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Merchant Exports Under GST

Merchant Exports generate an inflow of foreign exchange earnings for the country. Hence, it is equally important as manufacturer exports. These exports are mainly for goods and not services. Merchant Exporters or merchants who carry out this kind of export, generally do not own manufacturing units. They buy goods from manufacturers in Domestic Tariff Areas (DTA) and sell them to overseas customers.

In this article, we will help you understand:

Merchant Exports Under GST

Merchant Exporters should compulsorily have a valid GSTIN as they are business entities located in India who supply goods to customers located outside India. As per the provisions of Section 2(108) of the CGST Act and Section 7(5) of IGST Act, if a supplier is located in India, but the goods are supplied outside India, such supply is treated as an inter-state supply.

Concession In GST Rate For Merchant Exports

A Special Relief Scheme was introduced by the Government to support Merchant Exporters. Under this scheme, these exporters can buy goods from domestic suppliers at a reduced GST rate of 0.1%.

To avail this concession, the Merchant Exporters have to meet certain conditions like:

  • The tax invoice of the purchased goods should depict the rate of GST at which the goods are purchased. Here, the rate should be 0.1%.
  • All the purchased goods should be exported within 90 days of the invoice date.
  • The GSTIN of the supplier and the tax invoice number should be mentioned in the shipping bill.
  • The Merchant Exporter should be registered with an Export Promotion Council/Commodity board.
  • A copy of the purchase order (purchase of goods at concessional rates) should be submitted to the jurisdiction Tax Officer of the supplier.
  • The purchased goods should be directly moved (from suppliers place) to the location from where they will be transported to the port/Airport/LCS for export. This condition applies even if the goods are purchased from multiple registered suppliers.
  • A copy of the shipping bill/bill of export along with the proof of Export General Manifest (EGM) and export report should be filed with the registered supplier and his jurisdiction Tax Officer when the goods are exported.
  • The Merchant Exporter should export only under a bond/LUT.

Note: If the Merchant Exporter fails to export the goods within 90 days of the date of the tax invoice, then, the registered supplier cannot avail the benefit of the concessional tax rate.

Procedures Followed By Merchant Exporters Under GST To Claim Refund

Under GST, Merchant Exporters have two options to claim a refund:

  • Exporters can execute the exports after filing a bond/LUT. The exporter can claim a refund of the unutilised Input Tax Credit (ITC).

OR

  • Instead of filing a bond/LUT, the exporters can complete the export transaction by paying the IGST and then claiming a refund of the same. This option is only available to Merchant Exporters who have not opted for the ‘Special Relief Scheme’ (buying goods at 0.1% GST).

Here, the shipping bill is the only document that needs to be filled with the customs. Filing the shipping bill is sufficient to claim a refund.

Refunds Under Merchant Exports – Examples

Situations when a Merchant Exporter can claim refunds:

  1. If goods are purchased at a concessional GST rate of 0.1% and are exported without the payment of tax:

The Merchant Exporter can claim a tax refund of the unutilised ITC at the end of the tax period in case of zero-rated goods or goods involving an inverted tax structure.

  1. If the supplier(B) of the Merchant Exporter purchases goods from another supplier(A):
    In this case, the first supplier(A) supplies the goods at regular GST rates to the second supplier (B) who in turn supplies these goods to the Merchant Exporter at the concessional rate of 0.1%. Here, the rate of tax on inputs is higher than the rate of tax on outputs. Therefore, as per Section 53(3), the second supplier (B) can claim a refund of the excess taxes paid under the inverted tax structure.
  1. When goods are supplied to the Merchant Exporter at regular GST rates and are further exported with the regular payment of IGST:
    Concessional tax rates cannot be availed by the Merchant Exporter in this case, as the criteria to file bond/LUT is not fulfilled. Therefore, the standard tax regime has to be followed by the supplier. Here, the available ITC can be used for the payment of the output tax liability, and the balance has to be paid in cash. However, Merchant Exporters can claim a refund of both unutilised ITC and IGST paid against zero-rated supplies.