GST on Export of Goods

This article is not industry specific. The article has been written considering the present situation of GST and overall industries requirement. It will cover general clauses and provisions for export of goods but the specific untouched points will also be included for the reader’s knowledge.

As we know that export of goods and services is the backbone of any nation. More the country exports more the foreign exchange will inflow into any country. India being a member of the world trade organisation (WTO) has promised to provide free trade zone (FTZ). FTZ is an area in which the government grants special incentives, tax-free zones and exemptions. Under the GST law government has granted the following schemes to give incentives and exemptions to its exporters to promote export goods and services:

  1. Special Economic Zones (SEZ): SEZ is an area where the law of lands is applied differently for business and trade purposes. If any undertaking is located in SEZ, various benefits are derived by undertaking from the state and central government in terms of exemption from stamp duty, exemption for input tax, etc.
  2. Export Oriented Undertaking (EOU): EOU scheme was introduced to boost the export. EOU is an undertaking set-up to export the entire manufactured unit. Benefits have been granted to the EOUs under the GST law such as allowing input tax credit, fast processing of refund, and other trade benefits.
  3. Duty Drawback scheme: it is a rebate from duty chargeable on any materials imported or materials excisable used in manufacturing or processing of goods, manufactured in India and exported.
  4. Advance authorisation Scheme: It is a scheme where the material is allowed to be imported duty-free, which is physically incorporated in an export product.

GST PROVISIONS ON EXPORT OF GOODS

Export of goods is treated as inter-state supply. Export of goods under the GST law is treated as Zero-rated supply which means that no GST shall be levied and payable by the exporter of the goods. Under section 16(2) of IGST act credit of input may be availed on Zero-rated supply even if supply is exempted.

Export of goods: Section 2(5) defines; Export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.

Zero rates supply: Zero-rated supply means the supply of goods or services or both by Exporter of the goods or services or Supply of goods or services or both to a ‘’Special Economic Zone Developer’’ or ‘’Special Economic Zone’’

Under section 16(3) of IGST act there are two schemes to export goods out of India.

1. Pay IGST on Exported Goods and claim refund:

Exporter of goods can export without payment of GST under the bond or letter of undertaking (LUT). In this case export of goods can claim input tax credit of Input, inputs services and capital goods. Alternatively, exporters can claim the refund of input tax credit laying on the electronic credit ledger. This option is generally opted for by the exporter because it is simple, and refunds are processed faster.

2. Exporter under the bond or LUT

Exporter of goods can claim refund of IGST paid on goods exported. Exporters are allowed to claim refunds of input tax credit as well. Refund of input services and capital goods under this route is not allowed. The supplier is required to furnish the LUT in Form GST RFD – 11. The LUT should be filed before effecting the zero-rated supplies in order to claim an exemption from payment of taxes.

Important Observations:

  • Export of goods are treated as inter-state supply, hence person engaged in the business of export of goods are compulsorily required to take GST registration irrespective of the fact that export turnover is less than 20/40 lakhs.

For Example: Aman is running his business in Gurgaon but he has no GST registration in Gurgaon because his turnover is not exceeding the exemption limit. Now he wants to export his goods out of India without GST registration.

For exporter of goods GST registration is mandatory and he is not allowed to supply goods without taking GST registration in Gurgaon. The exemption threshold will not apply to him.

  • Export of goods or services, the invoice shall carry an endorsement as follow:

Where the supply is effected on payment of IGST: “SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS ON PAYMENT OF INTEGRATED TAX”

Where the supply is effected without payment of IGST: “SUPPLY MEANT FOR EXPORT/SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR AUTHORISED OPERATIONS UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”

  • A person making export of good who wish to claim refund of GST paid shall ensure that details relating to export as provided in GSTR-1, such as invoice nunber, details of shipping bill, amount of IGST paid and value of goods exported and match with the details as available in the ICEGATE system. Refund will be granted only on matching of such details.
  • In case of export of goods, there was no condition of receipt of payment in foreign exchange upto 23.03.2020. Now the condition of receipt of foreign exchange is required to be fulfilled.
  • The movement of goods is important, if only the order is received to export goods from a person locating out of India will not be termed as export of goods.
  • It is important to note that exporter should export the goods within 3 months from date of issue of invoice.

About the author: Nitin Bhatia is a qualified chartered accountant practising in Delhi/NCR. He is the best CA in Gurgaon. During his professional journey, he has gained advanced experience in International Taxation, Transfer Pricing, Expatriate Taxation, Corporate Taxation, Domestic Taxation and litigation matters. International Taxation and Domestic taxation are his study topic, and he is deeply involved and updated with the recent judicial pronouncements. It helps him to give efficient and legitimate tax planning to his clients.

For any information/query/concerns related to GST provisions, please feel free to contact us at mail@nbaoffice.com