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Introduction: This article relates to the problems faced by the exporters and reliefs given to them to enhance their competitiveness.


1. As per section 16 of IGST Act, zero rated supply means a. Export of goods or services b. Supply of goods or services to a SEZ developer or SEZ unit. Due to this definition, only exports and supplies to SEZ developer or units are given the options of supplying with IGST payment or without IGST under LUT/Bond.

2. Sec 2(39) of CGST Act defined deemed exports as supplies of goods as may be notified u/s 147 of CGST Act. Sec 147 of CGST Act talks about notifying certain supplies of goods as deemed exports but nothing was ever notified in this context.

3. Notification No. 16/2017 - Central Tax dated 07 July 2017- specified the eligibility conditions for submission of LUT in place of bond.

Such as

a. A status holder as specified in paragraph 5 of the Foreign Trade Policy 2015- 2020; or

b. 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, and

c. He has not been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017) or under any of the existing laws in case where the amount of tax evaded exceeds two hundred and fifty lakh rupees. Those who satisfy the above conditions were entitled to LUT otherwise they would have to furnish a bond along with 15% bank guarantee.


a) Exclusion of Advance Authorization (AA), EPCG and EOUs from exports/deemed exports- Supply of goods against Advance Authorization, Supply of goods to EOU and Supplies of capital goods against EPCG authorization were left out of the purview of exports. Therefore, such supplies were liable to GST. In order to curb this, govt. notified deemed exports vide Notification no. 48/2017-Central Tax dated 18 October 2017,-

a. Supply of goods by a registered person against Advance Authorization,

b. Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization,

c. Supply of goods by a registered person to Export Oriented Unit and d. Supply of gold by a bank or Public Sector Undertaking against Advance Authorization. Therefore, just like SEZ developers and SEZ units, holders of AA/EPCG and EOUs would not have to pay IGST, CESS etc. on imports. Also, domestic supplies to holders of AA/EPCG and EOUs would be treated as deemed exports u/s 147 of CGST/SGST Act and refund of tax paid on such supplies given to the supplier.

b) Expensive export trading- Merchant exporters were liable to normal GST rates and their working capital was getting blocked. In order to facilitate them the rate reduced to 0.1% for procuring goods from domestic suppliers for export (vide Notification No. 40/2017-Central Tax (Rate) dated 23 October 2017).

c) Lost significance of duty credit scrips*- They were losing value due to its reduced usability as it could no longer be used to pay IGST and compensation cess in imports, and CGST, SGST, IGST and GST compensation cess for domestic procurement. Earlier, manufacturing exporters who import raw material for the export purpose were allowed to utilise these scrips for payment of customs, excise duty and service tax. To restore the lost incentive on sale of duty credit scrips, the GST on sale-purchase of these scrips is being reduced from 5% to 0%.

d) Relaxation from Bond and bank guarantee- There was a condition for furnishing LUT i.e. receipt of foreign inward remittances to a minimum amount. Therefore, its usage was quite limited. Small export houses or suppliers to SEZ were unable to take advantage of LUT. They were forced to furnish bond along with 15% bank guarantee, which burdened them even more. Exporters and suppliers to SEZ developers or SEZ units have been exempted from furnishing Bond and Bank Guarantee. They can supply without payment of integrated tax and shall be eligible to furnish a Letter of Undertaking if they are not prosecuted (as per 3 (c) above). (Vide Notification No. 37 /2017 - Central Tax dated 4 October 2017).

e) Delays in refunds- Refund of IGST and GST paid on inputs and capital goods for export production or procuring goods for exports leads to working capital blockage. To give immediate relief from working capital blockage, the state officers have been empowered to grant refunds except rule 96 (vide Notification No. 39/2017 - Central Tax dated 13 October 2017). Manual refund application filing is allowed till the time online refunds does not become smooth. For permanent solution to capital blockage wallet would be made operational w.e.f. 1 April 2018. The details of this facility would be worked out soon by the council.

f) Import of gold for exports- Import of gold for exports and domestic use were at par in GST. Now, specified banks and PSUs are being allowed to import gold without payment of IGST. This can then be supplied to exporters as per a scheme similar to Advance Authorization. (Vide Notification no. 48/2017-Central Tax dated 18 October 2017).

*Duty Credit Scrip is a paper authorization that allows the holder to import inputs that go into manufacture of products that are exported or machinery used for producing such goods without paying duties equivalent to the printed value.

Disclaimer: The article contains personal understanding and opinion of the author which may not be reproduced or claimed anywhere.


Published by

Nirmal Beniwal
Category GST   Report

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