Letter of undertaking & Bond under GST
1.1 Who is eligible for Letter of undertaking
With effect from 4th October 2017 the facility of export of goods and/or services under LUT has now been extended to all registered persons except to those who have been prosecuted for any offence under the CGST/IGST Act /any of the existing laws and the amount of tax evaded in such cases exceeds two hundred and fifty lakh rupees. Therefore any person having valid GSTN is allowed to furnish the LUT if they have not been prosecuted for an offence involving evasion of tax exceeding Indian rupees 2.50 Cr. (250 Lakhs)
1.2 What should do an exporter who has already furnished the Bond and Bank Guaranteed and desirous to avail LUT facility.
They should approach the concerned GST authority for cancellation of Bond and Bank guaranteed and file a fresh LUT, and export on and after 04th October shall be done under LUT .It is noted that the LUT is valid for the financial year in which it is tendered, hence exporter have option to treat the export after 01st July under LUT instead of bond, however language of circular employ the language 'EXCEPT RESPECT THINGS DONE OR OMITTED TO BE DONE BEFORE SUCH SUPRESSION'.
1.3 Documents for along with LUT
Self-declaration by the exporter 'that they have not been prosecuted for any offence under the CGST/IGST Act or any of the existing laws for tax evasion of amount exceeding two hundred and fifty lakh rupees is suffice.
Language of declaration should be like this (On letter head of company)
'I……name….Managing director/Company Secretary/Authorized Signatory…….. of ABC Ltd having registered office at ……………and having principle place of business at……..And having GSTN…………….here declare and state as under:
- That I am competent and authorized by the Board of director to sing and execute the document for furnishing of letter of undertaking under GST Laws of India.
- That to the best of knowledge and believe ABC Ltd is not been prosecuted in past for any offence involving evasion of tax exceeding rupees 250 Crore.”
1.4 Time for acceptance of LUT
LUT should be accepted on priority within a period of three working days of its receipt along with the self-declaration as stated above. If the LUT is not accepted within a period of three working days from the date of submission, it shall deemed to be accepted. Hence exporter are advised to take proof of submission of LUT with GST authority.
Validity of LUT
The LUT shall be valid for the whole financial year in which it is tendered.
1.5 Transactions to/by EOU
Supplies to EOUs are taxable like any other taxable supplies. Facility of LUT for supply of Goods and/or Services to EOU is not available. Supply to EOU is chargeable to GST. Export of good and/or services by EOU is allowed under LUT.
1.6 Transaction to/by SEZ
Supply of Goods and/or services both to SEZ unit or developer is allowed under LUT without payment of GST even if realized in Indian rupees. Similarly export by SEZ unit or SEZ developer is also allowed under LUT.
1.7 Export (Goods and/or Services) to Nepal/Bhutan realized in Indian Rupees
Export of goods to Nepal/Bhutan allowed under LUT even if realized in INR, but services not allowed under LUT because services said to be exported only when realization in foreign currency, goods said to be exported if simply taken out of India currency of realization is irrelevant for export of goods but is relevant for services. Hence supply of services to Nepal and realized in INR is interstate supply liable for GST not export of services.
2.1 What is Letter of undertaking ('LUT') for export of Goods?
Letter of undertaking is an undertaking on letter head of company in prescribed form RFD-11 to be furnished with jurisdictional GST authority on the letter head of the registered person. LUT is binding:
- To export the goods out of India within three month from the date of issue of invoice for export.
- To pay applicable tax along with interest 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 within the said period (i.e. 3 Month).
- To ensure export within three month from the date of issue of invoice for export. It also implies that date of invoice should be issued on or before the date of removal of goods. It also implies that the date of invoice in case of export of goods in all cases should be prior to the date of shipping bill.
2.2 Relevant date of export in case of Goods
i. if the goods are exported by sea or air, the date on which the ship or the aircraft leaves India; or
ii. if the goods are exported by land, the date on which such goods pass the frontier; or
iii. if the goods are exported by post, the date of dispatch of goods by the Post Office concerned to a place outside India;
- Conclusion: If the gap between date of export of goods and date of invoice for export of goods is more than three month then exporter is liable to pay IGST along with interest.
- What would happen if tax along with interest is 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 .As a result, exports, during the period from when the facility to export under LUT is withdrawn till the time the same is restored, shall be either on payment of the applicable integrated tax or under bond with bank guarantee
3.1 What is Letter of undertaking ('LUT') for export of services?
Letter of undertaking is an undertaking on letter head of company in prescribed form RFD-11 to be furnished with jurisdictional GST authority on the letter head of the registered person. LUT is binding.
To pay applicable tax along with interest within fifteen days after the expiry of one year, 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. Meaning thereby exporter of services is bound to realize the payment within 1 year from the date of invoice for export of services.
3.2 Relevant date of export in case of services
Where services completed prior to the receipt of such payment
The date of receipt of payment in convertible foreign exchange.
Where payment for the services received in advance prior to the date of issue of the invoice
The date of Issue of invoice.
4.1 What is Bond
Bond is like ledger with debit and credit facility and running in nature. Bond to be furnished with the GST officer judicial stamp on prescribed format RFD-11 but entry of debit and credit to be maintained by the exporter itself and to be shown to the officer whenever asked by the officer. Amount of bond is based on self-assessed tax liability by the exporter, bond amount should not be less than that of the outstanding IGST liability on account of export of goods and/or services. In all cases bond is to be supported by bank guarantee at the rate of 15%.
4.2 Who is required to file bond
Who have been prosecuted in past for tax evasion exceeding Rs 2.5 Crore.
4.3 Consequence on noncompliance of condition of bond
Bond facility deemed to withdrawn and export is possible only on payment of IGST i.e. same as in case of noncompliance of term and conditions of bond.