Post 1st July’17, the exports laws under GST have seen unprecedented changes while the government is committed and aims to uplift the exports via the ‘Make in India’ drive. Though GST has subsumed many indirect taxes, however, export duty is excluded from it and will continue to be levied on exports. IGST is levied on export rather than export duty. There is a lot of haziness among exporters regarding the impact of GST on their overall functioning and the ways it will impact the processes and the bottom line. The article aims to apprise and give you a 360° view on how will the exports behave and look like in the futuristic GST era ahead.
Export in its general terminology means taking the goods and services of India to outside of India.
‘Export of goods’, is self-explanatory.
‘Export of services’ as defined under Section 2(6) of IGST Act, 2017 means the supply of any service when:
- The service supplier is located in India
- The service recipient is located outside India
- The place of supply of service is outside India
- The payment received for supplying of services is in convertible foreign currency.
- Both the supplier and the recipient of services are individual persons and not just business entities.
Zero Rated Supply:
GST is not applicable in India for exports. Hence, all export supplies of a taxpayer registered under GST would be classified as zero rated supply. According to Section 16 of the IGST Act, zero rated supply means any of the following supplies of goods or services:
- Export of goods or services or both.
- Supply of goods or services or both to a Special Economic Zone developer.
- Supply of goods or services or both to a Special Economic Zone unit.
Both the ‘export of goods’ and ‘export of services are treated as zero rated supplies but not with ‘Nil’ rate of tax. There is a substantial difference between the two terms [Zero Rated Supply and NIL] which states that the credit is not available on inputs or input services used for supplies, taxable at nil rate.
While there is no considerable change in the laws relating to ’export of goods’, the ‘export of services’ do need a special mention, where the ‘place of supply’ clause is to be understood minutely.
Methods for export of goods / services / both:
- By giving an letter of undertaking or bond without paying IGST and claim refund of unutilized input tax credit; or
- After paying IGST and claim refund of such a tax.
Bond or LUT with the shipping bill is needed:
As per the Rule 96A of CGST Rule 2017 Any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a letter of undertaking in FORM GST RFD-11 to the jurisdictional commissioner, binding himself to pay the tax due along with the interest specified under sub-section (1) of section 50 within a period of-
- 15 days after expiry of 3 months from the date of issue of the invoice for export, if the goods are not exported out of India; or
- 15 days after the expiry of 1 year, or such further period as may be allowed by commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.
The CGST 2017 rule 96 A directs any unregistered person exporting goods, without paying the IGST, to provide a bond or a LOU [Letter of Undertaking] in the form GST RFD-11.
The following category of persons can submit a LOU instead of a bond:
- a status holder as specified in the Foreign Trade Policy 2015-2020; or
- Someone who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover and less than one crore rupees in the previous final year. The person should also have not been found guilty and accused for any offence falling under CGST Act 2017 or any previous case of tax evasion exceeding 2.5 crore rupees.
The validity of a LUT is for a year and should the exporter fail to comply with the conditions of LUT, he may also be asked to submit a bond.
As per Section 147 of CGST Act, 2017, the supply of goods falling under the ‘deemed category’ are:
- When the goods supplied do not leave India.
- When such goods have been manufactured in India.
- When the payment for such supplies is received in INR or convertible foreign exchange.
The definition of ‘deemed exports’ under GST is in tune with the definition of ‘deemed exports’ under Foreign Trade Policy 2015-2020.
‘Deemed Exports’ under FTP 2015-20 include:
- Supply of goods made to STP/EHTP/EOU/BTP.
- Supply of goods under advance authorization/advance authorization for annual requirement/DFIA.
- Supply of capital goods against EPCG authorization.
- Supply of goods to projects financed by multilateral or bilateral agencies/funds as notified by Department of Economic affairs, Ministry of Finance, where legal agreements provide for tender evaluation without including custom duty.
- Supply and installation of goods and equipment to projects financed by multilateral or bilateral agreements/funds as notified by Department of Economic Affairs for which bids have been invited and evaluated on the basis of delivered duty prices for goods manufactured abroad.
- Against international competitive bidding
- Supply of marine freight containers by 100% EOU (Domestic freight containers-manufacturers ) provided said containers are exported out of India within 6 Months or such further period as permitted by customs)
- Supply to projects enjoying zero custom duty
- Supply of goods for nuclear projects subject to the condition that:
- Such goods are required as specified in the List 33 at Sl. No. 511 of notification number 12/2012- customs, dated 17.03.2012 as amended from time to time.
- The Project should have a capacity of 440 MW or more.
- A certificate to the effect is required to be issued by an officer not below the rank of Joint Secretary to Government of India, in Department of Atomic Energy.
- Supplies to UN agencies or international organization for their official use or supplied to the projects financed by the said organization approved by government of India etc.
While the scope of ‘deemed exports’ under the GST is restricted to the grant of refund of taxes on supply of goods. So, an exception has been mentioned in the GST Act to notify certain transactions as ‘deemed exports’ to avoid situations where the person might opt to claim refund of taxes on ‘deemed exports’ according to the FTP 2015-20.
The GST Council is yet to announce the list of supplies to be considered as ‘deemed exports’
Details needed for Exports:
If the export products attract GST for domestic clearance, quoting of GSTIN is mandatory.
If the exporter exclusively deals with GST exempted products or products out of GST net, just quoting the PAN number would suffice, which individually is approved by DGFT, to be considered as the IEC [Import Export Code].
Refund of Input Tax Credit for goods exported:
Following scenarios exist when the refund of ITC in case of export of goods is applied for:
- The zero rated supplies made without payment of tax will be permissible for refund of ITC against provision (i) of the Section 54(3) of CGST Act.
- Unutilized ITC shall not be refunded except the exports which include zero rated supplies or where the credit has accumulated because of the tax rate on inputs being higher than the rate of tax on the output supplies, except nil rated or fully exempt supplies under provision (ii) of the Section 54(3) of the CGST Act.
- Refund of unutilized ITC is not allowed in cases where the goods exported are subject to export duty against provision (ii) of the section 54(3) of the CGST Act.
- Refund of unutilized ITC is not allowed in cases where the supplier has availed the duty drawback of Central taxes or has claimed refund of IGST under provision (i) of the Section 2(42) of the CGST Act.
Drawback: ‘Drawback’ in connection with any goods manufactured in India and exported refers to the rebate of duty, tax or cess chargeable on any imported inputs or on any domestic inputs or input services used in the manufacture of such goods under the Section 2(42) of the CGST Act.
Supplies made out of India, which do not fall under export of goods / services:
Such supplies constitute the following:
- When the supply of service is in India for a person located outside India – An Indian agent servicing an Australian exporter to trade in Japan, Delhi based farm house leased to an African national.
Services supplied where consideration is received in Indian Currency or a currency other than convertible currency – Indian firm supplying services to an international firm and the Indian branch of the overseas company pays in INR.