Central Tax (Rate), dated the 13th of July, 2022, and the corresponding notifications for SGST and IGST.

As per the above-mentioned notification and FAQs dated 17-7-2022 vide No. F.No. 190354/172/2022-TRU issued by the Department of Revenue, supply of such specified commodity having the following two attributes would attract GST :

• It is pre-packaged; and
• It is required to bear the declarations under the provisions of the Legal Metrology Act, 2009 (1 of 2010) and the rules made thereunder.

However, if such specified commodities are supplied in a package that does not require declaration(s)/compliance(s) under the Legal Metrology Act, 2009 (1 of 2010), and the rules made thereunder, the same would not be treated as pre-packaged and labelled for the purposes of GST levy.

In the context of food items (such as pulses, cereals like rice, wheat, flour etc), the supply of specified pre-packaged food articles would fall within the purview of the definition of ‘pre-packaged commodity’ under the Legal Metrology Act, 2009, and the rules made thereunder, if such pre-packaged and labelled packages contained a quantity up to 25 kilograms [or 25 litres] in terms of rule 3(a) of Legal Metrology (Packaged Commodities) Rules, 2011, subject to other exclusions provided in the Act and the Rules made thereunder.

For such commodities (food items- pulses, cereals, flour, etc.), rule 3 (a) of Chapter-II of Legal Metrology (Packaged Commodities) Rules, 2011, prescribes that a package of commodities containing a quantity of more than 25 kg or 25 litres do not require a declaration to be made under Rule 6 thereof. Accordingly, GST would apply on such specified goods where the pre-packaged commodity is supplied in packages containing a quantity of less than or equal to 25 kilograms.

Thus, it is clarified that a single package of these items [cereals, pulses, flour etc.] containing a quantity of more than 25 Kg/25 litre would not fall in the category of the pre-packaged and labelled commodity for the purposes of GST and would therefore not attract GST.

So, in the context of exports, before the above-mentioned amendment in GST rates, these transactions were exempted if the brand name is unregistered.

But, after the above amendment in GST rates, if the exporter [trader] purchases from the manufacturer the above-specified items in a package containing a quantity of 25 kg or less; then GST would be levied on such transaction. Though the exporter can claim a refund of GST on these purchases, his working capital would be blocked till such a refund is received. To overcome this difficulty, Exporter can procure the goods at concessional rate of GST as per the provisions of Notification No. 40/2017-Central Tax-Rate dated: 23rd October 2017 and Notification No.41/2017-Integrated Tax-Rate dated: 23rd October 2017.

2. Merchant Export – 

Merchant Export means an activity by a trader who exports or intends to export goods. The person engaged in trading activity and exporting or intend to export goods is a Merchant Exporter. A merchant exporter is mainly engaged in the export of goods and not services.

The Merchant Exporter purchased goods from the manufacturer & exports the same goods outside India.

3. GST Provisions relating to Merchant Export – 

GST Provisions relating to Merchant Export are notified via Notification No. 40/2017-Central Tax-Rate dated: 23rd October 2017 and Notification No.41/2017-Integrated Tax-Rate dated: 23rd October 2017. as follows –

A. The manufacturer [registered supplier] shall supply goods to Merchant Exporter [registered recipient] on a tax invoice;

B. The manufacturer [registered supplier] shall supply goods to Merchant Exporter at a concessional rate of 0.1% IGST [ or CGST 0.05% + SGST 0.05%].

C. Merchant Exporter [registered recipient] shall export the said goods within a period of ninety days from the date of issue of a tax invoice by the manufacturer [registered supplier].

D. The Merchant Exporter [registered recipient] shall indicate the Goods and Services Tax Identification Number of the manufacturer [registered supplier] and the tax invoice number issued by the manufacturer [registered supplier] in respect of the said goods in the shipping bill or bill of export, as the case may be;

E. The Merchant Exporter [registered recipient] shall be registered with an Export Promotion Council or a Commodity Board recognised by the Department of Commerce;

F. The Merchant Exporter [registered recipient] shall place an order on the manufacturer [registered supplier] for procuring goods at a concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the manufacturer [registered supplier].

G. The Merchant Exporter [registered recipient] shall move the said goods from the place of the manufacturer [registered supplier] –

i. directly to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported; or

ii. directly to a registered warehouse from where the said goods shall be moved to the Port, Inland Container Depot, Airport or Land Customs Station from where the said goods are to be exported;

H. If the Merchant Exporter [registered recipient] intends to aggregate supplies from multiple registered suppliers and then export, the goods from each registered supplier shall move to a registered warehouse and after aggregation, the registered recipient shall move goods to the Port, Inland Container Deport, Airport or Land Customs Station from where they shall be exported;

I. in case of the situation referred to in condition (H), the Merchant Exporter [registered recipient] shall endorse receipt of goods on the tax invoice and also obtain acknowledgement of receipt of goods in the registered warehouse from the warehouse operator and the endorsed tax invoice and the acknowledgement of the warehouse operator shall be provided to the manufacturer [registered supplier] as well as to the jurisdictional tax officer of such supplier; and

J. When goods have been exported, the Merchant Exporter [registered recipient] shall provide a copy of the shipping bill or bill of export containing details of Goods and Services Tax Identification Number (GSTIN) and tax invoice of the registered supplier along with proof of export general manifest [EGM] or export report having been filed to the manufacturer [registered supplier] as well as jurisdictional tax officer of such supplier.

