Export of Goods Without Payment Of IGST: Refund

The Goods and Services Tax (GST) was introduced in India on July 1, 2017. It subsumed multiple central and state levies (central excise duty, service tax, state VAT, etc) into a single tax and was thus hailed as “one nation, one tax”. The rollout of GST was considered a major economic reform as it aimed to simplify the tax structure and widen the tax base. The tax itself has two components, a Central GST (CGST) and a State GST (SGST).

As an importer or exporter of goods and services, you would be familiar with GST. Under the GST regime, imports and exports are treated as the inter-state supply of goods and services. They attract an Integrated GST (IGST), which is the sum total of CGST and SGST. Furthermore, exports are treated as zero-rated supplies under GST. A zero-rated supply is one where the entire value chain and not just the final product is exempt from tax. This means any tax paid on the raw material or inputs used to make the final product is eligible for a refund. This provision is in line with the Indian government’s efforts to promote exports.    

There are two ways to export under GST – a) through a bond or Letter of Undertaking (LUT) and without payment of IGST, and b) with payment of IGST, refundable at a later date. In the first of this two-part series on GST refunds for exports, we will discuss the process for exports made without payment of IGST.

Export through LUT/bond (without paying IGST)

To export goods/services without paying IGST, you must file a Letter of Undertaking (LUT) or an export bond. Exporting under LUT/bond is beneficial because it a) saves you the time and effort of seeking a tax refund, b) prevents the blocking of funds, which can be critical for small businesses.

An LUT is valid for one financial year. You can apply for one:

• If you are an exporter of goods/services and have a GST registration
• If you have not been prosecuted for tax evasion for an amount exceeding Rs 2.5 crore, or for any other offence under the CGST Act, IGST Act or any other law           

If you don’t meet the conditions for an LUT, you can still export without paying IGST – by furnishing a bond on non-judicial stamp paper. The bond must cover the tax liability on the export as assessed by you (the exporter). If it falls short, you can furnish a fresh bond to cover the additional liability. A bond must be accompanied by a bank guarantee, which must not exceed 15% of the bond amount. Unlike an LUT, a bond does not have a fixed validity. Rather, it is a running bond with debit and credit facilities, so that it need not be furnished afresh for each export.

How to apply for LUT/bond

Applying for an LUT is fairly simple and entirely online:

1. Log in to the GST portal www.gst.gov.in
2. Under “Services”, click on “User Services”, then select “Furnish Letter of Undertaking (LUT)”
3. Select the financial year

• If you have previous LUTs issued manually, upload these by clicking on “Choose File” (in PDF/JPEG format, maximum file size 2MB)

4. In the LUT form (GST RFD-11) that appears, fill in the self-declaration, with which you undertake to:

• Complete the export transaction within three months of the date of issue of export invoice, or a further period as allowed
• Comply with GST law on exports
• Pay IGST with 18% annual interest on failure to export within the specified period

5. Next, fill in the names and details of two witnesses
6. Enter “Place of Filing”, click “Save”, then “Preview” to check the form before submission
7. Sign the form using one of two options given – Digital Signature Certificate (DSC) or Electronic Verification Code (EVC)
8. Once signed, the form cannot be reviewed/edited
9. Once the process is done, you will receive an acknowledgement 

Unlike an LUT, which you can file online, a bond must be submitted in person to the GST officer (deputy/assistant commissioner) of the concerned jurisdiction. The steps to furnishing a bond:

1. Prepare the documents, which include:

• Form RFD-11 on exporter’s letterhead 
• Bond on non-judicial stamp paper
• Bank guarantee
• Authority letter (authorising an employee/partner/other authorised person to sign the bond on behalf of the exporter)
• Any supporting documents

2. Submit the bond with the required documents
3. The officer will verify the documents
4. On successful verification, the officer will issue a signed acknowledgement letter, usually within three days of submission

How to claim refund of ITC‍

When you export under LUT/bond, you are entitled to claim a refund on Input Tax Credit (ITC) under Section 54 of the CGST Act, 2017, and Rule 89(4) the CGST Rules, 2017. What is ITC? Simply put, when you produce or purchase a product for export, you pay taxes on the inputs (goods and services) that go into making it. When you export the product, you can claim a refund of taxes paid on inputs. The process to apply for a refund on ITC for exports made under LUT/bond is online:

1. Log in to the GST website
2. Fill form GST RFD-01. You will need to:

• Furnish the following details – GSTIN (a 15-digit GST identification number issued to each registered member), name and address, tax period for which refund is sought, refund amount, grounds for refund claim (export of goods/services without payment of tax), bank account details
• File statements/declarations/undertaking relevant to your refund claim
• Upload corresponding documents/invoices, as listed in Annexure-A of GST RFD-01. You can upload four documents of up to 5MB each        

