Export sales are considered as a case of Inter-state sale under GST and are therefore covered under the IGST Act. As per the IGST Act, the export of goods and services can be conducted under the following 2 possible ways:-
- Pay IGST at the time of exports and then claim Refund of IGST
- Export without payment of IGST on submission of Bond/LUT
Whether to submit Bond or LUT in case of Exports under GST?
A Bond is required to be submitted with Bank Guarantee whereas LUT is to be submitted without Bank Guarantee and therefore, it is better to submit LUT instead of submitting a Bond.
Both the LUT (Letter of Undertaking) and Bond are documents on which the registered person is required to state that he will comply with all rules and regulations relating to export. The Bond/LUT is required to be submitted in accordance with the provisions of Rule 96A in Form GST RFD-11.
All registered persons are not eligible to submit LUT. Only a specified class of persons which have been notified by the Govt (vide Notification No. 16/2017) are eligible to submit LUT. The class of persons specified are:-
- A status holder as specified in Paragraph 5 of the Foreign Trade Policy 2015-2020; or
- A person who has received the due foreign inward remittances amounting to a minimum of 10% of export turnover, which should not be less than Rs. 1 Crores, in the preceding financial year. In other words – it should be 10% of export or Rs. 1 Crores – whichever is higher.
The above specified class of persons should not have been prosecuted under the GST Laws, or under any of the existing laws in case the amount of tax evaded exceeds Rs. 2.5 Lakhs.
All other class of persons are not eligible to submit LUT and they would be required to submit Bond along with Bank Guarantee.
The above conditions can be explained with the help of the following examples:-
Example 1: An exporter had a turnover of Rs. 15 Crores in the previous financial year. He would be eligible for LUT facility if the remittance against export is Rs. 1.5 Crores or more (10% of export or Rs. 1 Crores – whichever is higher).
Example 2: An exporter had a turnover of Rs. 5 Crores in the previous financial year. He would be eligible for LUT facility if the remittance received against export is Rs. 1 Crore or more (10% of export or Rs. 1 Crores – whichever is higher).
Example 3: An exporter has an export turnover of Rs. 2 Crores. He has received Rs. 80 Lacs as inward remittances in FY 2016-17 which is 40% of export turnover. He would not be eligible for LUT facility as remittance received is less than Rs. 1 Crores.
Example 4: An exporter has export turnover of Rs. 40 Crores. He has received Rs. 2 Crores as inward remittances in FY 2016-17 which is 5% of export turnover. He would not be eligible for LUT facility as the remittance received is less than 10% of the export turnover, even though it is in excess of Rs. 1 Crores.
Example 5: An exporter has received Rs. 1 Crores 10 Lakhs as foreign inward remittances in FY 2016-17 which is 20% of export turnover. In this scenario, he would be eligible for LUT facility.
Who are the status holders under the Foreign Trade Policy?
The following class of persons are specified as status holders in Paragraph 5 of the Foreign Trade Policy 2015-2020:-
- Entities which are prominent business leaders in the international trade and have successfully contributed to country’s foreign trade. Special treatment and privileges are provided to these entities to reduce their transaction cost and time. For example: TATA Steel in case of export of steel or Vardhman Textiles in the export of textiles.
- Different Export Houses and their classification
|Export House Status||FOB/ FOR of Exports (in million $)|
|One-Star Export House||3|
|Two-Star Export House||25|
|Three-Star Export House||100|
|Four-Star Export House||500|
|Five-Star Export House||2000|
How to submit LUT for the purpose of Exports under GST?
- LUT should be submitted in duplicate to the GST Jurisdictional Officer.
- LUT shall be submitted on the letter head of the registered person duly signed by persons authorised as mentioned below.
- LUT shall be valid for a period of 12 months. On expiration of 12 months, a fresh LUT would be required to be submitted.
- LUT should be executed by the working partner or the Managing Director, the Company Secretary, the Proprietor or by a person authorised by such working partner or Board of Directors of such company or Proprietor.
- If the exporter fails to comply with the provisions of LUT, he may be asked to submit a bond.
How to submit Bond for the purpose of Exports under GST?
- Bond shall be furnished on non-judicial stamp paper.
- Bond shall be submitted to the GST Jurisdictional officer having the jurisdiction over the principal place of business of the exporter.
- A running bond instead of consignment wise bond would be required to be submitted and it would not be required to be submitted every year.
- The bond amount should cover the amount of tax involved in the export based on the estimated tax liability as assessed by the exporter.
- In case the tax liability increases and the bond amount is insufficient to cover the tax liability, the exporter shall furnish a fresh bond to cover such liability.
- Bank Guarantee should be submitted along with the Bond.
- The amount of Bank Guarantee would be decided by the Jurisdictional Officer and it should normally not exceed 15% of the Bond amount. The Commissioner also has the power to accept the bond without any bank guarantee in case of assessee with a good track record. (Circular No. 4/4/2017-GST dated 7th July 2017)
Value of Bond and Bank Guarantee required to be submitted under GST for Export?
The Bond shall be of the value of IGST which is applicable on the type of goods/services exported. If the value of goods/services exported is Rs. 20 Lakhs and the IGST Rate is 18%, then the bond should be submitted of value of Rs. 3.6 Lakhs.
The Bank Guarantee in this case should be a maximum of 15% of the Bond Value (i.e. Rs. 3.6 Lakhs) = Rs. 54,000
The Bank Guarantee should be filed in the name of “President of India (hereinafter called the Government”) acting through the Asst. Commissioner/ Dy Commissioner of Central Tax)
Other Relevant Provisions
- The format for submission of Bond/ LUT is given here – http://dgftcom.nic.in/exim/2000/gst/GST_Bond_LUT_Format.pdf
- In case the goods for which the Bond/LUT has been submitted are not exported out of India within 3 months from the Date of issue of Invoice, the exporter of goods would be liable to pay GST within 15 days along with interest @18% as specified in Section 50(1) [Rule 96A].
- In case the payment for services for which the Bond/LUT has been submitted is not received within 1 year in convertible foreign exchange, the exporter of services would be liable to pay GST within 15 days along with interest @18% as specified in Section 50(1) [Rule 96A].
- For goods and services exported without payment of GST, it should be mentioned on the invoice that it is “Supply meant for export under Bond or LUT without payment of IGST”.
- An exporter registered with the recognised Export Promotion Council can be allowed to submit bond without bank guarantee on submission of a self attested copy of the proof of registration with a recognised Export Promotion Council.
- Documents submitted as proof of fulfilling the conditions of LUT shall be accepted unless there is evidence to the contrary. Self-declaration shall be accepted unless there is specific information otherwise. For example: A self declaration by the exporter to the effect that he has not been prosecuted shall be accepted and should suffice for the purpose of Notification No 16/2017 – Central Tax dated 7th July 2017. Verification, if any, may be done on post facto basis. Similarly, status holder exporters have been given the facility of LUT under the said notification and a self attested copy of the proof of status should be sufficient.
- The LUT/Bond is a pre-requisite for Export without payment of GST and should therefore be processed by the Dept on top most priority and should be accepted within a period of 3 working days from the submission of LUT/Bond along with documents by the exporter. (Circular No. 5/5/2017 – GST dated 11th Aug 2017)