The government has finally issued the much-awaited notification which exempts all the registered taxpayers under GST from furnishing bank guarantee for shipping goods and services. Thus, now onwards, any registered can only execute ‘letter of understanding’  and export service or goods without payment of GST.  Now Export Without Payment of GST and Bond only LUT will suffice. 

This is a big relief, especially to small exporters, earlier different export organizations had approached the finance minister with concerns over capital blockage under the new taxation, that was causing stress on small and medium exporters. Download the full notification from here. 

Key points of this new notification issued on 04th October 2017 are as below: 

• 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 offense 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;
• the Letter of Undertaking shall be furnished on the letterhead of the registered person, in duplicate, for a financial year in the annexure to FORM GST RFD – 11 referred to in sub-rule (1) of rule 96A of the Central Goods and Services Tax Rules, 2017 and it shall be executed by the working partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorised by such working partner or Board of Directors of such company or proprietor; 

• where the registered person fails to pay the tax due along with interest, as specified under sub-rule (1) of rule 96A of Central Goods and Services Tax Rules, 2017, within the period mentioned in clause (a) or clause (b) of the said sub-rule, the facility of export without payment of integrated tax will be deemed to have been withdrawn and if the amount mentioned in the said sub-rule is paid, the facility of export without payment of integrated tax shall be restored. 

• The provisions of this notification shall mutatis mutandis apply in respect of the zero-rated supply of goods or services or both made 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 without payment of integrated tax.

Earlier, the law had mandated that 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.  

The Eligibility of Furnishing LUT was such that only very small number of big-ticket exporters were covered under the LUT, since  only such exporters were covered, who have received foreign inward remittances to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year. 

Thus, this caused huge stress and working capital blockage for small exporters, as they had to execute a bond if they wanted to export without payment of GST.   

You can also check here for Step by Step guide for executing Letter of Understanding ( LUT). 

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