3. Affix your digital signature and submit the form
4. Once the form is submitted, an Application Reference Number (ARN) is generated. This means your application has been electronically forwarded to the jurisdictional officer
5. If an application is forwarded to the wrong officer, that officer must assign it to the right officer electronically within three days of ARN generation
6. You can use the ARN to track the status of your claim on the website at Services > Refunds > Track Application Status 

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Important timelines in the GST refund process

• An exporter receives acknowledgement of their refund application usually within 15 days of filing it
• If approved, the refund is credited to the exporter’s bank account within 60 days of the date of receipt of the application in its complete form
• If the refund takes more than 60 days, interest @ 6% is payable from the end of the 60-day period till the date of the refund (interest @ 9% if refund is ordered by an appellate tribunal, court or adjudicating authority)  
• GST law allows the payment of a provisional refund of 90% of the total refund claim amount within seven days of the date of acknowledgement (exporters who faced prosecution in the five years prior to the refund period are not eligible)

Conditions for filing GST refund claim

• An exporter can file a refund claim only if they have filed all GST returns due on or before the date of refund application via forms GSTR-1 and GSTR-3B. GSTR-1 contains details of sales (export details go in Table 6A) and can be filed monthly or quarterly, depending on the exporter’s turnover. GSTR-3B is a monthly summary of sales (exports) made during the month along with GST to be paid, input tax credit claimed, and so on. The details contained in GSTR-1 and GSTR-3B must match.
• A refund application via GST RFD-01 cannot be filed if a) export duty was paid on the goods, b) goods were exported with payment of IGST, c) duty drawback was availed on CGST/SGST/IGST paid on the goods.         
• Under GST law, a refund claim must be filed within two years of the relevant date (where relevant date is the date the ship/aircraft leaves the country or the date the truck crosses a land border).     

How to calculate the GST refund amount

The formula used to calculate the refund amount is:

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted total turnover

Where, 

• Refund Amount – Maximum refund admissible
• Turnover of zero-rated supply of goods – value of goods made during relevant period under bond/LUT and without payment of tax 
• Turnover of zero-rated supply of services – value of services made during relevant period under bond/LUT and without payment of tax 
• Net ITC – ITC availed on inputs/input services during relevant period
• Adjusted total turnover – total value of exports in a state/Union territory, as defined under Section 2 (112) of the CGST Act, excluding value of exempt supplies other than zero-rated supplies, during relevant period
• Relevant period – period for which claim is filed

Heads up! Recent updates in GST law

Since GST was introduced in 2017, there have been many tweaks and updates to the rules, including those governing refund of ITC for exports made under bond/LUT and without payment of IGST. Here are some key updates, which have led to some confusion among exporters:      

• Amendment of Clause C of Rule 89(4) of CGST Rules: This amendment, made via notification dated March 23, 2020, is related to the definition of “turnover of zero-rated supply of goods” and, by extension, to the formula for calculating the refund amount. You can check the old definition here and the new one here. Under the old definition, refund amount was calculated on the basis of the actual value of the exported goods. Under the updated definition, a limit has been placed on this value.        
• New Rule 96B: The same notification announced the introduction of a new rule, Rule 96B, in the CGST Rules. It states that in a situation where an exporter has received a tax refund (of ITC or IGST paid on exports) but where money from the sale has not been realised (in full or in part) within the period allowed by the Foreign Exchange Management Act, the exporter must deposit the refunded amount with applicable interest within 30 days of the expiry of the said period. However, such a recovery need not be made if the RBI “writes off the requirement of realisation of sale proceeds”. This rule has created doubt over the definition of “export of goods”, which the IGST Act defines simply as “taking goods out of India to a place outside India”, without mentioning a time limit for the sales proceeds to be received.            
• Change of forms under new GST returns system: Under the new GST returns system, which is currently running on a trial basis, form GSTR-1 will be replaced by GST Anx-1 and GSTR-3B by GST RET-1 (Normal). In GST Anx-1, you can provide invoice details for exports made without payment of tax in Table 3D. Information contained in this form will auto-populate GST RET-1, which is the main returns form. The auto-population feature is one of the ways in which the new system aims to simplify the process of filing returns. Another is by reducing the number of returns required to be filed for a tax period from two to one.      

Filing GST returns and claiming a refund can be challenging for the most astute exporter. We hope the information in this piece helped clear some, if not all, of your doubts regarding refund claims for exports made under a bond or LUT and without payment of IGST. Watch out for Part 2.    

Next: GST Refunds Part 2 – Export With Payment Of IGST