GST Implication on Export of Goods & Service

INTRODUCTION

The aim of the Indian government is to increase the output and quality of export from India in pursuance to the "Make in India" policy. The Indian government also provide many incentives to the exporters which are explained below.

WHAT IS EXPORT INCENTIVES

Export incentives are certain benefits exporters receive from the government as acknowledgement for bringing in foreign exchange and as compensation for the costs they incur on sending goods and services out of the country.

TYPE OF EXPORT INCENTIVES

INDIAN EXPORT SCHEME

Merchandise Exports from India Scheme (MEIS)

The MEIS rewards exporters by offsetting the infrastructural inefficiencies and associated costs. This scheme provides incentives to exporters in the form of duty credit scrip to refund losses on paid duties. Under the MEIS, an incentive of 2-5% of the 'Free on Board' (FOB) value of exports is provided to all exporters, irrespective of their annual turnover. However, MEIS has been replaced with the new Rebate of Duties & Taxes on Exported Products (RoDTEP scheme) w.e.f 1^st January, 2021, as MEIS is not WTO-compliant.

Rebate of Duties & Taxes on Exported Products (RoDTEP Scheme)

The RoDTEP scheme will replace the old MEIS in a phased manner from 1^st January, 2021. The RoDTEP scheme aims to refund all hidden taxes, which were earlier not refunded under any export incentive scheme, such as the central and state taxes on the fuel used for transportation of export products, duties levied on electricity used for manufacturing, mandi tax levied by APMCs, toll tax & stamp duty on the import-export documentation and others.

Service Exports from India Scheme (SEIS)

The objective of 'Service Exports from India Scheme' (SEIS) is to motivate traders who export notified services. Service Exports also bring in foreign exchange to the country and is hence encouraged. Under SEIS, an incentive of 3-7% of the net foreign exchange earnings is provided to the service exporters. It requires the service providers to have an active Import- Export Code (IEC Code) with a minimum net foreign exchange earnings to be eligible for a claim under the scheme.

DUTY EXEMPTION/REMISSION SCHEME

Advance Authorisation Scheme (AAS)

Advance Authorisation Scheme allows duty-free imports of raw materials, which are required to produce export goods. It allows traders to import raw materials at 0% import duty if those raw materials will be used to manufacture export products.

Duty Free Import Authorisation (DFIA Scheme)

The purpose of this scheme is the same as the Advance Authorisation Scheme, i.e., to allow duty-free imports of raw materials. However, this scheme is applicable post exports; this means that duty-free imports will only be allowed once exports are completed.

Duty Drawback Scheme (DBK Scheme)

Under Duty Drawback Scheme (DBK), exporters are given compensation on customs and central excise duties incurred on materials used in the manufacture of exported goods.

Export Promotion Capital Goods Scheme (EPCG Scheme)

EPCG scheme facilitates the imports of capital goods to produce goods and services by manufacturers. Under this scheme, exporters can partner with a manufacturer and import the required capital goods to produce export goods at 0% duty. This scheme also helps reduce the service exporter's capital costs. Service exporters such as hotels, travel & tour operators, taxi operators, logistics companies and construction companies are some beneficiaries under this scheme.

Export Oriented Units (EOU)

EOU scheme was introduced in 1981 and aims to increase exports by providing a favourable ecosystem to companies, which are 100% exporters. This scheme allows certain waivers and concessions in compliance and taxation matters.

OTHERS

Transport and Marketing Assistance Scheme (TMA Scheme)

This scheme is applicable for agricultural exports (Like Marine and Plantation Goods) and came into effect in 2019. Under the TMA scheme, freight costs up of to a certain amount will be reimbursed by the government to make Indian agricultural products competitive in the global space.

Deemed Export Benefit Scheme

'Deemed Exports' refers to those transactions in which the supplied goods do not leave the country and the payment for such supplies is received either in Indian rupee or in free foreign exchange. Servicesare not included in this scheme. This scheme provides a level-playing field to the domestic manufacturers in certain specified situations, as may be decided by the government from time to time.

Eg:- Goods supplied against Advance Authorisation Scheme, Goods Supplied to EOU, Capital Goods Supplied to EPCG Licence Holder, Goods Supplied for Nuclear power project and project funded by bilateral / multilateral agencies.

