Supplies to Merchant Exporters at Concessional GST (0.05% / 0.1%) - Detailed Guide on Notification 40/2017-CT (Rate) and Notification 41/2017-IGST (Rate)

In this article, we will discuss one important facility under GST where, in specified cases, a supplier is not required to charge GST at the full applicable rate on the supply of goods made to a merchant exporter for the purpose of export. Instead, the supplier may charge GST at a concessional rate-0.1% IGST in case of inter-State supply (and 0.05% CGST + 0.05% SGST/UTGST in case of intra-State supply)-subject to strict fulfilment of the prescribed conditions.

However, this benefit is not automatic. It is available only upon compliance with certain mandatory procedural requirements and documentation.

Accordingly, we will examine each condition in detail, explain the step-by-step process to claim the concessional rate benefit, and highlight the key precautions and compliance controls that should be ensured before adopting this route, so that the benefit remains sustainable during scrutiny or audit.

1) The scheme in one line (and why it matters)

Under GST, a domestic supplier cannot invoice at "Nil GST / 0%" merely because the buyer will export. A domestic supply becomes "zero-rated" only when it is export or supply to SEZ (Section 16, IGST Act).

To support merchant exporters, the Government carved out a concessional tax procurement route:

• Intra-State supplies: 05% CGST + 0.05% SGST/UTGST under Notification 40/2017-Central Tax (Rate) dated 23.10.2017.
• Inter-State supplies: 1% IGST under Notification 41/2017-Integrated Tax (Rate) dated 23.10.2017.

This is a conditional exemption scheme. If conditions fail, the benefit fails.

Additionally, the supplier may charge GST at the applicable rate, and the exporter may thereafter claim refund in accordance with the GST refund framework. The detailed mechanics of GST refunds will be covered in a separate article, wherein we will discuss each category of refund, including refund on account of inverted tax structure and refund in cases of export. If you have any queries or require assistance on the above, please feel free to contact me at the details mentioned at the end of this article.

2) What exactly do Notifications 40/2017 and 41/2017 do (legal character)

Both notifications operate as partial exemptions:

• 40/2017-CT (Rate): exempts the intra-State supply to the extent CGST exceeds 0.05%, subject to conditions (i)-(ix); and expressly provides the supplier is not eligible if export is not completed within 90 days.
• 41/2017-IGST (Rate): exempts the inter-State supply to the extent IGST exceeds 0.1%, subject to conditions (i)-(ix); and similarly denies exemption if export is not completed within 90 days.

Core point: This is not "zero-rating" of supplier's supply. It is a concessional-rate procurement facility linked to the recipient's export performance and documentation trail.

3) Eligibility "gate checks" (before you even look at conditions)

Supplier-side (registered supplier)

• Supplier must be a registered person and must be making taxable supply of goods (scheme is drafted for "taxable goods").

Recipient-side (merchant exporter)

• Recipient must be a registered recipient for export and must be registered with an Export Promotion Council / Commodity Board recognised by Dept. of Commerce.

4) Conditions (i) to (ix) - the "non-negotiables" (with practical meaning)

The wording is materially the same in both notifications. Below is a consolidated, condition-wise compliance explanation.

(i) Supply must be on a Tax Invoice

• Supplier must supply goods to recipient on a tax invoice.Practical: No "bill of supply". Invoice must show concessional rate (0.05% or 0.1%) and be fully compliant with GST invoice rules.

(ii) Recipient must export within 90 days from invoice date

• Registered recipient must export within 90 days from supplier's invoice date.Practical: This is the most critical "clock" for the supplier-track invoice-wise.

(iii) Shipping bill / bill of export must mention supplier GSTIN + supplier invoice number

• Recipient must indicate supplier GSTIN and supplier tax invoice number in the shipping bill / bill of export.Practical: This is the legal linkage between concessional domestic invoice and export document. Without it, the scheme is typically indefensible in scrutiny.

