GST Implication on Export of Goods & Service
INTRODUCTION:-
The aim of Indian government is to
increasing the output and quality of export from India in pursuance to the
“Make in India” policy. Indian government also provide the many incentives to
the exporters which are explain below.
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.
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 1st 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 1st 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. Services are 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 License 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 an 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.
“Deemed Exports” refers to
supplies of goods manufactured in India (and not services) which are notified
as deemed exports under Section 147 of the CGST/SGST Act, 2017. The supplies do
not leave India. The payment for such supplies is received either in Indian
rupees or in convertible foreign exchange.
Deemed exports are not
zero rated supplies by default, unlike the regular exports. Hence all supplies
notified as supply for deemed export will be subject to levy of taxes i.e. such
supplies can be made on payment of tax and cannot be supplied under a Bond/LUT.
However, the refund of tax paid on the supply regarded as Deemed export is
admissible to either the supplier or the recipient (Rule 89(1) 3rd
Proviso.) The application for refund has to be filed by the supplier or
recipient (subject to certain conditions) of deemed export supplies, as the
case may be. (Documents required for Refund for supplies to EOUs are mentioned
in Notification No. 49/2017-CT Dt. 18.10.2017).
It may be noted that rule 89(4A) of the CGST Rules, 2017 as amended vide Notification no. 75/2017-Central Tax dated 29.12.2017 (w.e.f 23.10.2017), the recipient of deemed export supplies can claim refund of input tax credit availed in respect of other inputs or input services used in making zero-rated supply of goods or services or both, in case of deemed export supplies on which the supplier has availed the benefit of notification No. 48/2017-Central Tax dated 18.10.2017.
Further Rule 96(9) of the CGST Rules, 2017 as amended vide Notification no. 75/2017-Central Tax dated 29.12.2017 (w.e.f 23.10.2017) also provides that the recipient of deemed export supplies on which the supplier has availed the benefit of notification No. 48/2017-Central Tax dated 18.10.2017 cannot export on payment of integrated tax.
As per the Notification No. 48/2017-CT Dt.
18.10.2017 following supply of goods shall be treated as Deemed Export (Section
147 of CGST Act, 2017.)
·
Supply of goods by a registered person against
Advance Authorisation.
·
Supply of capital goods by a registered person
against Export Promotion Capital Goods Authorisation.
·
Supply of goods by a registered person to Export
Oriented Unit (i.e. Export Oriented Unit, Electronic Hardware Technology Park
Unit or Software Technology Park Unit or Bio-Technology Park Unit approved in
accordance with the provisions of Chapter 6 of the Foreign Trade Policy
2015-20.)
·
Supply of gold by a bank or Public Sector
Undertaking specified in the notification No. 50/2017-Customs, dated the 30th
June, 2017 (as amended) against Advance Authorisation.
Explanation:-
1)
“Advance Authorisation” means an authorisation
issued by the Director General of Foreign Trade under Chapter 4 of the Foreign
Trade Policy 2015-20 for import or domestic procurement of inputs on pre-import
basis for physical exports.
TYPE OF EXPORT:-
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.
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) and.
·
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. 4th Oct, 2017.)
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. 11th Aug, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4th
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-I of 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. 1st Feb, 2019 added that Further, attention
is invited to the amendment to section 2(6) of the IGST Act, 2017 which allows
realization of export proceeds of services in INR, wherever allowed by the RBI.)
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.
In Addition to this Section 147 of CGST Act, 2017 considered certain supplies as Deemed Export, which means Deemed export also eligible for zero rated supply.
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.
a)
Class of persons who may make zero rated
supply on payment of integrated tax and claim refund of the tax so paid.
b)
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.
An Exporter dealing in Zero Rated
supply under GST can claim a refund as per following Options.
1) Export
without payment of IGST under Bond/LUT and Claim Refund of ITC.
2) Export
with payment of IGST and Claim Refund of IGST Paid.
WHAT IS LETTER OF UNDERTAKING & BOND IN
GENERAL SENSE:-
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.
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.
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 been prosecuted
for any offence under the Central Goods and Services Tax Act, 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. 04th Oct, 2017) (This Notification suspend the notification No. 16/2017-Central Tax, Dt. 7th
July, 2017).
A clarification has been sought (Wide Circular No. 4/4/2017-GST Dt. 7th
July, 2017 is now rescinded and new Circular No. 8/8/2017-GST Dt. 4th
Oct, 2017 is in live) as to whether bond to be furnished for exports is a
running bond (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 the exporters. It is directed that the
exporters shall furnish a running bond, in case he is required to furnish a
bond, in FORM GST RFD -11. The bond would cover the amount of tax involved in the
export based on estimated tax liability as assessed by the exporter himself.
The exporter shall ensure that the outstanding tax liability on exports is
within the bond amount. In case the bond amount is insufficient to cover the
tax liability in yet to be completed exports, the exporter shall furnish a fresh
bond to cover such liability.
Further Stated by (Circular No. 4/4/2017-GST Dt. 7th
July, 2017, is now rescinded and new Circular No. 8/8/2017-GST Dt. 4th
Oct, 2017 is in live) FORM RFD -11 under rule 96A of the CGST Rules
requires furnishing a bank guarantee with bond. Field formations have requested
for clarity on the amount of bank guarantee as a security for the bond. In this
regard it is directed that the jurisdictional commissioner may decide about the
amount of bank guarantee depending upon the track record of the exporter. If Commissioner
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 for export 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 Tax Act,
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. 04th Oct, 2017) (This Notification
suspend the notification No.
16/2017-Central Tax, Dt. 7th July, 2017).
Validity
of LUT: - The LUT shall be valid for the whole
financial year in which it is tendered. 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 have been
withdrawn. If the amount mentioned in the said sub-rule is paid subsequently,
the facility 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 is restored, shall be either on payment
of the applicable integrated tax or under bond with bank guarantee. (Circular No. 8/8/2017-GST Dt. 4th
Oct, 2017).
Documents
for LUT:- Self-declaration to the effect that
the conditions of LUT have been fulfilled shall be accepted unless there is
specific information otherwise. That is, self-declaration by the exporter to
the effect that he has not been prosecuted should suffice for the purposes of
Notification No. 37/2017- Central Tax dated 4th October, 2017. (Circular No. 8/8/2017-GST Dt. 4th
Oct, 2017).
FORM OF BOND/LUT:-
FORM GST RFD-11
WHO WILL EXECUTE BOND/LUT:-
The proprietor.
Working partner or 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 working days from the date of submission, it
shall deemed to be accepted. (Circular
No. 8/8/2017-GST Dt. 4th 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 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,
1) 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.)
2) 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].
Economic Zone unit without payment of
integrated tax.
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 be deemed to have
been filed only when,
1) 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.
2) The
applicant has furnished a valid return in FORM GSTR-3B
3) 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 of India.
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