Star Export House/Status Holder Certificate

This scheme provides recognition to the eligible exporters by way of Certificate provided by Director General of Foreign Trade (DGFT). Status holders are regarded as business leaders who have successfully contributed to India's foreign trade. Exporters are given star ratings based on the volume and value of exports completed. Eligible holders receive privileges such as faster customs clearance, exemption from compulsory negotiation of documents through banks, exemption from furnishing bank guarantee required for various export promotion schemes, GR waiver, preference in payments of import duties and other benefits. Certificate is valid for the period of Five Years.

Market Access Initiative (MAI) Scheme

This scheme aims to explore new markets and support export promotion activities there. Activities include market studies, publicity campaigns, brand promotion, setting up showrooms/warehouses, participation in international trade fairs, reimbursement of air fare for participation in international events, refund of registration charges paid to the importing country in the case of pharmaceuticals, biotechnology, chemicals, farm and food products. Benefits under MAI are allocated through the Export Promotion Councils. This scheme was launched in 2018.

Towns of Export Excellence (TEE)

Towns with high export potential and exporting goods worth >Rs. 750 crore are considered as towns of export excellence (TEE). Recognised associations in those towns are provided with financial assistance as per the guidelines provided by the market access initiative (MAI scheme). In this scheme, there are a total of 37 TEEs across the country does not offer any direct benefit to individual exporters.

Interest Equalisation Scheme (IES)

IES provides pre- and post-shipment export credits to exporters in Indian rupee. This scheme provides 5% interest support to all manufacturers in the MSME sector and 3% support to all exporters in the identified 416 tariff lines. This scheme is implemented and governed by the RBI and respective banks, wherein banks pass on the benefit of reduced interest directly to exporters and then reimburse the same from the RBI.

NIRVIK Scheme

The Export Credit Guarantee Corporation of India (ECGC) introduced the NIRVIK scheme, which provides high insurance cover, reduced premium for small exporters and a simplified claim settlement process. It is primarily an insurance cover guarantee scheme that provides a cover of up to 90% of the principal and interest, as against the current credit guarantee of only up to 60% loss.

Production-Linked Incentive (PLI) Scheme to Boost Exports

One of the latest initiatives from the government, the PLI scheme attempts to boost domestic manufacturing and improve competitiveness in 10 high-potential sectors. It offers a 4%-6% incentive on incremental sales of goods manufactured in India for five years subsequent to the base year (2019-2020).

The sectors covered are

• Electronic/technology products
• Automobiles and components
• Pharmaceuticals
• Telecom and networking products
• Textile products
• Food products
• Solar photo-voltaic modules
• White goods (ACs & LED)
• Advance chemistry
• Specialty steel

CATEGORIES OF EXPORTERS

Merchant Exporter

"Merchant Exporter" means a person engaged in trading activity and exporting or intending to export goods. Merchant exporter procures the material from a manufacturer and exports in his firm's name. Here merchant exporter procures the order from international market. Merchant exporter does not have own manufacturing unit or processing factory. Merchant Exporter can export the excisable goods either directly from the premises of the manufacturer, with or without sealing of the export consignments, or through his premises under claim for rebate or under bond.

Manufacturer Exporter

"Manufacturer Exporter" means a person who manufactures goods and exports or intends to export such goods. The manufacturer exporter procures and process raw materials at his factory and exports finished products. Here, the manufacturer exporter procures the export order and exports in their own name.

Service Exporter

If an exports through a merchant exporter or manufacturer export, we can see the export product tangibly. But there are many servicing industry where we cannot see the product physically, but helps to earn foreign exchange. A best example of service exporter is those who export software. Here while selling software to other countries, our country earn foreign exchange. Tourism, Software, Health Care, Consultancy, Hotels, etc. are other examples for service exports.

Project Exporter

There are many professional companies undertake contracts for Designing, manufacturing, supply, erection, commissioning, etc. When they earn foreign currency on their sale, they falls under Project exporters and eligible of all assistance and support as project exports.

Deemed Export

In deemed exports, goods supplied do not move out of country, and payment for such supplies is received either in Indian Rupees or in free foreign exchange. You may have a doubt now that if the goods are not crossing the border of country, how can we treat as exports? In deemed exports, some of the other way the transaction boost to earn foreign exchange. Deemed exporters are also eligible government assistance within the parameters of earning foreign exchange.