(iv) Recipient must be registered with EPC / Commodity Board

• Recipient must hold valid EPC/Commodity Board registration (RCMC etc.).Practical: Supplier should keep a copy on file.

(v) Recipient must place a concessional procurement order and provide copy to supplier's jurisdictional officer

• Recipient shall place an order for procurement at concessional rate and a copy must be provided to supplier's jurisdictional tax officer.Practical (high-risk miss): If you cannot evidence that the PO copy was provided to supplier's officer, the file becomes weak.

(vi) Movement must follow prescribed route (direct export point OR registered warehouse)

Recipient shall move goods from supplier's premises:

• Directly to Port/ICD/Airport/LCS, OR
• Directly to a registered warehouse, then onward to Port/ICD/Airport/LCS.Practical: Avoid intermediate/other premises that break the route; align e-way bill destination accordingly.

(vii) Aggregation from multiple suppliers → warehouse is mandatory first

• If recipient aggregates supplies from multiple suppliers, goods from each supplier must move to a registered warehouse, and after aggregation move to export point.

(viii) Warehouse route documents: endorsed invoice + warehouse acknowledgement (and share with supplier + officer)

In the situation covered by (vii), recipient must:

• endorse receipt on tax invoice, and
• obtain warehouse operator acknowledgement, and
• provide both to supplier and supplier's jurisdictional officer.

(ix) Post-export proof to supplier + supplier's officer: shipping bill + proof of EGM/export report filed

After export, recipient must provide:

• copy of shipping bill/bill of export containing supplier GSTIN + supplier invoice details, and
• proof of EGM/export report filed,to supplier and supplier's jurisdictional officer.

5) The "consequence clause" - where supplier's exposure crystallises

Both notifications clearly provide: if recipient fails to export within 90 days, supplier is not eligible for the concessional exemption.

Practical implication: In any departmental view, the supplier can face demand for differential tax (normal rate minus concessional tax already paid) plus interest/penalty risk (fact-specific). This is why supplier must build contractual and documentary protections.

6) Timing discipline: invoice issuance and e-invoicing (supplier-side)

(A) Tax invoice timing under CGST Act

For goods, the supplier must issue tax invoice before or at the time of removal (movement cases) / before or at delivery (non-movement cases).

(B) If supplier is covered under e-invoicing (Rule 48(4))

Rule 48(4) requires preparing the invoice after obtaining IRN by uploading prescribed particulars; and Rule 48(5) states that an invoice issued otherwise shall not be treated as an invoice for such notified persons.

Operational best practice: Generate IRN/QR at the time of issuing invoice and before dispatch, so the movement happens on a legally valid invoice.

(C) IRP reporting time limit (system restriction)

An IRP advisory implements a 30-day reporting window for taxpayers with AATO ≥ ₹10 crore, effective 1 April 2025 (outer limit for IRN generation on IRP).This does not mean you may dispatch first and generate IRN later; invoice validity still ties to removal/delivery + Rule 48 for notified persons.

7) Pros and Cons of using Notification 40/2017 / 41/2017 route

Pros (why businesses opt for it)

For merchant exporter (recipient)

• Working capital benefit: pays only 05%/0.1% GST on procurement instead of full GST rate.
• Reduced dependence on large ITC accumulation/refund cycle on procurement leg.

For supplier

• Commercially attractive to exporter customers (pricing/cashflow advantage to buyer).
• Clear notification-backed mechanism, provided documentation is strong.

Cons / Risks (why many suppliers avoid it)

Supplier's key risks

• Export dependency risk (90 days): supplier's benefit fails if buyer misses timeline.
• Documentation + officer intimation trail: PO copy to supplier's officer; warehouse acknowledgements; post-export shipping bill + EGM proof to supplier & officer.

Exporter's key constraints

• Must ensure shipping bill captures correct supplier GSTIN + invoice number (compliance-sensitive).
• Must maintain EPC/RCMC validity and furnish documents promptly to supplier and tax officer.

