GST Issue- Export LUT

Small GST issue in the books of XYZ

ABC is a Pvt Ltd independent entity with common directors as XYZ pvt ltd.
ABC has received export orders of 1 crores upon its recent formation. It is required to be the final EXPORTER of the goods.
Our aim is to show this sales in XYZ books for which ABC can issue this order to XYZ for getting it manufactured and XYZ can them show this domestic sale in its books.

>> PROBLEM to be resolved

XYZ at present is an 100% EOU and gets billed at 0.01% GST from its suppliers against the LUT [exports] it does.
IF XYZ executes this order for ABC, then XYZ will not be the exporter and have to pay applicable GST.
What should be the supply chain in terms of a flow chart to address the following

What % of GST will be paid by XYZ to its suppliers for apparel [ready made garments] and home furnishings and home décor items ?
How will you handle the purchase order generation of XYZ to its vendors and what changes would have to be made in the GST part of XYZ which at present ships under LUT?
What will be the process of REFUND of GST for XYZ ?

Hi Sneha,

This is an interesting scenario involving related entities, export orders, and GST implications. Let me break down your queries step-by-step:

ABC Pvt Ltd: New entity, final exporter (export orders of ₹1 crore).
XYZ Pvt Ltd: 100% EOU, currently exporting under LUT and paying minimal GST (0.01%) to suppliers.
ABC places orders with XYZ for manufacturing apparel and home décor.
XYZ executes order but is not the exporter (exporter = ABC).
So, XYZ is effectively supplying goods domestically to ABC (which exports).

Since XYZ is supplying goods to ABC in India (domestic supply, not export), the transaction between XYZ and ABC is a domestic supply.
XYZ is no longer supplying goods for export on its own account here, so it cannot supply under LUT or pay minimal GST on purchases.
Hence, XYZ’s purchase from its suppliers will be at the regular GST rates applicable on apparel, home furnishings, etc.
Typical GST rates are usually 5%, 12%, or 18% depending on item classification.
XYZ cannot claim benefits of LUT for purchases because it is not exporting directly.

Purchase Orders:
- XYZ will issue regular POs to suppliers with GST charged at applicable rates.
- Suppliers will charge GST normally on invoices.
Sales from XYZ to ABC:
- XYZ will issue a taxable invoice to ABC (domestic supply).
- This invoice will carry GST at applicable rate (likely 18% for garments and décor, unless specified otherwise).
LUT implications:
- XYZ cannot use LUT in this transaction as it is a domestic supply.
- GST on purchases will be regular GST, not 0.01%.
- XYZ must revise its accounting and GST filings accordingly.

Since XYZ is making domestic supplies to ABC:
- XYZ cannot claim export-related GST benefits for these supplies.
- GST paid on inputs and input services will be available as input tax credit (ITC) to XYZ, subject to normal GST rules.
- No special refund under export scheme applies here.
If XYZ’s overall export turnover (as per GST definition) reduces due to this arrangement, its export-related benefits (like LUT) may get impacted.
XYZ should maintain clear documentation to show ABC is the final exporter.
If XYZ has excess ITC due to this setup, it can be carried forward or claimed in normal course under GST.

ABC will export the goods and can claim export benefits (zero-rated supplies under LUT).
XYZ becomes a regular domestic supplier to ABC.
This structure avoids complications of XYZ paying GST on export inputs at 0.01% but unable to claim credits or proper GST treatment.

Aspect	Treatment
Supplier to XYZ	Regular GST rate applies (no LUT benefit)
XYZ to ABC	Taxable domestic supply with GST
ABC to foreign buyer	Export supply under LUT, zero-rated
Refund to XYZ	Normal ITC claims, no export refund