TYPE OF EXPORT

Export of Goods

As per the Section 2(5) of IGST Act, 2017 "Export of goods" with its grammatical variations and cognate expressions,means taking goods out of India to a place outside India.

Supply of Goods by a registered person(including a Special Economic Zone developer or Special Economic Zone unit)to a Special Economic Zone developer or Special Economic Zone unit shall be considered as ZERO Rated sales (Notification No. 37 /2017-Central Tax Dt. 4^th Oct, 2017.)

Zero rating (Export) is not applicable to supplies to EOUs and thereis no special dispensation for them. Therefore, supplies to EOUs are taxable under GST just likeany other taxable supplies. The EOUs, to the extent of exports, are eligible for zero rating like anyother exporter. (Circular no. 5/5/2017 - GST Dt. 11^th Aug, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017 is in live)

Goods sold to Nepal & Bhutan would be considered as Export of Goods as Goods taking out of India to a place out of India.

Export of Service

As per the Section 2(6) of IGST Act, 2017 "export of services" means the supply of any service when,

• The supplier of service is located in India.
• The recipient of service is located outside India.
• The place of supply of service is outside India.
• The payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupee wherever permitted by RBI (Inserted by IGST Amended Act, 2018)
• The supplier of service and the recipient of service are not merely establishments of a distinct person.

Supply of Service by a registered person(including a Special Economic Zone developer or Special Economic Zone unit)to a Special Economic Zone developer or Special Economic Zone unit shall be considered as ZERO Rated sales (Notification No. 37 /2017-Central Tax Dt. 4^th Oct, 2017.)

Zero rating (Export) is not applicable to supplies to EOUs and thereis no special dispensation for them. Therefore, supplies to EOUs are taxable under GST just like any other taxable supplies. The EOUs, to the extent of exports, are eligible for zero rating like anyother exporter. (Circular No. 5/5/2017 - GST Dt. 11^th Aug, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017 is in live)

In case of Export of Service having place of supply in Nepal & Bhutan, Payment is received in Indian Currency due to business practice and trends. In this case it is not an export of service as per the definition given above, However Government has exempted such service by way of notification No. 42/2017-Intergrated Tax (Rate) Dt. 27.10.2017.

Forward inward remittance in Indian Rupee:-Wide (Circular No. 5/5/2017-GST Dt. 11^th Aug, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017 is in live) it is clarify that if the receipts of proceeds of supplies in Indian Rupee especially with respect to exports to Nepal, Bhutan and SEZ developer/SEZ unit. Attention is invited to Para A (v) Part-Iof RBI Master Circular no. 14/2015-16 dated July 1, 2015 (updated as on November 5, 2015), which states "there is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations, Notifications and Directions framed under the Foreign Exchange Management Act 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020), all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan". (Circular No. 88/07/2019-GST Dt. 1^st Feb, 2019 added that Further, attention is invited to the amendment to section 2(6) of the IGSTAct, 2017 which allows realization of export proceeds of services in INR, wherever allowed by the RBI.)

Accordingly, it is clarified that acceptance of LUT instead of a bond for supplies of goods to Nepal or Bhutan or SEZ developer or SEZ unit will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with applicable RBI guidelines. It may also be noted that supply of services to SEZ developer or SEZunit will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange. (Circular No. 5/5/2017-GST Dt. 11^th Aug, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017 is in live)

ZERO RATED SUPPLY (U/s 16 of IGST Act, 2017)

1. "zero rated supply" means any of the following supplies of goods or services or both, namely

(a) Export of goods or services or both or

(b) Supply of goods or services or both for authorised operation (Inserted wide Finance Bill 2021)to a Special Economic Zone developer or a Special Economic Zone unit.

2. Credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply subject to Section 17(5) of CGST Act, 2017 i.e. Negative List.

3. A registered person making zero rated supply shall be eligible to claim refund of unutilized input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed.

Provided that the registered person making zero-rated supply of goods shall, in case of non-realization of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 for receipt of foreign exchange remittances, in such manner as may be prescribed. (Whole Paragraph was substitute by finance Act, 2021)

Period of realization of foreign exchange as per FEMA 1999 is as per RBI Guidelines and as per RBI foreign exchange should be received within NINE Months from the date of Export.

