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Policy Info > Important Instruction and Guidelines

We take this opportunity to respond to some of the issues that our member exporters have been asking in the GST regime. These responses are based on the clarification that have been given by the Government, tax consultants and others. The below points are being given purely as guidance to help you and you are requested to seek further expert advice and help from your tax experts and respective GST jurisdictional offices:

  • 1

    Advice in cases of IEC-PAN mismatch: Few firms reported that even though their PAN and IEC match, the Customs system gives an error. GSTN/DG system may resolve such cases at the earliest. Many firms reported that Customs told them that their PAN and IEC do not match. Such firms are advised to check the PAN mentioned in the IEC from the DGFT website at the following link: http://164.100.128.144:8100/dgft/IecPrint

  • 2

    If the PAN number in IEC record do not match, they need to apply online to DGFT for modification. If the PAN number in GSTN records do not match, they need to apply online to GSTN for modification. Few firms reported that even though their PAN and IEC match, the Customs system gives an error. GSTN/DG system may resolve such cases at the earliest. Many firms reported that Customs told them that their PAN and IEC do not match. Such firms are advised to check the PAN mentioned in the IEC from the DGFT website at the following link:
    http://164.100.128.144:8100/dgft/IecPrint. If the PAN number in IEC record do not match, they need to apply online to DGFT for modification. If the PAN number in GSTN records do not match, they need to apply online to GSTN for modification.

  • 3

    It may be noted that there could be cases where export goods had been cleared from factory, warehouse, etc. prior to 1.7.2017 but let export order has not been issued before 1.7.2017. Such goods are not supplies under GST. For such goods, the declaration from exporter or certificate from the then Central Excise officer as applicable in terms of Note and Condition 12 of said Notification No. 131/2016-Customs (NT) shall continue.

  • 4
    The main confusion is with regard to the Bond/LUT procedure. For Merchant Exporters, the earlier CT1 Bond and for 100% EOU, the B12 Bond do not remain. The procedure for all exporters are now the same. Similarly, ARE-1 no longer exists as per the Act. The relevant Notification and Circular are:

    It may be noted that Exports will be allowed under existing LUTs/Bonds till 31st July, 2017. Exporters are required to submit LUTs/Bond in the revised format latest by 31st July
  • 5

    For Merchant exporters, if the manufacturer is raising invoice on merchant exporter, such transaction will be treated as domestic transaction, subject to GST, even if goods directly move to port for exports. Only in cases, where merchant or manufacturer export goods with invoice in favour of an overseas buyer directly, exemption from IGST may be claimed by the merchant/manufacturer (supplier) against execution of bond/LUT.

  • 6

    There are two ways to exports, which are treated as zero rated: either through Bond/LUT or by paying the IGST on the exports. The reason why the second route has been kept is to allow those who have input credit to utilize the same while exporting. Those who do not have input credit can either pay IGST or export under Bond/LUT. The Bond/LUT system is also allowed for these who have input credit on their books.

  • 7

    A simple example to understand this is as follows: Suppose an exporter is exporting goods worth USD 2000. The exchange rate based on the RBI reference rate is say, Rs 64 to One USD. Thus, your INR value of exports becomes 128,000 and if the IGST rate is 18%, then your IGST payment on exporting the good is 18% of 128000 amounting to Rs 23040. Now, say suppose, the exporter has an input tax credit of Rs 20,000; what he can do is set off the ITC against his exports IGST tax payment and pay only Rs 3040 in cash and export the good. As per Rule 96, the Shipping Bill itself will be deemed as an application and once the goods have been exported the entire refund of IGST paid on the exports, viz., Rs 23040 will be credited to the exporters.

  • 8

    Suppose the exporter takes the alternate route of exporting under Bond/LUT and in that case the exporter will be entitled to proportionate input refund calculated as per Section 42 of the CGST Rules, 2017. Thus, if the exporter exports goods worth Rs 100,000 and his total sales during July 2017 is Rs 200,000 and his net Input Credit available is Rs 20,000 in the same month, the exporter will file a refund for unutilized ITC of Rs 10,000. (100000/200000)*20000.

  • 9

    With respect to sealing of containers under GST, there are two procedures: either self-sealing or sealing at CFS/ICD. The procedure for this is that at least 15 days before taking the goods out, the exporter has to inform his Jurisdictional Commissioner the place of sealing. The appraiser will come only once; viz the first time and inspect the place of sealing and then submit a report to his Commissioner who will then give the permission for all future stuffing of goods. This is as per Circular No 26, dated July 1, 2017 and reiterated in the Circular issued on July 7, the link of which is given under point 3 above. This has to be done only once, the very first time. This system is yet to be fully implemented and till then the system that excise authorities are demanding at present should be followed (Members have pointed out different practices being demanded by their respective excise/jurisdictional zones).

  • 10

    The Export invoice has 16 details that needs to be filed. This is as per the Tax Invoice mentioned in Rule 46 of CGST Rules, 2017. There is no specified format but these details should be there and one can also add other details, as many may want to add a column for the exchange rate. Further, there can be a commercial invoice where the tax details are not required to be mentioned as exporters will send this to their respective buyers.

  • 11

    Shipping Bills with multiple invoices are allowed.

