How to Charge only 0.1% GST for purchase of goods under exports and be free from blocking Credit
Export plays an important role in every country’s economy, influencing the employment, level of economic growth and balance of payments. It is because of this that the government considers it an imperative necessity to promote export.
How are exports defined under GST Law?
As per Section 2(5) of the IGST Act, export of goods with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.
As per Section 2(6) of IGST Act,export of services means the supply of any service when:-
- supplier of service is located in India
- recipient of service is located outside India
- place of supplyof service is outside India
- payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by RBI
- supplier of service and the recipient of service are not merely establishments of a distinct person, if place of supply is out of India
How are exports treated under GST Law?
Under the GST Law,
- Export of goods or services has been treated as Inter-State supply (Sec 7(5) IGST act) and covered under the IGST Act.
- Exports are treated as zero rated supply’ (Sec 16 (1) IGST act) i.e. the goods or services exported shall be relieved of GST levied upon them either at the input stage or at the final product stage
- GST will not be levied in any Kind of Exports of Goods or Services.
Notification No. 41/2017–Integrated Tax (Rate)
According to Notification 41/2017 of Integrated Tax (Rate), IGST at the rate of 0.1% shall be payable on interstate supply of taxable goods by a registered supplier to a registered recipient of export. Thus rate of tax in general may be 28%, 18%, 12% etc., but on the said supply, rate shall be charged 0.1% subject to fulfillment of the conditions. This is a beneficial scheme for the exporter because funds of the exporter shall not be blocked due to tax.
For instance, Mr. A is an exporter who has to make a purchase of Rs. 60 lakhs and rate of tax on such purchase is 18%. GST of Rs. 10.80 lakh shall be blocked in account of tax till it is refunded. As per the provisions of the notification tax amount Rs 6000 [60 lakhs * 0.1%] in place of Rs 10.80 lakhs shall be blocked.
Such reduced rate of 0.1% shall be available only on the fulfillment of the prescribed conditions.
Conditions to be fulfilled to pay GST at reduced rate of 0.1%
1.registered supplier shall supply the goods to the registered recipient on a tax invoice
2. registered recipient shall export the said goods within a period of ninety days from the date of issue of a tax invoice by the registered supplier
3. registered recipient shall indicate the Goods and Services Tax Identification Number (GSTIN) of the registered supplier and the tax invoice number issued by the registered supplier w.r.t the said goods in the shipping bill or bill of export
4. registered recipient to be registered with an Export Promotion Council or a Commodity Board recognised by the Department of Commerce
5. registered recipient shall place an order on registered supplier for procuring goods at concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the registered supplier
6. registered recipient shall move the said goods from place of registered supplier:-
i. directly to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported or
ii. directly to a registered warehouse from where the said goods shall be move to the Port, Inland Container Deport, Airport or Land Customs Station from where the said goods are to be exported
7. if the registered recipient intends to aggregate supplies from multiple registered suppliers and then export, the goods from each registered supplier shall move to a registered warehouse and after aggregation, the registered recipient shall move goods to the Port, Inland Container Deport, Airport or Land Customs Station from where they shall be exported
8. in case of situation referred to in the above point, the registered recipient shall endorse receipt of goods on the tax invoice and also obtain acknowledgement of receipt of goods in the registered warehouse from the warehouse operator and the endorsed tax invoice and the acknowledgment of the warehouse operator shall be provided to the registered supplier as well as to the jurisdictional tax officer of such supplier
9. when goods have been exported, the registered recipient shall provide:
i. copy of shipping bill or bill of export containing details of GSTIN
ii. tax invoice of the registered supplier
iii. proof of export general manifest or export report having been filed to the registered supplier as well as jurisdictional tax officer of such supplier
It is also crucial to note that the registered supplier shall not be eligible for the above mentioned exemption if the registered recipient fails to export the said goods within 90 days from the date of issue of tax invoice.