4. The Government may, on the recommendation of the Council, and subject to such conditions, safeguards and procedures, by notification, specify.

• Class of persons who may make zero-rated supply on payment of integrated tax and claim refund of the tax so paid.
• A class of goods or services which may be exported on payment of integrated tax and the supplier of such goods or services may claim the refund of tax so paid.

(Inserted wide Finance bill 2021)

Zero-rated supply does not mean that the goods and services have a tariff rate of '0%' but the recipient to whom the supply is made is entitled to pay '0%' GST to the supplier.

In other words, as it has been well discussed in section 17(2) of the CGST Act that input tax credit will not be available in respect of supplies that have a '0%' rate of tax. However, this disqualification does not apply to zero-rated supplies covered by this section.

TREATMENT OF EXPORT UNDER GST LAW

As per the Section 7(5) of IGST Act, 2017 Export is treated as Inter-State Supply and IGST charge on Export.

REFUND FOR ZERO RATED SUPPLY

An Exporter dealing in Zero Rated supply under GST can claim a refund as per following Options.

• Export without payment of IGST under Bond/LUT and Claim Refund of ITC.
• Export with payment of IGST and Claim Refund of IGST Paid.

WHAT IS LETTER OF UNDERTAKING & BOND IN GENERAL SENSE

Letter of Undertaking

It is a type of bank guarantee, under which a bank allows its customer to raise money from another Indian bank's foreign branch as a short-term credit.

Bond

It is a financial instrument in which the issuer of a bond owes the holders a debt and is obliged to pay them interest or to repay the principal at a later date. It is a highly secured and highly liquid financial instrument which is mostly negotiable. This means that the ownership of the bond can be transferred.

WHAT IS LETTER OF UNDERTAKING & BOND UNDER GST

If Exporter choose option one for export, He needs to file the Bond/LUT with the tax department stating that he shall fulfill all the export requirements.

WHEN BOND IS TO BE FILED UNDER GST

Any Registered person who have beenprosecuted for any offence under the Central Goods and Services TaxAct, 2017 (12 of 2017) or the Integrated Goods and Services Tax Act,2017 (13 of 2017) or any of the existing laws in force in a case where theamount of tax evaded exceeds two hundred and fifty lakh rupees (>250 Lakhs).(Notification No. 37/2017-Central Tax Dt. 04^th Oct, 2017) (This Notification suspend the notification No. 16/2017-Central Tax, Dt. 7^th July, 2017).

A clarification has been sought (Wide Circular No. 4/4/2017-GST Dt. 7^th July, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017 is in live)as to whether bond to be furnished for exports is a runningbond (with debit / credit facility) or a one-time bond (separate bond for each consignment /export). It is observed consignment wise bond would be a significant compliance burden on theexporters. It is directed that the exporters shall furnish a running bond, in case he is required tofurnish a bond, in FORM GST RFD -11. The bond would cover the amount of tax involved inthe export based on estimated tax liability as assessed by the exporter himself. The exporter shallensure that the outstanding tax liability on exports is within the bond amount. In case the bondamount is insufficient to cover the tax liability in yet to be completed exports, the exporter shallfurnish a fresh bond to cover such liability.

Further Stated by (Circular No. 4/4/2017-GST Dt. 7^th July, 2017,is now rescinded and new Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017 is in live)FORM RFD -11 under rule 96A of the CGST Rules requires furnishing a bank guaranteewith bond. Field formations have requested for clarity on the amount of bank guarantee as asecurity for the bond. In this regard it is directed that the jurisdictional commissioner may decidea bout the amount of bank guarantee depending upon the track record of the exporter. IfCommissioner is satisfied with the track record of an exporter then furnishing of bond without bank guarantee would suffice. In any case the bank guarantee should normally not exceed 15%of the bond amount.

WHEN LUT IS TO BE FILED UNDER GST

All registered persons who intend to supply goods or services forexport without payment of integrated tax shall be eligible to furnish a Letter of Undertaking in place of a bond except those who have been prosecuted for any offence under the Central Goods and Services TaxAct, 2017 (12 of 2017) or the Integrated Goods and Services Tax Act,2017 (13 of 2017) or any of the existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees (>250 Lakhs).(Notification No. 37/2017-Central Tax Dt. 04^th Oct, 2017) (This Notification suspend the notification No. 16/2017-Central Tax, Dt. 7^thJuly, 2017).

