Exports as Zero-Rated Supplies:
Export of Goods and Services under the GST regime have been categorized as Zero-Rated Supply. This means that subject to the provisions of the CGST Act, 2017, and the Rules made thereunder, the exporter shall not be liable to pay Integrated GST applicable on exported goods if he/ she satisfies the criteria as prescribed under the Rules. The exporter can trade without payment of integrated tax followed by claim of refund of unutilized input tax credit or on payment of integrated tax with provision for refund of the tax paid.
Letter of Undertaking and Bonds:
For availing these benefits, according to Rule 96A of Central Goods and Services Tax Rules, 2017 in case of export of goods or services without payment of GST, the exporter has to furnish a bond or letter of undertaking (LUT) in form RFD-11. This is also required in the case of provision of goods or services to SEZ units/ developer.
In supersession of its July 7 Circular, the Central Board of Excise and Customs (CBEC) issued a notification - Notification No. 37/2017 – Central Tax dated October 4, 2017 extending the facility of Letters of Undertaking to all exporters under Rule 96 A of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the CGST Rules”) subject to certain conditions and safeguards.
It is a significant move by the Finance Ministry to liberalize norms for letters of undertaking (LUT) to help exporters who have been facing difficulties under the Goods and Services Tax (GST) in timely shipment of consignments. The Circular also widens the scope of applicability of the said norms by relaxing the eligibility criteria of exporters who were benefited by this Zero-Rated Supply category. The facility was earlier available only for manufacturer exporters.
Significant changes made by the new Circular:
Superseding the previous circulars, CBEC’s circular issued on October 4, 2017 is commendable for 2 reasons. Firstly, because it has relaxed the eligibility norms and allowed more number of exporters to be eligible under the scheme. Secondly, it has induced ease into the compliance by making provisions for self-declarations of previous prosecutions and self- sealing of stocks and deemed acceptance of undertaking if not replied to in 3 days.
Significant aspects of the Circular:
Accordingly, to ensure uniformity the Board, in exercise of its powers conferred under Section 168 (1) of the Central Goods and Services Tax Act, 2017 clarifies the following issues:
1. Eligibility to export under LUT: The eligibility criteria for being exporters to fall within the ambit of Zero Rated Supply and become entitled to the benefits of LUTs, has been relaxed considerably. Earlier, (old notification) this facility of export under LUTs was applicable only to ‘status holders’ under the Foreign Trade Policy 2015-2020 and to persons receiving a minimum foreign inward remittance of 10% of the export turnover in the preceding financial year which was not less than INR 1 Cr. The same has now been extended to all registered persons who intend to supply goods or services for export without payment of integrated tax.
Exception: The only persons not entitled to this facility are those who have been prosecuted for any offence under the CGST Act or the Integrated Goods and Services Tax Act, 2017 or any of the existing laws and the amount of tax evaded in such cases exceeds INR 250 lakhs.
2. Validity of LUTs and their deemed withdrawal: 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 and the tax dues according to sub rule (1) of rule 96A of the CGST Rules are not paid 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. Therefore, the Circular states that exports made during the period from when the facility to export under LUT is withdrawn till the time the same is restored.
3. Steps for submission of Form for bond/LUT:
- Download FORM GST RFD-11 from www.cbec.gov.in;
- Prepare LUT on the letter head of the registered person, in duplicate, and it shall be executed by the working partner, the Managing Director or the Company Secretary or the proprietor or any other person duly authorized by them;
- Furnish a duly filled form to the jurisdictional Deputy/Assistant Commissioner having jurisdiction over their principal place of business; and
- The bond, wherever required, shall be furnished on non-judicial stamp paper of the value as applicable in the State in which the bond is being furnished.
4. Self-declaration of 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 October 4, 2017. Verification, if any, may be done on post-facto basis.
5. Deemed Acceptance: To ensure that LUT/ Bonds are processed as a priority, as they are the sine qua none of the exports business now, the clarification states that if a duly filled and eligible LUT/ Bond is not accepted within 3 says, it shall be deemed to be accepted.
6. Bank guarantee for those prosecuted under CGST laws: The circular goes a step further and grants a chance even to persons being prosecuted under CGST laws, for cases involving an amount exceeding INR 250 lakhs for them to avail the benefits of LUT/Bonds, if they can furnish a bank guarantee. A bond, in all cases, shall be accompanied by a bank guarantee of 15% of the bond amount. Export bond should be furnished on non-judicial stamp paper of the value as applicable in the State in which the bond is being furnished.
7. Clarification regarding running bond: The exporters shall furnish a running bond covering the amount of self-assessed estimated tax liability on the export and ensure that the outstanding integrated tax liability on exports is well within the bond amount. Fresh bond amounts can be furnished if the estimated bond amount is exceeded and does not cover the said liability in yet to be completed exports. The exporter should maintain the debit / credit entries of integrated tax in the running bond and are to be furnished to the Central tax officer as and when required.
8. Sealing by officers: Till mandatory self-sealing is operationalized, sealing of containers, wherever required to be carried out under the supervision of the central excise officer having jurisdiction over the concerned place of business.
The Deputy/Assistant Commissioner having jurisdiction over the principal place of business should be sent a report of the sealing.
9. Where Zero Rating in not applicable to exporters: The said zero rated taxation and LUT facility is not applicable where merchant exporters are required to purchase goods from a manufacturer or in case of supplies to export oriented units. These transactions shall be normally taxable under the GST regime.
10. Realization of export proceeds in Indian Rupee: With reference to the laws relating to foreign trade and the RBI Master Circular No. 14/2015-16 dated July 01, 2015 all export proceeds shall be realized in freely convertible currency though acceptance of LUT 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 the applicable RBI guidelines. But 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.
11. Jurisdictional officer: Though the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place has the power to accept the LUT/ Bonds, the exporter is at liberty to furnish the LUT/bond before either the Central Tax Authority or the State Tax Authority till the administrative mechanism for assigning of taxpayers to the respective authority is implemented.