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:-
- Submit LUT and then Export without payment of IGST
- Pay IGST at the time of exports and then claim Refund of IGST
Which option is better – “Submit LUT” or “Pay GST & then claim Refund”?
If you opt for the 1st option i.e. submission of LUT – you only have to submit this LUT once in a year and then there are no other additional compliances to be taken care of. Moreover, there is no money involved in the process of submission of LUT.
However, in case you opt for the 2nd option i.e. you first pay GST and then claiming Refund, you would be required to first deposit GST and then claim refund. In this process – your money would get blocked from the date of payment till the date of refund. Moreover, you would also be required to file an additional form every month for claiming the refund.
As in the 2nd option, your money would get blocked for some time and additional refund form would also be required to be filed every month – the 1st option of submitting LUT is much better than the 2nd option.
Who is eligible to submit LUT?
All goods and service exporters are eligible to submit LUT except the exporters who have been prosecuted and the amount of tax evaded exceeds Rs. 2.5 Lakhs under the
- CGST Act, or
- SGST Act, or
- Any of the existing laws
The exporters who are not eligible to submit LUT can either avail the option to “Pay GST and then claim Refund” or to “Submit Bond with Bank Guarantee and export without payment of GST”.
How to submit LUT for Exports without payment of GST?
- LUT stands for Letter of Undertaking and should be submitted in duplicate in Form GST RFD 11 to the GST Jurisdictional Officer having jurisdiction over the principal place of business. [Download Form GST RFD 11]
- LUT shall be submitted on the letter head of the registered person duly signed by persons authorised as mentioned below.
- 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.
Documents to be submitted along with LUT
The following documents should be submitted along with the LUT:-
- Covering Letter requesting acceptance of LUT
- Copy of GST Registration Certificate
- PAN and Personal ID’s of the signer
- Incorporation Documents of Entity (Partnership Deed in case of Partnership Firm, Certificate of Incorporation in case of Company, LLP etc)
- Declaration on letter head that the entity is not been prosecuted for any offence under the GST Act or any other existing law involving evasion of Revenue of Rs. 2.50 Crores
- Authorisation Letter:
- Copy of IEC Code (if available)
The LUT should be signed by the working partner, the Managing Director or the Company Secretary or the Proprietor or by a person duly authorised (Authorisation letter required).
Format for Documents to be attached
- LUT Format – Word File
- Covering Letter – Word File
- LUT – Self Declaration – Word File
- Board Resolution Authorisation Letter – Word File
Acceptance of LUT
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.
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 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.
If the LUT is not accepted within a period of 3 working days from the date of submission, it shall be deemed to be accepted.
What is the validity of the LUT?
The LUT for exports without payment of GST is valid for the whole financial year in which it is submitted. The LUT would be required to be submitted separately for each financial year.
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].
The LUT facility shall be deemed to be withdrawn in such cases. However, if the amount mentioned in this sub-rule is paid subsequently, the facility of export under LUT shall be restored.
Other Relevant Provisions
- GST Invoice: For goods and services exported without payment of GST, it should be mentioned on the invoice that it is “Supply meant for export under LUT without payment of IGST”.
- Receipt of Export Proceeds: The GST Invoice and the GST Contract can either be denominated in Indian Rupees or in foreign currency but the export proceeds shall be realised in foreign currency only. Export Proceeds against specific exports may also be realised in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan.
- LUT for supply of Goods to SEZ/ Nepal/ Bhutan: LUT for supplies to Nepal or Bhutan or SEZ developer or SEZ unit would also be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with the applicable RBI guidelines.
- LUT for supply of Services to SEZ/ Nepal/ Bhutan: Supply of services to SEZ would be permissible in the same manner as supply of goods as mentioned above. However, for supply of services to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange.
- Transactions with EOUs: Zero Rating is not applicable to supplies to EOUs and there is no special dispensation for them under the GST Regime. Therefore, supplies to EOUs are taxable like any other taxable supplies. EOUs, to the extent of exports, are eligible for zero rating like any other exporter.
- Purchases from Manufacturers and Form CT -1: There is no provision for issuance of Form CT-1 which enables the merchant exporters to purchase goods from a manufacturer without payment of tax under the GST Regime. The transaction between a manufacturer and merchant exporter is in the nature of supply and the same would be subject to GST./
- Extension of eligibility for LUT Submission:/ Prior to 4th Oct, only a specified category of exporters were eligible to submit LUT. However, vide Circular No. 8/8/2017 dated 4th Oct – all exporters were made eligible to submit LUT.
- Official Notification: The rules for submission of LUT and the revised eligibility criteria were notified by the Govt on 4th Oct vide Circular No. 8/8/2017. [Download Official Notification]