Validity of LUT: The LUT shall be valid for the whole financial year in which it istendered. However, in case the goods are not exported within the time specified in sub rule(1) of rule 96A of the CGST Rules and the registered person fails to pay the amount. Mentioned in the said sub-rule, the facility of export under LUT will be deemed to havebeen withdrawn. If the amount mentioned in the said sub-rule is paid subsequently, thefacility of export under LUT shall be restored. As a result, exports, during the period

From when the facility to export under LUT is withdrawn till the time the same isrestored, shall be either on payment of the applicable integrated tax or under bond withbank guarantee.(Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017).

Documents for LUT: Self-declaration to the effect that the conditions of LUT have beenfulfilled shall be accepted unless there is specific information otherwise. That is, self-declarationby the exporter to the effect that he has not been prosecuted should suffice forthe purposes of Notification No. 37/2017- Central Tax dated 4th October, 2017.(Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017).

FORM OF BOND/LUT: FORM GST RFD-11

WHO WILL EXECUTE BOND/LUT

• The proprietor.
• Working partneror by a person duly authorised by such working partner.
• The Managing Director or Board of Directors of such company.
• The Company Secretary.

TIME FOR ACCEPTANCE OF LUT/BOND

As LUT/Bond is a priori requirement for export,including exports to a SEZ developer or a SEZ unit, the LUT/bond should be processed on top most priority. It is clarified that LUT/bond should be accepted within a period of three working days of its receipt along with the self-declaration as stated in above by the exporter. If the LUT / bond is not accepted within a period of three workingdays from the date of submission, it shall deemed to be accepted.(Circular No. 8/8/2017-GST Dt. 4^th Oct, 2017).

EXPORT OF GOODS OR SERVICE UNDER BOND OR LUT RULE 96A (OPTION 1)

Any registered person availing the option to supply goods or services for export without paymentof integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORMGST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due alongwith the interest specified under sub-section (1) of section 50 within a period of,

• Fifteen days after the expiry of three months or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export, if the goods are not exported out of India. (I.e. Goods should be exported within three months from the date of Export Invoice.)

• Fifteen days after the expiry of one year, or such further period as may be allowed by the 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 [or in Indian rupees, wherever permitted by the Reserve Bank of India].

Where the goods are not exported within the time specified in above rule and theregistered person fails to pay the amount mentioned in the said sub-rule, the export as allowedunder bond or Letter of Undertaking shall be withdrawn forthwith and the said amount shallbe recovered from the registered person in accordance with the provisions of section 79 (Recovery of Tax).

The export as allowed under bond or Letter of Undertaking withdrawn in terms of above rule shall be restored immediately when the registered person pays the amount due.

Rule 96A also applied in respect of zero-ratedsupply of goods or services or both to a Special Economic Zone developer or a Special

Economic Zone unit without payment of integrated tax.

EXPORT OF GOODS OR SERVICE WITH PAYMENT OF IGST RULE 96 (OPTION 2)

The shipping bill filed by an exporter of goods shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India and such application shall bedeemed to have been filed only when,

• The person in charge of the conveyance carrying the export goods duly files a departure manifest or an export manifest or an export report covering the number and the date of shipping bills or bills of export.
• The applicant has furnished a valid return in FORM GSTR-3B
• The details of the relevant export invoices in respect of export of goods contained in FORM GSTR-1 shall be transmitted electronically by the common portal to the system designated by the Customs and the said system shall electronically transmit to the common portal, a confirmation that the goods covered by the said invoices have been exported out ofIndia.

Upon the receipt of the information regarding the furnishing of a valid return in FORM GSTR-3B, as the case may be from the common portal, the systemdesignated by the Customs or the proper officer of Customs, as the case may be, shall processthe claim of refund in respect of export of goods and an amount equal to the integrated taxpaid in respect of each shipping bill or bill of export shall be electronically credited to thebank account of the applicant mentioned in his registration particulars and as intimated to theCustoms authorities.