Benefits/restriction for the export on payment of IGST or under LUT

Benefits/restriction for the export on payment of IGST or under LUT – An Analysis

India is a worldwide powerhouse in terms of exporting Goods and services. The transactions via which the businesses export goods and services are treated as zero-rated supplies under the goods and services tax (GST), which means no GST is paid on such deliveries.

Section 16 of the IGST Act has defined zero rated supplies to mean any of the following supplies of goods or services or both –

Export of goods or services or both; or
Supply of goods or services or both for authorised operations] to a Special Economic Zone developer or a Special Economic Zone unit.

In exempt supplies, the inputs and input services which go into the making of outward supply have already been taxed and it is the final outward supply product which is specifically exempted under GST. Thereby implying that taxpayers cannot avail ITC of the inputs and input services which have been used to get the final outward supply

Whereas in zero rating the entire value chain of supply is exempt from tax. This means that not only there is no tax on the output, also there is no bar on availing credit of taxes paid on inputs or input services used for providing such outward supply.

Under the GST Regime, the supplier engaging in export of goods or services or both has either of the below mentioned two options to undertake the transaction:

Export under LUT without payment of tax;
Export without LUT along with payment tax and avail refund of tax paid later in FORM GST RFD-01.

Let us first understand in brief both the options available to the export supplier:

Export under LUT without payment of tax:

As per Rule 96A (1) of the CGST Rules, any Registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest specified under sub-section (1) of section 50 within a period of:

fifteen days after the expiry of three months or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the goods are not exported out of India; or

fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange or in Indian rupees, wherever permitted by the Reserve Bank of India.

Therefore, GST LUT is furnished in FORM GST RFD-11 under Rule 96A of the CGST Rules whereby the export supplier declares that he/she would fulfil all the requirements prescribed under GST while exporting without making IGST payment.

Export without LUT along with payment of tax and avail refund later in GST RFD-11:

The exporter has the option to pay IGST on exports and claim refund of the same later on by filing FORM GST RFD-01 in accordance with Section 54 of the CGST Act, 2017. It is pertinent to note here that for export of goods / services there is no need to file a separate application.

As per Section 54(1) of the CGST Act, any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed.

With both the options, there is always a question that whether export should be made on payment of IGST or without payment of IGST i.e. under letter of undertaking (LUT). Immediate answer is that it should be under LUT to save the working capital.

However certain important points are to be considered before deciding via which route the export transactions are to be undertaken (on IGST or On LUT):

Benefits/restriction for the export on payment of IGST or under LUT

Particular	Export on payment of IGST	Export without payment of IGST i.e. against LUT
Restriction	There are following restriction that export cannot be made on payment of IGST. Certain goods like pan masala, tobacco, Mentha oil etc as specified in the *Notification No.01/2023-Integrated Tax dated 31^st July, 2023* As per *Rule 96(10) of the CGST Rules, if exporter availing benefit of certain notifications like Merchant Exporter, Deemed Export, then export cannot be made on payment of IGST. However, exporters who are receiving capital goods* under the EPCG scheme, either through import in terms of *NN 79/2017-Customs dated 13.10.2017* or through domestic procurement in terms of *notification No. 48/2017-Central Tax, dated 18.10.2017, shall continue to be eligible to claim refund of Integrated tax paid on exports and would not be hit by the restrictions provided in Rule 96(10) of the CGST Rules. [Refer Para 52 of Circular 125]*	There are following restriction that export cannot be made on LUT - If the goods are not exported within 3 months from the date of Invoice or foreign currency is not realised within 12 months in case of export of service then the amount has amount has to be paid within 15 days along with interest as per *Rule 96A(1) and (3) of the CGST Rules. Notification No 37/2017- Central Tax dated 4^th Oct 2017* requirement of filling of bond has been dispensed with except in case of exporter who have been prosecuted for any offence under the CGST Act or the IGST Act or any of the existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
Refund of Capital Goods /Input/ Input Service	The tax liability on export can be paid by ITC or by cash. The total taxes paid will be entitled for refund in this category. Therefore, indirectly we can say that exporter is entitle the refund of capital goods as well.	As per *Rule 89(4) of the CGST Rules, refund is permitted for input and input service only. It means no refund of ITC on account of capital goods is granted. As per Circular No. 197/09/2023- GST dated 17^th July 2023* – Entitle for refund of taxes paid subsequent to compliance of the provisions of sub-rule (1) of rule 96A. No refund of Interest.
Refund application	No refund application is required in case of Export of goods on payment of IGST. As per the rule 96 the shipping bill is treated as refund application. However, for export of service on payment of IGST, RFD-01 has to be furnished for taking the refund.	FORM GST RFD-01 has to be furnished by selecting – Refund of unutilized input tax credit (ITC) on account of exports without payment of tax, Refund of tax paid on export of services with payment of tax. However, in two cases the refund would be applied by selecting Any other Categories - Refund for the taxes paid subsequently for the Compliance of Rule 96A(1) Refund of ITC on account of Rule 89(4A) and 89(4B). Means if the exporter takes the substantial benefit of taxes on the inward supplies like merchant exporter, deemed export etc.
Purchase / Inward supply is as mentioned in Rule 89(4A) and 89(4B)	In this case the export cannot be made on payment of IGST as per *Rule 96(10) of the CGST Rules.*	In this case the export can be made against LUT. Further the refund application would be made in “any other category” and not the “Export” as clarified by the circular 125.
Upper limit for calculation of refund	The actual turnover will be considered for the payment.	1^st Restriction - Value of zero-rated supply of goods made during the relevant period or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, (NN 16/2020–Central Tax dated 23^rd March, 2020) 2^nd Restriction – FOB value declared in the shipping bill or Value declared in the tax invoice or bill of supply whichever is earlier. *(Explanation to rule 89(4) inserted by NN 14/2022–Central Tax dated 5th July, 2022)*