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All about Merchant Exports under GST

Updated on :  

08 min read.

Merchant export is a common word used under foreign trade. It is a method of trading export but is equally important as any manufacturer exporter. A person who is engaged in the activity of merchant exports is called Merchant Exporter.
Thus, a merchant exporter is a person who is involved in trading activity and exporting or intending to export. They do not have a manufacturing unit. They buy goods from a manufacturer-exporter and then ship them to foreign customers.

Recent Updates for Exports under GST

1st February 2021
Union Budget 2021:
IGST Act was also amended for section 16 that defines a zero-rated supply. Three amendments are made
1. To state that supply to SEZ units /developers will be zero-rated only if it is authorised operations.
2. Only notified persons or supplies of goods/services can avail the status of zero-rated when IGST is paid.
3. foreign exchange remittance will be linked in case of export of goods with the refund.

Merchant Exports Under GST

Under GST, a taxable supply means “a supply of goods or services or both which is levied to tax as per provisions of Section 2(108) of the CGST Act.” Also, as per provisions of Section 7(5) of the IGST Act, where a supplier is located in India, and the place of supply is outside India, it is treated as an inter-state supply.

Thus, by reading the provisions of both sections, it can be concluded that merchant exports are liable to GST as the merchant exporter is located in India, and makes a supply to a place outside India. Thus, merchant exporters are compulsorily required to obtain registration under GST.

Procedure to be followed for Merchant Exports

Under the GST regime, the procedure of exports has been simplified. There are two alternatives available:

  • Make an export under bond/LUT, and then the unutilised input tax credit can be claimed as a refund.
  • Make an export by paying off IGST and then claim a refund of the same. But, this option is only available if the exporter has not opted for the Special Relief Scheme of buying goods at 0.1% GST.

Further, the shipping bill is the only document required to be filed with Customs. Once the shipping bill is filed, it is treated as an application for a refund.

Here is a webinar video to help you understand how to claim a refund if you are into exports:

Conditions for availing the Concessional Rate Under Merchant Exports

The government has provided special relief to the merchant exporters by way of reducing the GST rate to 0.1% for purchasing goods from domestic suppliers. But, he needs to fulfil the below conditions for availing such concessional rate relief:

  • The tax invoice for the procured goods should clearly state the GST rate at 0.1%.
  • Such goods should be exported within 90 days of the issue of a tax invoice.
  • The GSTIN and the tax invoice number of the supplier should be mentioned on the shipping bill.
  • Such merchant exporters should be registered with an Export Promotion Council or Commodity Board.
  • A copy of the order placed at the concessional rate shall be provided to the jurisdictional tax officer of the registered supplier.
  • Such goods shall be directly moved to the place from where it shall be transferred to the port/ICD/Airport/LCS. This condition prevails even if the goods are purchased from multiple registered suppliers.
  • On export of goods, a copy of the shipping bill/bill of export along with the proof of EGM and export report shall be filed with the registered supplier as well as its jurisdictional tax officer.
  • The merchant exporter should export goods under LUT/bond but not with the payment of tax (IGST).

Further, if the merchant exporter fails to export the goods within 90 days from the date of issue of tax invoice, then the registered supplier cannot avail the benefit of the concessional tax rate.

Refund Process when a merchant exporter is involved

Below are some of the scenarios revolving around the refund process where a merchant exporter is involved:

  • Where a merchant exporter exports goods without payment of tax. Procures goods at 0.1% and then claims refund of the same: In this case, a supplier supplies goods to the merchant exporter charging GST at 0.1% and the merchant exporter exports the goods without payment of tax. As per Section 54(3) of the CGST Act, the merchant exporter can claim a refund of the unutilised ITC at the end of a tax period in case of zero-rated goods or goods involving an inverted tax structure.
  • Where a supplier of a merchant exporter procures goods from another supplier and claims refund under Inverted Duty Structure: In this case, there are two suppliers. The first supplier makes a supply to the second supplier at standard GST rates. But, the second supplier makes the supply to the merchant exporter at a concessional rate of 0.1%. Here, the second supplier is not directly exporting goods but providing goods to merchant exporters. Thus, as per Section 54(3), the second supplier can claim a refund of ITC under an inverted tax structure (rate of tax on inputs is higher than the rate of tax on outputs).
  • Where a supplier is supplying to a merchant exporter at a regular rate and exports are done with the payment of tax (IGST paid): In this case, the concessional tax rate on inputs can not be availed by the merchant exporter, as he decides to export goods by making payment of tax (IGST). Hence, the standard tax regime will be followed by the supplier, where ITC shall be used for payment of output tax and the balance liability is to be paid in cash. Merchant exporters can claim a refund of both unutilised ITC and IGST paid against zero-rated supply.

Thus, it can be ascertained that merchant exports are similar to regular exports. They boost the country’s economy by bringing in foreign currency. Therefore, the government has provided concessional rate benefits in the case of merchant exporters which helps them reduce their working capital requirements.

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