  • 12

    In the transition period, there are certain changes with respect to All Industry Drawback till September end. The relevant notification is linked below.

    http://www.eepcindia.org/download/170703164623.pdf

  • 13

    Thus, exporters have to make the following entry: (i) if exporting under Bond/LUT-DBK002 and DBK 003 or (ii) if exporting by paying IGST-DBK001/DBK003 if exporters are going choosing Category A of the Drawback schedule. Our Consultant has advised, that the individual exporters must find out whether their backlog of ITC in the old system is more than the drawback amount; then they should choose Category A and either (i) or (ii) depending upon the route they export under. This means they will have to forfeit the drawback in the transitional period. However, if they have no carried over ITC or their drawback amount is more than their ITC from the old provisions, then they should export under Category B and take only drawback benefit. As a merchant exporter, if she/he choses to export under bond/LUT, then the exporter can declare DBK002 & DBK003 under A, and shall be eligible for drawback during the transition period. The fact that the exporter has procured goods paying CGST/SGST or IGST would not impact this situation as she/he is not declaring DBK001.

  • 14

    14. Further exporters are requested to do their own calculations before opting for the higher drawback rates as in certain cases the lower drawback rates with refund of IGST benefits or ITC refund of CGST/IGST or carry forward of CENVAT Credit in CGST may be more than higher Drawback Rates + ITC refund of SGFT (as ITC refund of SGST is also permitted while claiming higher Drawback rates).
    The rough formula to decide the option could be
    Composite Drawback rate + ITC refund of SGST > Lower Drawback rate + (IGST or ITC refund of CGST/IGST or carry forward of CENVAT credit in CGST).
    For example if the composite Drawback rate for a product A is 8% and lower Drawback rate is 4% with a value cap of Rs 80 and Rs 40 respectively. Assuming exporter also has SGST refund of ITC amounting Rs 10 against the exports valued at Rs 1000.
    The net benefit to exporter for the shipment will be
    Rs 80 + Rs 10 = Rs 90
    Such shipment should always be exported under an LUT or Bond as such shipment will not be eligible for IGST refund on exports.
    In the similar case, if for the shipment exporter opt for lower Drawback, he will get Rs 40 as Drawback. Assuming the ITC (IGST, CGST, SGST for raw material, job work charges, input and output services used in exports and GST on airfreight charges for such exports) comes to Rs 55.
    The net benefit to exporter for the shipment will be
    Rs 40 + Rs 55 = Rs 95
    Therefore, in the above illustration claiming lower drawback may be more beneficial for the exporter”.
    However, the above information is clarificatory in nature and not to an advice on which rate to choose.

  • 15

    Wherever the export contract is in CIF or C&F or in any other Inco terms, the exporter is required to arrive at the FOB value for payment of IGST. The IGST is to be paid on FOB basis. For example, if exporter gets a C&F order of USD 10,000 and assuming the freight to be USD 1,000, the IGST would be paid at USD 9,000 only. The amount should be calculated in Indian Rupees as per the Customs Rate for goods/RBI Reference Rate for services before applying the IGST applicable to the product.

  • 16

    The Goods and Transport Agencies (GTA) may charge 5% and the input credit will be available under the Reverse Charge Mechanism (RCM. And if the Registered GSTN unit pays the RCM, the supplier need not register under GSTN as Notification No. 5/2017-Central Tax. Thus, even for procurement of inputs from unregistered supplier, the RCM works; the same to be paid in cash in only and can’t be adjusted from ITC. In such scenario, the exporter can claim the GST paid on RCM either through the refund formula or can use such ITC while paying IGST on export goods. If the supplier pays GST under the Composition scheme, then no ITC is available to exporter.

  • 17

    In respect of third party exports even when the goods are exported by manufacturer exporter on behalf of the third party, the responsibility of realizing foreign exchange lies with the third party. The manufacturer, in such cases, will raise an invoice on the third party. This being domestic transaction would be subject to GST.

  • 18

    In case exporter receives advance from a foreign buyer, the same shall not be subject to GST and thus no tax should be paid on such advances.

  • 19

    With respect to air/sea freight on exports, Section 12(8) of the IGST Act which clarifies that “the place of supply of services by way of transportation of goods to a registered person shall be location of such person in case where location of supplier and recipient is in India”. Therefore, as per this clause, GST would be payable in such cases. However, where the location of supplier or location of recipient is outside India, the place of supply as per Section 13(9) of IGST Act shall be the place of destination of such goods. Since the destination of export goods is outside India, no GST would be payable in such cas

  • 20

    For exports of goods; BRC is not required. It is however required for meeting the FEMA/RBI guidelines. For service exports, BRC is a must for filing for refund.

  • 21

    There was a concern about whether the 90% refund will be after verification. The DGFT has now issued a FAQ where it is clearly stated that refund of 90% is within 7 days and balance 10% after verification. The FAQs are attached in the link below:
    http://dgftcom.nic.in/exim/2000/DGFT-GST-FAQ.pdf

  • 22

    Rupee exports to Nepal and Bhutan are also zero-rated

  • 23

    Supply to SEZs: Supply to SEZ shall be treated similar to the export, this means you have two potions i.e. on payment of IGST or Bond/LUT. However, if goods are supplied by SEZ to DTA, it would be a normal transaction and SEZ would be required to pay GST and take registration number as well.

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