Impact of GST on Export of Goods and Services

Impact of GST on Export of Goods and Services

The current Indian government has an aim of increasing the output and the quality of exports from India as portrayed by the “Make in India” policy, and the many tax benefits provided to the exporters. GST rolled out on July 1 and yet there is still some ambiguity among the exporters on the possible impact of the new regime on this industry. Traders want to know how GST will affect the products exported, and the amount of tax paid on the raw material/input used. To erase this confusion, the Indian government has shared a set of notifications and guidance note for the public on 28th June 2017 regarding the applicability of CGST, SGST, UTGST and cess and GST rates.

GST on Exports: How Will It Be Levied?

The export of goods or services is considered as a zero-rated supply. GST will not be levied on export of any kind of goods or services.

A duty drawback was provided under the previous laws for the tax paid on inputs for the export of exempted goods. Claiming the duty drawback was a cumbersome process. Under GST, the duty drawback would only be available for the customs duty paid on imported inputs or central excise paid on certain petroleum or tobacco products used as inputs or fuel for captive power generation.There was some confusion surrounding the refund of the tax paid by exporters on the inputs. 

A guidance note relating to the above issue 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:

Option 1: Supply goods or services, or both, under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax, and then claim a refund of unutilised input tax credit.

The exporter needs to file an application for refund on the common portal either directly or through the facilitation ccenternotified by the GST commissioner. An export manifest or report has to be filed under the Customs Act prior to filing an application for refund.

Option 2: Any exporter or United Nations or Embassy or other agencies/bodies as specified in section 55 who supplies goods or services, or both, after fulfilling certain conditions, safeguards and procedures as may be prescribed; and paying the IGST, can claim refund of such tax paid on the supplied goods or services, or both. The applicant has to apply for the refund as per the conditions specified under section 54 of the CGST Act.

An exporter is required to file a shipping bill for the goods being exported out of India. In this case, the shipping bill is considered as a deemed application for refund for the IGST paid. It would be deemed to have been filed only when the person in charge of the shipment files the export manifest or report, mentioning the number and date of the shipping bills.

Electronic as well as manual shipping bill formats are amended by the department to include GSTIN and IGST. The modified forms are available on the official department website. The Department is also in the process of relaxing the factory stuffing procedure and necessary permissions, to give a boost to the Indian export industry under GST.

Deemed Exports

The supply of goods or services to the following would be treated as exports under GST

1. Supply made to a SEZ unit/ SEZ developer
2. Supply made to an Export oriented undertaking (EOU)

Filing of returns under GST for the deemed export is to be done as per the general procedures provided for export under GST.

Conclusion

With GST in place, the export industry in India would be able to have internationally competitive prices due to the smooth process of claiming input tax credit and the availability of input tax credit on services.

The Government relaxes bond/ letter of undertaking requirement for export of goods without payment of IGST

The Government relaxes bond/ letter of undertaking requirement for export of goods without payment of IGST

 

Rule 96A of Central Goods and Services Tax Rules, 2017 provides that in case of export of goods or services without payment of GST, the exporter has to furnish a bond or letter of undertaking (LUT) in form RFD-11. This is also required in the case of provision of goods or services to SEZ units/ developer.

Considering the difficulties faced by exporters, the Government has issued notification no. 16/2017-Central Tax and circular no. 4/4/2007-GST, both dated 07 July, 2017 to clarify certain aspects relating to bond/ LUT. The clarifications are summarised below:

·         Exports would be allowed under existing bonds/ LUTs by 31 July 2017. New LUT/ bonds need to be submitted in the revised format by 31 July 2017.

·         Submission of LUT in place of a Bond

1.       The following persons would be eligible to provide a LUT instead of a bond: o Status holder as per Para 5 of Foreign Trade Policy 2015-2020; or

o A person who has received foreign inward remittances equal to minimum of 10% of the export turnover, which should not be less than INR 10 million, in the preceding financial year.

2.      Such a person should not have been prosecuted for any offence under the CGST Act or any existing law where the amount of tax evaded exceeds INR 25 million.

3.      The LUT should be furnished in duplicate for a financial year in the prescribed format. The LUT should be executed by the working partner, the Managing Director, the Company Secretary, the proprietor or by a person duly authorised by such working partner or Board of Directors of such company or proprietor on the letter head of the registered person.

4.      The LUT would be valid for 12 months.

5.      If the exporter fails to comply with the conditions of LUT, he may be asked to provide a bond.

·         Submission of bond

With regard to submission of bond, circular no. 4/4/2017-GST provides as follows:

o   All persons not eligible to issue LUT would need to submit a bond.

o   A running bond will be submitted and the bond amount should cover the amount of tax involved in the export based on estimated tax liability as assessed by the exporter. A fresh bond is to be submitted if the amount in the bond is less than the outstanding tax liability on exports.

o   The amount of bank guarantee would be decided by the jurisdictional Commissioner and it should not exceed 15% of bond amount. The Commissioner has the power to accept the bond without any bank guarantee in case of assessee with good track record.

o   The bond shall be furnished on non-judicial stamp paper of the value as applicable in the State in which the bond is being furnished.

·         Jurisdiction for submission of LUT/ Bond

Bond/ LUT shall be accepted by the jurisdictional Deputy/ Assistant Commissioner having jurisdiction over the principal place of business of the exporter. Until a specific administrative officer is assigned, the exporter can furnish bond/ LUT before any officer (Centre or State). However, State Commissioners have power to direct exporters to submit bond/ LUT to Central tax officers till the administrative framework is ready.

Official Notification (Click here 1),
Official Notification (Click here 2)