Procedures of Export under LUT & Refund of IGST in GST Regime – An Analysis

TAXATION PROFESSIONAL

Export is one of the key business activities in the current scenario of the Global market and the volume of exports earnings determine the rate of growth of country’s economy. So, the higher will be the volume of exports higher will be the inflow of foreign exchange earnings would be resulted in higher rate of growth of country’s economy. In an ordinary language “Export “means when goods or services are sent from our country to another country against monetary consideration and realization of foreign exchange earnings. As per section 2 (18) of Customs Act, 1962. “Export “means taking goods out of India to a place outside India.

Meaning of Export of Goods under GST law:

The export of goods has been defined under sub-section (5) of Section 2 of IGST Act, 2017 as “Export of goods” mean with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.

Meaning of Export of Services under GST law:

The export of services has been defined under sub-section (6) of Section 2 of IGST Act, 2017 as “Export of services “ mean 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; and

(v) 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, 2017.

Therefore, if the recipient of goods and services is located outside India, then supplies of goods and services will be considered as export.

Treatment of export in GST:

As per Sec 2(23) of IGST Act, 2017 supplies of goods and services for exports are to be treated as” Zero rated supplies” implying that registered taxable person exporting goods and services shall follow the procedure of letter of undertaking (earlier under Bond) without payment of integrated tax and claim refund of unutilized input tax credit or on payment of integrated tax and claim refund of the tax so paid on goods and services exported.

Export procedure under GST:

C.B.E. & C has issued series of Circulars / Notification with the implementation of GST w.e.f 01-07-2017 to introduce new export procedures for smooth operation of export business. The various circular / notification issued by the Board as under:

(1) Circular No. 26/2017-Customs dated 1’st July’ 2017, Notification No. 15/2017-Central Tax dated 01.07.2017 prescribed new procedure for export of goods / services under GST regime.

(2) Circular No. 2/2/2107-GST dated 05.02.2017, Circular No. 4/4/2017-GST dated 07.07.2017 as amended Circular 36/2017-Customs, Circular No. 37/2017-Customs dated both dated 20.09.2017 and Notification No. 16/2017-Central Tax, dated 07.07.2017 as amended by Notification No. 37/2017-Central Tax, dated 4-10-2017 to overcome the various issues related to export of goods and services in GST regime. The details of export procedures as under:

Any person making zero rated supply (i.e. any exporter) shall be eligible to claim refund under either of the following options, namely:-

(a) he may supply goods or services under letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed , without payment of integrated tax and claim refund of unutilized input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 (Refunds) of the Central Goods and Services Tax Act, 2017 or the rules made there under (i.e. the Central Goods and Service Tax Rules, 2017).

Further, to ensure uniformity in the procedure of export under LUT, C.B.E&C, vide its Circular No. 8-08-2017- GST dated 4’th October, 2017 has prescribed that the person (exporter) who intends to avail the facility of Export under LUT under rule 96A of the CGST Rules, 2017, shall follow the following procedures export under LUT:

(a) Eligibility to export under LUT : The facility of export under LUT has been now extended to all registered persons who intend to supply goods or services for export without payment of integrated tax except those who have been prosecuted for any offence under the CGST Act or the Integrated Goods and Services Tax Act,2017 or any of the existing laws and the amount of tax evaded in such cases exceeds two hundred and fifty lakh rupees unlike Notification No. 16/2017-Central Tax dated 7’th July, 2017 which extended the facility of export under LUT to status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020 and to persons receiving a minimum foreign inward remittance of 10% of the export turnover in the preceding financial year which was not less than Rs.one crore.

(b) Validity of LUT: The LUT shall be valid for the whole financial year in which it is tendered. However, in case the goods are not exported within the time specified in sub-rule (1) of rule 96A of the CGST Rules and the registered person fails to pay the amount mentioned in the said sub-rule, the facility of export under LUT will be deemed to have been withdrawn. If the amount mentioned in the said sub-rule is paid subsequently, the facility of export under LUT shall be restored. As a result, exports, during the period from when the facility to export under LUT is withdrawn till the time the same is restored, shall be either on payment of the applicable integrated tax or under bond with bank guarantee.

