EXPORT TRANSACTIONS UNDER GST

 

EXPORT:

One of the fundamental principle to make exports competitive in the international market is that taxes should not be exported. Hence, export  to  destinations  outside India as well as supplies to SEZ have been ‘zero-rated’, i.e. the goods or services exported are relieved of  GST levied upon them either at the input stage or at the final product stage by way of refund of taxes paid. Thus, it can be seen that supply to SEZ unit/developer is treated at par with physical exports.

Supplies made for export through merchant exporters are taxed at 0.1% with ITC benefit. Supplies of goods from Domestic Tariff Area (DTA) to EOU/ Electronic Hardware Technology Park (EHTP) Unit/ Software Technology Park (STP) Unit/ Bio-Technology Parks (BTP) Unit are considered as ‘deemed exports’ and are allowed some of the benefits that actual export enjoy

Taxability of export :

Export of goods or services are treated as inter-State supply and zero rated. This means that even if there is full exemption for the supply,  ITC  is  still available to  the exporter. The exporter will have an option to either pay IGST on the outward supply and claim refund of such IGST paid or export under Bond/LUT without payment of IGST and claim refund of ITC. The objective is to make Indian exports competitive in the international market.

It may be noted that since exports are inter-State supplies, the tax associated with them will always be IGST.

EXPORT OF GOODS

(i) Physical exports [Section 2(5)] :

Export of goods requires taking the goods from India to a place outside  India. India is defined as  extending to  the limits of  its maritime zone, which is 200 nautical miles from the coastal baseline. This is  far  beyond  the  normal definition of India, which only includes its territorial waters, which in turn extend 12 miles from the baseline. Given the extended meaning  of  India, export would require that the goods must travel beyond 200 miles  from the baseline in order to qualify as having been exported.

(ii) Deemed exports :

•          Indian suppliers of services and manufacturers of goods have to quote in competition with foreign suppliers of goods and services. Such Bids evaluation is done without considering the customs duty. Since such supply of goods and services are financed for specific projects (projects financed) with the free foreign exchange, these supplies are considered as ‘deemed exports’.

•          Similarly, supplies made to Export Oriented Units also known as EOUs and services do not leave the country. Suppliers get their payment in Indian currency and not in foreign exchange.

•          “Deemed exports” generally refer to those transactions under which supply of goods do not leave the country, and payment for such supplies is received in Indian Rupees shall be treated as ‘deemed exports’, provided that goods are manufactured or produced in India.

(iii) Merchant exports :

There is no specific provision in GST law for export through third parties, commonly known as merchant exports. However, a low rate of GST of 0.1%  on supplies for export through third parties has been provided by way of exemption notifications. [This is expressed as 0.1% IGST on inter-State  supplies or 0.05% CGST plus 0.05% SGST on intra-State supplies].

Export of services [Section 2(6)]

Supply of service qualifies to be an ‘export of service’ if it fulfills the following conditions:

(a) The service is supplied from India to a recipient located outside India,

(b) The place of supply of the service is outside India,

(c) The consideration for the service is received in freely convertible foreign exchange

or in Indian rupees wherever permitted by the Reserve Bank of India, and

(d) The transaction is between separate entities, i.e. not merely between two establishments of an entity (Branch and Head Office of one taxable person are not treated as two separate entities for this purpose. In other words, provision of outbound services inter se Branch and Head Office is not construed as export of service. However, Notification No. 9/2017 IT(R) dated 28.06.2017 exempts the services provided by an Indian establishment to its foreign establishment from IGST if the place of supply is outside India

For example, Raman of Delhi has supplied services to John of USA.

In the given example, supplier of service – Raman – is located in India, recipient of service – John – is located outside India and the place of supply of service is USA. Payment for services provided by Raman has been received in convertible FOREX and Raman and John are not merely establishments of a distinct person as per explanation to section 8 of IGST Act. Since all the requisite conditions have been satisfied, such services qualify as export of services

Common provisions/aspects for export of goods and services :

(i) Supplies to a SEZ unit or SEZ developer

Supply to a SEZ unit/developer is zero-rated but all the supplies are not zero-rated. Circular No. 48/22/2018 GST dated 14.06.2018 has clarified that the supplies to a SEZ unit/developer shall be zero rated and the supplier  shall be eligible for refund of unutilized ITC or tax paid as the case may be, only if such supplies have been received by the  SEZ developer or  SEZ unit  for authorized operations. An endorsement to this effect shall have to be issued by the specified officer of the Zone. Therefore, subject to the provisions of section 17(5) of the CGST Act, if event management services, hotel, accommodation services, consumables etc. are received by a SEZ unit/developer for authorized operations, as endorsed by the  specified officer of  the Zone, the benefit of zero rated supply shall be available in   such cases to the supplier.

(ii) Transactions with EOUs

Zero rating is not applicable to supplies to EOUs and there is no special dispensation for them under GST regime. Therefore, supplies to EOUs are taxable like any other taxable supplies. EOUs, to the extent of exports, are eligible for zero rating like any other exporter [Circular No. 8/8/2017 GST dated 04.10.2017 as amended].

However, supplies to EOUs are treated as deemed exports and refund of tax paid on deemed exports is admissible either to the supplier or the recipient.

(iii) Procedure for export under bond/LUT without payment of tax procedure for merchant exports

Procedure for direct exports [Rule 96A of the CGST Rules]

(a) Exporter has to execute the bond or LUT prior to export, binding  himself to pay the tax due along with interest @ 18% within: -

 

Export of goods	Export of service
15 days after the expiry of 3 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.	15 days after the expiry of 1 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

 

            These provisions are also applicable in respect of zero rated supply of goods and/or services to a SEZ unit/developer without payment of IGST.

(b) Failure to export goods and pay the tax due along with interest within the period specified in (a) above results in withdrawal of the facility of export without payment of IGST and recovery of the  said  amount under section 79 of the CGST Act. The facility, however,  can  be restored on payment of the said amount [Notification No. 37/2017 CT dated 04.10.2017].

(c) All registered persons are eligible to furnish a LUT in place of a bond except those who have been prosecuted for  cases  involving  an amount exceeding ` 250 lakh [Notification No. 37/2017 CT dated 04.10.2017].

(d) The details of the export invoices should be submitted in  GSTR-1. These details shall be electronically transmitted to the system designated by Customs and a confirmation that the goods covered by the said invoices have been exported out of India  shall  be electronically transmitted to the common portal from the said system.

Forms for Refund

The Goods and Services Tax Network (GSTN) has introduced a utility Table 6A in the Form GSTR-1 used to claim refunds by exporters.

This Table 6A of Form GSTR1 lets assesse file export related data for the relevant period that permits processing of the GST refund on the basis of the declaration made under Form GSTR 3B and Table 6A of GSTR-1.

An exporter of goods or services or both can claim the refund of Integrated GST paid at the time of export by filling the details of the tax paid GST invoice and shipping bill in his Form GSTR1 in the relevant month.

- Anwar Ali