GST Implication On the Export of Goods & Services

  • December 27, 2021
  • GST
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GST Implication On the Export of Goods & Services

The goal of the Indian government is to increase the production and quality of exports from India under the “Make in India” policy. The Indian government also provides many incentives to the exporters. Export incentives are certain benefits that exporters receive from the government such as import duty and compensation for expenses incurred in exporting goods and services. The article discusses the GST implication on the export of goods & services.

Table of Contents-

Concept of Export and its types

Sub-Section 5 of section 2 of IGST Act, 2017 defines – “Export of Goods”, with its grammatical variations and cognate expressions, means taking out of India to a place outside India. Following are its types:

  • Export of Goods: In terms of Section 2 (5) of the IGST Act, 2017 “Export” by its various order and corresponding names, means to export goods from India to a place outside India.
    The supply of goods by a registered person (including a Special Economic Zone developer or a Special Economic Zone unit) to a Special Economic Zone developer or a Special Economic Zone unit will be considered ZERO Rated sales. The zero-rating (Export) does not apply to the provision of EOUs and there is no special procedure for them. Therefore, goods to EOU are taxable under GST just like any other taxable item. EOUs, in terms of exports, are equally eligible for zero equity as any other exporter.
  • Export of Service: In terms of Section 2 (6) of the IGST Act, 2017 “export of services” means the supply of any service where,
    • The service supplier is in India.
    • The recipient of the service is located outside of India.
    • The service supply point is outside India.
    • Payment for that service is received by the service provider in foreign currency or in Indian rupee wherever RBI is permitted (Submitted by IGST Amend Act, 2018)
    • The service provider and receiver of the service are not just a distinct person’s institution.Service supply by a registered person (including a Special Economic Zone developer or a Special Economic Zone unit) to a Special Economic Zone developer or a Special Economic Zone unit will be considered ZERO Rated sales.
      The zero rates (Export) does not apply to the provision of EOUs and there is no special procedure for them. Therefore, goods to EOU are taxable under GST just like any other taxable item. EOUs, in terms of exports, are equally eligible for zero equity as any other exporter.

Kinds of Export Incentives

  • Merchandise Exports from India Scheme (MEIS):-MEIS rewards exporters by neutralizing infrastructure malfunctions and associated costs. The program provides compensation to exporters in the form of a duty credit scrip to reimburse losses on paid services. Under MEIS, a 2-5% incentive of ‘free on board’ (FOB) compensation for export is granted to all exporters, regardless of their annual profit.
  • The Scheme of Rebate of Duties and Taxes on Exported Products (RoDTEP):- The RoDTEP program will replace the old MEIS in phases from January 1, 2021. The RoDTEP program aims to recover all hidden taxes, which have not been refunded under any export promotion program, such as intergovernmental taxes on used fuel, exports of goods, excise duty on manufacturing, mandi tax collected by APMCs, road tax and stamp duty on export documents and more.
  • Service Exports from India Scheme (SEIS):-  The purpose of the ‘Service Exports from India Scheme’ (SEIS) is to encourage notified export traders. Service Exports also brings foreign currency to the country and is encouraged. Under the SEIS, compensation of 3-7% of the residual foreign exchange profits is provided to service providers. Requires service providers to have a valid Import-In Custom Code (IEC Code) with minimal foreign exchange residual interest to qualify for a claim under this program.

Duty Exemption Schemes

Some of the duty remission schemes have been discussed below-

  • Advance Authorization Scheme (AAS): The Advance Authorization Scheme allows the tax-free import of raw goods, necessary for the production of export goods. It allows traders to import raw goods at 0% import duty if those goods are to be used to produce exports.
  • Duty-Free Import Authorization (DFIA Scheme): The purpose of this program is similar to the Advance Authorization Scheme, that is, to allow the importation of raw materials duty-free. However, this program applies to post exports; this means that tax-free sales will only be allowed once the export has been completed.
  • Duty Drawback Scheme (DBK Scheme): Under the Duty Drawback Scheme (DBK), exporters are entitled to compensation and import duties incurred on the material used for the manufacture of export goods. The compensation is given on custom and central excise duties.
  • Export Promotion Capital Goods Scheme (EPCG Program): The EPCG program facilitates the importation of large quantities to produce goods and services by manufacturers. Under this program, traders can work with the manufacturer and import the goods needed to produce 0% exported goods. This program also helps to reduce the high cost of the service provider. Exporters such as hotels, tour operators, taxi operators, transport companies, and construction companies are some of the beneficiaries under this program.
  • Export Oriented Units (EOU): It was instituted in 1981 and focuses to increase exports by providing a more efficient ecosystem for companies, which are 100% exporters. This system allows for certain exemptions and permissions on matters of compliance and taxation.
  • Production-Linked Incentive (PLI) Scheme: One of the latest initiatives from the government aimed to boost export, the PLI program seeks to increase domestic production and improve competition in the 10 most powerful sectors. It provides a 4% -6% incentive for the rising sales of manufactured goods in India for five years following the foundation year (2019-2020).