(c) Form of LUT: Till the time FORM GST RFD-11 is available on the common portal, the registered person (exporters) may download the FORM GST RFD-11 from the website of the Central Board of Excise and Customs ( cbec.gov.in) and furnish the duly filled form to the jurisdictional Deputy / Assistant Commissioner having jurisdiction over their principal place of business. The LUT shall be furnished on the letter head of the registered person, in duplicate, and it shall be executed by the working partner, the Managing Director or the Company Secretary or the Proprietor or by a person duly authorized by such working partner or Board of Directors of such company or proprietor. The bond, wherever required, shall be furnished on non-judicial stamp paper of the value as applicable in the State in which the bond is being furnished.

(d) Documents for LUT: Self-declaration to the effect that the conditions of LUT have been fulfilled shall be accepted unless there is specific information otherwise. That is, self-declaration by the exporter to the effect that he has not been prosecuted should suffice for the purposes of Notification No. 37/2017 –Central Tax dated 4’th October’ 2017. Verification, if any, may be post-facto basis.

(e) Time for acceptance of LUT: As LUT is a prior requirement for export, including exports to a SEZ developer or a SEZ unit, the LUT should be processed on top most priority. It is clarified that LUT should be accepted within a period of three working days of its receipt along with the self-declaration as stated in para 2(d) above by the exporter. If the LUT is not accepted within a period of three working days from the date of submission, it shall be deemed to be accepted.

(f) Bank guarantee: Since the facility of export under LUT has been extended to all registered persons, bond will be required to be furnished by those persons who have been prosecuted for cases involving an amount exceeding Rupees two hundred and fifty lakhs. A bond, in all cases, shall be accompanied by a bank guarantee of 15% of the bond amount.

(g) Clarification regarding running bond: The exporters shall furnish a running bond where the bond amount would cover the amount of self-assessed estimated tax liability on the export. The record of such entries shall be furnished to the Central tax officer as and when required.

(h) Sealing of containers : It is prescribed electronic sealing of container under self-sealing procedure from 1’st November’ 2017 and old system of sealing with bottle seal will continue up to 31;st October, 2017.

(i) Procure by CT-1: It is clarified that there is no provision of for issuance of CT-1 form which enable merchant exporters to procure goods without payment of tax in GST regime.

(j) Transaction with EOUs: Supplies from DTA to EOUs, Zero rating is not applicable and supplies to EOUs are taxable like any other supplies. EOUs, to the extent of exports, are eligible for zero rating like any other exporter.

(k) Realization of exports proceeds: Export proceeds to be realized as per RBI guidelines and FEMA Act, 1999. However, export proceeds against specific exports may also be realized in rupees.

(l) Jurisdictional officer: In exercise of the powers conferred by sub-section (3) of section 5 of the CGST Act, it is stated that the LUT/Bond 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 / bond before either the Central Tax Authority or Sate Tax Authority till the administrative mechanism for assigning of taxpayers authority is implemented and it is further decided by the GST Council that all type of exporters are covered under LUT and LUT will suffice for export without payment duty in place of Bond,

Procedure of refund of IGST:

The exporters are free to avail option of Refund of IGST paid on export of goods under Rule 96 of CGST Rules, 2017. The refund shall be governed by the provisions of the section 16 of the IGST Act, 2017. Further, C.B.C & C, vide its Instruction15/2017-Customs has issued certain guidelines for smooth disposal of refund of IGST paid on export goods under Rule 96 of CGST Rules,2017. The following instructions are issued for the filed formations:-

Export General Manifest: – Filing of correct Export General Manifest is a must for treating shipping bill or bill of export as a refund claim. Commissioners must ensure that the concerned airlines / shipping lines / carriers file EGM / Export report within prescribed time. Cases which remain in EGM error due to any reason should be followed up to ensure that records are updated at the gateway port, especially for ICDs. Exporters may be advised that they should follow up with their carriers to ensure that correct EGM / export reports are filed in a timely manner.

