Payment of GST on Export of Services from India – Export of services under GST regime with filing of LTU/Bond for export under GST
During pre-GST regime, export of services was exempt from Payment of GST on Export of Services or submission of any Bond or Letter of Undertaking before or after export of services, which meant export of services was permitted without payment of any duty. A benefit of input service tax refund was also available.
But with the introduction of Rule 96A in Central Goods and Services Tax Rules, 2017, Tax Treatment of Export under GST Regime is not as same as it was earlier. GST Regime and has created additional documentation and procedural requirements, which has raised few questions in the mind of Taxpayers, which implies that Payment of GST on Export of Services is not directly exempted.
IGST is levied on the supply of any goods and services in the course of inter-state trade or commerce. As per the IGST Act, export and import of goods and services are deemed to be a supply in the course of inter-state trade or commerce. Exports have been defined under “zero rated supply” meaning that tax rate on the export of goods and services will be zero. While one section is categorizing exports rate at zero, another section 3(5) states that transaction of export will be subjected to IGST, which is even zero rated supplies of services are subject to IGST,
Now, the export invoice has to mention either “Supply meant for Export on Payment of IGST” or “Supply meant for Export under bond without payment of IGST” meaning thereby that export cannot be done without following any of the two ways of raising an export invoice.
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. This bond or Letter of Undertaking is required to be furnished in Form GST RFD-11 on the GST common portal. This form, GST RFD 11, will be filed with a bank guarantee equivalent to the amount of IGST, binding himself to pay the tax due along with the interest specified within a period of:
- fifteen days after the expiry of three months from the date of issue of the invoice for export, if the goods are not exported out of India; or
- 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.
Eligibility of Furnishing LUT
Not every registered person supplying goods or services for exports are eligible for furnishing LUT. Following registered person shall be eligible for submission of Letter of Undertaking in place of a bond:
a) Status Holder- A registered person shall be a status holder as specified in paragraph 5 of the Foreign Trade Policy 2015- 2020; or
b) Received due foreign inward remittances (min. 10%) – A registered person who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year.
Further, a registered person shall not be prosecuted for any offense under the Central Goods and Services Tax Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
Please note that those who does not satisfy above mentioned conditions, would submit bond.
The validity of LUT – Letter of the undertaking shall be valid for twelve months.
What if an exporter fails to comply with the conditions of LUT – If an exporter fails to comply with the conditions of the LUT he may be asked to furnish a bond. Exports may be allowed under existing LUTs/Bonds till 31st July 2017.
BOND – Running bond or One time bond
It is to be noted that exporter need not submit a separate bond for each consignment/export and shall furnish a running bond, in case he is required to furnish a bond, in FORM GST RFD -11. It is directed that the exporters shall furnish a running bond (with debit/credit facility), instead of the one-time bond (separate bond for each consignment/export), 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.
Furnishing of bond on Non- Judicial Stamp paper – The bond shall be furnished on non- judicial stamp paper of the value as applicable in the State for which bond is being furnished.
FAQs on Exports
1) How are exports treated under the GST Law?
Answer: Under the GST Law, export of goods or services has been treated as:
- inter-State supply and covered under the IGST Act.
- ‘zero rated supply’ i.e. the goods or services exported shall be relieved of GST levied upon them either at the input stage or at the final product stage.
2) How soon will refund in respect of export of goods or services be granted during the GST regime?
Answer: (a) In the case of refund of tax on inputs used in exports:
- Refund of 90% will be granted provisionally within seven days of acknowledgment of refund application.
- Remaining 10% will be paid within a maximum period of 60 days from the date of receipt of application complete in all respects.
- Interest @ 6% is payable if a full refund is not granted within 60 days.
(b) In the case of refund of IGST paid on exports:
Upon receipt of information regarding furnishing of valid return in Form GSTR-3 by the exporter from the common portal, the Customs shall process the claim for refund and an amount equal to the IGST paid in respect of each shipping bill shall be credited to the bank account of the exporter.
3) What is the procedure for furnishing LUT?
- The LUT has to be furnished in duplicate in a financial year in form GST RFD-11. The validity of 12 months.
- To be executed by the working partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorized by such working partner
- or Board of Directors of such company or proprietor on the letter head of the registered person.
4) What is the procedure for furnishing Bond?
- Bond to be furnished manually to the jurisdictional Deputy / Assistant Commissioner in Form RFD-11 till the module for furnishing same is available on the common portal).
- To be furnished on non-judicial stamp paper of the value as applicable in the State for which bond is being furnished.
- Running bond to be furnished on self-assessment basis in GST RFD-11 to cover the tax involved in the export. Exporter to ensure that the bond amount is sufficient to cover the liability, in the case of shortage, fresh bond to be furnished.
- Jurisdictional Commissioner may decide on the value of bank guarantee. If satisfied with a track record, bank guarantee may be dispensed with.
- In general, bank guarantee should normally not exceed 15% of bond value.
5) Will an exporter be required to pay GST in the case of goods procured from unregistered persons (including unregistered job workers)?
Answer: In the case of supply by an unregistered person (including unregistered job workers), the registered person i.e., the exporter shall be liable to pay GST under reverse charge mechanism. However, the exporter can avail ITC of such GST paid and either utilize the ITC or claim a refund of the same.
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