K. The manufacturer [registered supplier] shall not be eligible for the above-mentioned exemption if the Merchant Exporter [registered recipient] fails to export the said goods within a period of ninety days from the date of issue of the tax invoice. In such a situation, the manufacturer [registered supplier] shall liable to pay the difference amount of GST along with interest.

4. GST compliances and responsibility of the Manufacturer [registered supplier] –

A. First the purchase order from the Merchant exporter should state that the goods are to be procured at a concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the manufacturer.

B. The manufacturer should obtain from merchant exporter the copies of GST registration, LUT [GST RFD-11] and registration with the Export Promotion Council or a Commodity Board recognised by the Department of Commerce.

C. Supply by the manufacturer to a trader for export is Merchant Export & Not Zero-Rated Supply i.e., from the manufacturer’s point of view, it is taxable sale only but at a concessional rate.

D. So, such supply by the manufacturer to merchant exporter cannot be made under LUT/Bond.

E. GST is payable at the concessional rate at the time of supply on a tax invoice.

F. The manufacturer shall supply goods to Merchant Exporter on a tax invoice at a concessional rate of 0.1% IGST [ or CGST 0.05% + SGST 0.05% ].

G. The said goods shall move from the place of the manufacturer –

i. directly to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported; or

ii. directly to a registered warehouse from where the said goods shall be moved to the Port, Inland Container Depot, Airport or Land Customs Station from where the said goods are to be exported;

H. If the Merchant Exporter intends to aggregate supplies from multiple registered suppliers and then export, the goods from each registered supplier shall move to a registered warehouse and after aggregation, the registered recipient shall move goods to the Port, Inland Container Deport, Airport or Land Customs Station from where they shall be exported;

I. in case of the situation referred to in condition (H), the Merchant Exporter shall endorse receipt of goods on the tax invoice and also obtain acknowledgement of receipt of goods in the registered warehouse from the warehouse operator and the endorsed tax invoice and the acknowledgement of the warehouse operator shall be provided to the manufacturer as well as to the jurisdictional tax officer of such supplier;

J. Such goods shall be exported within a period of ninety days from the date of issue of a tax invoice by the manufacturer.

K. After export of goods, a copy of the shipping bill or bill of export containing details of Goods and Services Tax Identification Number (GSTIN) and tax invoice of the registered supplier along with proof of export general manifest [EGM] shall be submitted to jurisdictional tax officer of the manufacturer.

L. If the merchant exporter fails to export the said goods within a period of ninety days from the date of issue of the tax invoice, then the manufacturer shall liable to pay the difference amount of GST [i.e. (Prevailing GST Rate of the Commodity Sold) – (Concessional GST paid in Invoice)] along with interest.

M. So, the manufacturer, before sending the goods, should undertake proper due diligence of the merchant exporter. As the liability of payment of differential tax, in case of default by the exporter, is cast upon him.

N. It is clarified that the benefit of supplies at a concessional rate is subject to the above-mentioned conditions and the said benefit is optional. The option may or may not be availed by the supplier and/or the recipient and the goods may be procured at the normal applicable tax rate.

O. The supplier who supplies goods at the concessional rate is also eligible for a refund on account of the inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.

5. GST compliances and responsibility of the Merchant Exporter [registered recipient] –

A. First purchase order would be placed by Merchant Exporter to the manufacturer intending to buy goods at a concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the manufacturer. Along with the purchase order, the Merchant Exporter should provide copies of GST registration, LUT [GST RFD-11] and registration with the Export Promotion Council or a Commodity Board recognised by the Department of Commerce to the manufacturer and jurisdictional officer of the manufacturer.

B. The Merchant Exporter shall move the said goods from the place of the manufacturer –

i.  directly to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported; or

ii. directly to a registered warehouse from where the said goods shall be moved to the Port, Inland Container Depot, Airport or Land Customs Station from where the said goods are to be exported;

C. If the Merchant Exporter intends to aggregate supplies from multiple registered suppliers and then export, the goods from each registered supplier shall move to a registered warehouse and after aggregation, the registered recipient shall move goods to the Port, Inland Container Deport, Airport or Land Customs Station from where they shall be exported;

D. In case of the situation referred to in condition (C), the Merchant Exporter shall endorse receipt of goods on the tax invoice and also obtain acknowledgement of receipt of goods in the registered warehouse from the warehouse operator and the endorsed tax invoice and the acknowledgement of the warehouse operator shall be provided to the manufacturer as well as to the jurisdictional tax officer of such supplier.

E. Such goods should be exported out of India within 90 days from the date of invoice of the manufacturer.

F. When merchant exporter exports the goods, it is a Zero-Rated Supply.

G. A merchant exporter can export the goods under LUT/Bond only. He cannot export under the IGST payment route.

H. It is also clarified that the exporter will be eligible to take credit of the tax @ 0.1% IGST [or CGST 0.05% + SGST 0.05% ] paid by him.

I. When goods have been exported, the Merchant Exporter shall provide a copy of the shipping bill or bill of export containing details of Goods and Services Tax Identification Number (GSTIN) and tax invoice of the registered supplier along with proof of export general manifest [EGM] or export report having been filed to the manufacturer as well as jurisdictional tax officer of such supplier.

j. A merchant exporter, after exporting goods under LUT/Bond, can claim a refund of Input Tax Credit of GST paid by him.

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