Details of export supplies in Table 6A of GSTR-1:

(1) The details of zero rated supplies declared in Table 6A of return in Form GSTR-1 are matched electronically with the corresponding details available in Customs Systems as per details provided in shipping bills / bill of export. Thus exporters must file their GSTR-1 very carefully to ensure that all relevant details match. For their convenience, the details available in the Customs System have been made available for viewing in their ICEGATE login.

(2) Exporters, who have not filed their GSTR-1 for month of July ’2017, shall file immediately.

(3) For month of August, 2017 and subsequent months, facility of filing GSTR-1 has not been made available by GSTN at present. In order to facilitate processing of refunds, GSTN is making available a separate utility for filing details in Table 6A of GSTR-1 on the GSTN web portal. Exporters may be advised to submit the requisite details once GSTN develops the utility.

Valid return in Form GSTR-3 or Form GSTR-3B:-

Filing of valid return in GSTR-3 or Form GSTR-3B is another pre- condition for considering shipping bill / Bill of export as claim for refund. Exporters may be advised that they must file these returns expeditiously without waiting for the last date, to ensure that their refund is processed in a timely manner

Bank account details:-

(1) As per Rule 96 of CGST Rules, 2017, the refund is to be credited in the bank account of the applicant mentioned in his registration particulars. In order to ensure smooth processing and payment of refund of IGST paid on exported goods, it has been decided that said refund amount shall be credited to the bank account of the exporter registered with Customs even if it is different from the bank account shown in the GST registration.

(2) Further, as the refund payments are being routed through the PFMS portal, the bank account details need to be verified and validated by PFMS. The status of validation of bank account with PFMS is available in ICES. Exporters may be advised that if the account has not been validated by PFMS, they must get their details corrected in the Customs system so that their bank account gets validated by PFMS.

Processing of refund claims:

(1) Proper officer of each jurisdiction shall generate a payment scroll of eligible IGST refunds in the same manner as RoSL scrolls are generated. The scroll shall be transmitted electronically to PFMS system for onward payment into their bank accounts. Proper officers may be designated in each Commissionerate, who should be in readiness to start generating refund scrolls from 10.10.2017.

Handling of cases under Rule 96(4)(a) :

(1) Sub-rule 4a of Rule 96 provides that refund is to be withheld if a request has been received from the Jurisdictional Commissioner in accordance with the provisions of sub-section(10) or sub-section (110 of section 54 of CGST Act. In such cases, the proper officer of IGST at the Customs station has to intimate to the applicant and necessary communication transmitted to the common portal.

(2) The Commissioner should put in place a mechanism for keeping record of such intimations received from the jurisdictional Commissioner and The necessary communication to the applicant and jurisdictional Commissioner, in respect of claims withheld should be promptly sent or communicate the same to common portal.

Exports in violation of the provisions of the Customs Act, 1962

(1) In case where proper officer determines that the goods exported in violation of the provisions of the Customs Act,1962, IGST refund has to be withheld in terms sub rule 94(4)(b) of aforesaid Rule 96. So the necessary action in such cases to ensure that IGST refund is withheld should be taken

Conclusion: To summarized, new procedure of export under LUT shall be great relief to the exporters on account of transaction cost for day to day export business. The new procedure of export under LUT in place of execution of Bond with bank guarantee shall be applicable to all type of exporters. Further, the procedure refund of IGST with new system will be automated and there is no need to file refund claim on IGST paid exported goods. Only valid filing of return (GSTR-1) timely on the Common portal and with proper bank accounts automatically refund of IGST shall be credited to the claimant’s bank Account. Exporters are need not require to file separate application for refund but the shipping bill itself shall be treated as an application for such refund on payment of IGST. It is high time to wait and see how the system of automated refund would be disbursed to exporters or need any further time on part of the Government to equip with IT system.