Letter Undertaking

It is a form of bank guarantee, in which a bank allows a customer to collect money from a bank branch in India as a short-term loan.

Bond

It is a financial instrument in which the issuer of a bond owes its owners a debt and is obliged to repay interest or repay the principal over time. It is a very secure financial and fluid tool that is negotiable. This means that bond ownership can be transferred.
GST Audit by Legal experts in India

When a LUT is filed under GST?

All registered persons intending to provide goods or services for export free of charge will be eligible to provide a Workbook on behalf of the bond except those who have been prosecuted for any offense under the Goods and Services Tax Act, 2017 (12 of 2017) or the Corporate Services Tax Act, 2017 (13 of 2017) and any existing laws applicable if the amount of the excess tax exceeds two hundred and fifty lakh rupees (> 250 Lakhs).

Bond to be filed under GST

Any registered person who has been prosecuted for any offense under the Central Goods and Services Tax Act, 2017 (12 of 2017) or the Integrated Property Tax Act, 2017 (13 of 2017) and any applicable laws in respect of which the prohibited tax amount exceeds of two hundred and fifty lakh rupees (> 250 Lakhs).

It is considered that a freight bond can be a major component of compliance for shippers. It is prescribed that exporters should provide a valid bond, if they are required to provide a bond, in FORM GST RFD -11. The bond will include the amount of tax involved in the shipment based on the tax debt rate as assessed by the exporters themselves. The exporter will ensure that the outstanding tax debt on exports is within the bond value. If the bond amount is insufficient to cover the tax liability for exports, the exporter will provide a new bond to cover that debt.

FORM RFD -11 under the law 96A Of the CGST Regulations– It is required to provide a bank guarantee on a bond. Application forms have been requested for clarification of the amount of the bank guarantee as collateral for the bond. In this regard, it is mandated that the commissioner of jurisdiction may determine the value of the bank guarantee depending on the track record of the exporter. If the Commissioner is satisfied with the exporter’s record then providing a bond without a bank guarantee will suffice. In any case, a bank guarantee should generally not exceed 15% of the bond amount.

Return of integrated tax paid on goods or services exported from India- Rule 96 CGST Rules

  • A consignment invoice submitted using consignor will be deemed to be a request for reimbursement of the integrated tax paid on goods exported to India and such application shall be taken into consideration to have been filed most effective if:-
    •  the person in charge of the export of goods properly filing an export manifest or export report covering the number and date of shipping debt or export debt; and
    • The requester has provided the applicable refund in FORM GSTR-3 or FORM GSTR-3B, as the case may be;
  • Details of relevant export invoices for the export of goods contained in FORM GSTR-1 will be transmitted electronically through a regular portal to a system designated by the Department of Transport and the said system will be transmitted electronically to the standard portfolio.

Changes in Export Procedures

Electronic and manual delivery formats including the Courier Shipping Bill are amended to include information related to GSTIN and IGST to ensure that export benefits such as IGST refunds paid and accrued tax credit can be easily processed. In addition, appropriate notices will be issued to amend the relevant regulations and submit amended Forms.

Export under factory stuffing procedures

In the context of the GST, considering the obligation to complete GSTR1 and GSTR2 by exporters registered under the GST, the Board aims to simplify the process related to industrial integration to date carried out under the supervision of Central Tax officials. It is the Board’s effort to create a trust-based environment in which compliance with existing laws is ensured.

Final words

The article highlights the GST implication on the export of goods & services.GST has had a direct impact on the export of goods and services to India because a large amount of revenue is associated with this industry and the country’s economy is also directly related to foreign exchange earnings in this industry. Initially, when GST was implemented, some exporters confronted big difficulties in knowhow the method and searching for refunds.This has led to the seizure of a large number of operating funds until the refund is properly processed and accepted.

 

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CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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