Apeksha Bansal


The introduction of GST was much awaited among the businesses, authorities and consultants for being a simple and reformed indirect tax legislation. However, even after more than 8 months since its introduction, the export business is still suffering due to uncertainties around the provisions.

One of the issues is treatment of exports when made through multiple parties in a supply chain.

To illustrate, let’s assume two parties are involved in export of goods outside India say, Party A and Party B, both located in India. Party B acts in an independent capacity and enters into a contract with the foreign customer. Party B engages Party A as a supporting manufacturer. In order to avail export incentives under FTP, Party A delivers goods to foreign customer located outside India, files the shipping bill in its own name and raises an invoice on party B in India.

Party A can be treated as exporter who intends to export goods outside India, for the purpose of Foreign Trade Policy (FTP). Further, for customs purpose, Party A will hold himself to be an exporter by filing shipping bill in its own name and hence, qualify to be an exporter. It may be noted that as far as FTP and Customs Act are concerned, Party A will be treated as an exporter and avail export incentives, irrespective of the fact that the actual contractual arrangement is between Party B and foreign customer for export of goods outside India.

In this background, a doubt with respect to the treatment of supply by Party B to foreign customer and benefits available to party B under GST provisions arises.

The question is whether Party A will be an exporter and Party B can at all be treated as merchant exporter under GST in the whole transaction.

Export of Goods:

At this juncture, it may be noted that under GST law, the expression ‘export of goods’ means taking goods out of India to a place outside India.

Presently, Party A will take the goods outside India and on a literal reading, the transaction by Party A may become export under GST. However, the question is whether such reading of law in the present situation holds good? Even if such reading is correct, then what would be the treatment of supply made by Party B to foreign customer in light of the fact that contractually, it is Party B which is responsible for the goods to be delivered outside India to the said foreign customer.

Neither the provisions of the GST Act nor the rules/notifications issued under the Act provide any clarity as to when ‘export of goods’ would take place in the instant case. The question is whether interpretation of expression ‘export of goods’ as physically taking goods out of India is the correct interpretation of law or even the intention of the legislature. The irony is that the GST law does not even define the word ’exporter’, which only creates a room for further uncertainties.

Supply by Party A to Party B:

Recently, government has extended the benefit of concessional rate of tax (0.1% IGST/ 0.05% CGST/SGST) to merchant exporters who export goods within the specified days from the date of issuance of tax invoice by the registered supplier.  One of the other conditions prescribed in the notification is that the shipping bill filed by the merchant exporter shall indicate GSTIN and tax invoice number of the supplier.

In the instant case, as doubt is whether the transaction of Party B with its foreign customer will be said to be an export under GST and if the answer is no, then whether the benefit of concessional rate of tax will still be available to Party B. Further, since shipping bill will be filed by party A in the instant case, the prescribed condition will remain unsatisfied and hence, the concessional rate of tax will not be available to Party B.

Treatment of Supply by Party B:

Question is what will be the treatment of transaction between Party B and foreign customer under GST, since all the export related documents will bear the name of Party A. Whether supply of Party B can be called as zero-rated supply of goods under GST?

The precise answers to these questions are available neither under provisions nor rules/ notifications.

Input tax credit:

Whether input tax credit of taxes charged by Party A will be available to Party B, especially where the treatment of supply by Party B to its foreign customer is not clear.

Disclosure in returns:

On plain reading of export of goods definition, even if it is said that the party A is making an export of goods, then the returns will be filed as exports to Party B located in India. The same will create a further confusion even at the compliance level.

Further, as regards disclosure of Party B’s transaction in returns, since there is no clarity on the above questions raised in this article, the present question also remains unanswered.

Borrowing from foreign Laws:

Indian GST law borrows major principles from GST legislations of foreign countries.

The clarifications/notices issued by the UK authorities can be referred to seek assistance in answering a major question of this article, as to what would be the nature of supply made by Party B situated in India to its foreign customers located outside India.

Reference is drawn to UK VAT Notice 703 (dated 09 October 2017) issued on export of goods from the UK, wherein HM Revenue and Customs specified that where a single movement of goods is supported by two or more underlying transactions, then only the final transaction may be zero-rated (VAT is at 0%).

In accordance with the notice issued by HMRC, supplies made by Party B located in India to its foreign customer located outside India should be treated as export of goods. However, the language of ‘export of goods’ under Indian GST law may not completely support the said notice.


In the absence of certainty on such transactions, the treatment of GST of supplies, first made by Party A to Party B, both located in India and further by Party B located in India to the foreign customer located outside India, fall under an unknown area.

An appropriate rule/ notification should be issued clarifying the nature and treatment of such supplies.

(The author can be reached at apeksha.bansal@lakshmisri.com)

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2 responses to “Uncertainties for Merchant Exporters under GST Regime continues?”

  1. V madhavan says:

    Dear madam
    The ambiguity of gst in a single movement of exports involving two parties well brought out. Thank you

  2. CA Suresh Jain says:

    very well described about merchant exporters

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