8) Practical "supplier-first" SOP (what to do end-to-end)

Step 1 - Before invoicing (eligibility + file creation)

1. Obtain exporter KYC pack:
   • GST registration details (GSTIN status)
   • EPC/Commodity Board registration proof (RCMC etc.)
2. Obtain purchase order explicitly stating procurement under:
   • 40/2017-CT(R) (intra-State) OR Notif. 41/2017-IGST(R) (inter-State).
3. Obtain evidence that PO copy was provided to supplier's jurisdictional officer.

Step 2 - Invoicing (concessional tax invoice)

• Issue tax invoice (not bill of supply).
• Ensure invoice timing is compliant for goods (Section 31).
• If e-invoicing applicable: generate IRN/QR first (Rule 48).

Step 3 - Dispatch and movement control

• Ensure movement route matches notification condition (direct export point or registered warehouse).

Step 4 - Post-dispatch chasing (documents you must collect)

• If warehouse route/aggregation: endorsed invoice + warehouse acknowledgement; copies to supplier and supplier's officer.
• After export: shipping bill/bill of export with linkage + proof of EGM/export report filed; copies to supplier and supplier's officer.

Step 5 - 90-day control (risk trigger)

• Maintain an invoice-wise 90-day export tracker.
• Escalate internally around day 75-80 if export proof is not received, because exemption fails if 90-day export fails.

9) One-page "Go/No-Go" decision guidance (when to prefer normal GST instead)

Prefer normal GST invoice (instead of concessional scheme) where:

• exporter cannot assure export within 90 days,
• exporter cannot commit to prescribed movement route (direct/warehouse),
• exporter is weak on documentation discipline (shipping bill linkage, EGM proof, officer submissions),
• supplier is not prepared to bear documentation/monitoring overhead.

CBIC has also clarified that concessional procurement is optional (normal rate procurement remains permissible).

10. Impact on Supplier's ITC Accumulation and Refund Considerations

One important aspect that suppliers should evaluate before adopting this concessional supply route is the potential accumulation of unutilised Input Tax Credit (ITC). Where a supplier has a substantial base of exporter clients and consistently supplies goods at 0.05% / 0.1%, the output tax liability may remain significantly low, while input taxes on purchases and expenses continue at normal rates. As a result, ITC may pile up and may not be fully utilizable through regular set-off.

In such cases, the supplier may explore the refund of accumulated ITC, wherever permitted under the GST law and subject to fulfilment of the applicable statutory conditions and procedural requirements.

If you have any queries or would like assistance in evaluating eligibility and documentation for such refund claims, please feel free to contact me at the details mentioned at the end of this article.

Conclusion

To conclude, Notifications 40/2017-CT (Rate) and 41/2017-IGST (Rate) provide a limited, conditional and compliance-driven concessional procurement mechanism for supplies made to a registered merchant exporter for export-but they do not convert a domestic supply into a nil-rated / zero-rated supply merely because the buyer will export the goods.

For suppliers, the concessional rate of 0.05% (intra-State) or 0.1% (inter-State) is beneficial only when the exporter maintains strict discipline on the notification conditions-especially: (i) tax invoice issuance, (ii) export within 90 days, (iii) shipping bill linkage of supplier GSTIN + invoice number, and (iv) prescribed movement route (direct to export point or via registered warehouse) along with the required acknowledgements and post-export proof.

From a risk-management perspective, the scheme should be adopted only where the exporter is capable of timely export and robust documentation. Otherwise, the safer path for the supplier remains charging GST at the normal applicable rate, allowing the exporter to take ITC and claim export-related benefits in the usual course-because any failure of the 90-day/export linkage conditions can expose the supplier to denial of exemption and differential tax risk.

In short: this is a powerful facility, but not a casual one-it works best when supported by a well-defined SOP, strong documentary trail, and a written exporter undertaking/indemnity before issuing concessional-rate invoices.

The author can also be reached at varunmukeshgupta96@gmail.com