Understanding IGST Applicability on Merchandise Export under GST

The Goods and Services Tax (GST) regime in India, introduced through the IGST (Integrated Goods and Services Tax) Act, 2017, has significantly transformed the way exports are managed. In this article, we will explore the applicability of IGST on merchandise exports, the processes involved, and the implications for merchants and manufacturers.

The Interplay of IGST and Export Procedures

Inter-country transactions in the context of GST are categorized as Inter-state transactions, which means exports can be processed under different scenarios. Section 16 of the IGST Act 2017 provides the framework for exports by allowing goods and services to be either exported after the payment of IGST with a claim for a refund or exported through a bond/LUT (Logistic and Utilization Tax) without the immediate payment of IGST but with a claim for input tax credit (ITC) on inputs used.

IGST on Merchandise Export

It is evident that IGST is indeed applicable on merchandise exports, but it is essential to understand the underlying mechanisms. When a merchant or manufacturer exports goods, they are liable to pay IGST upfront. However, this tax does not create a tax burden for the exporter as it is subsequently refunded. The exporter can claim the input tax credit (ITC) on the input goods and services used in the export process and subsequently claim a refund of the IGST paid.

No GST Applicability on Export of Goods

Despite IGST's applicability on merchandise exports, it's important to note that GST is generally not applicable to goods exported. The government insists on the obligation that any tax due will be paid, especially if the merchandise is returned or ends up not leaving the country.

Procedure for Merchandise Export

Under the GST regime, the concept of a merchant or manufacturer exporter becomes somewhat irrelevant, as the procedure for supplies made for export is the same for both types of exporters. However, this does not mean that IGST rules are entirely disregarded. Merchandise exported under bond/LUT procedures follow the same IGST rules as any other shipment, albeit with the understanding that the refund mechanism is in place to offset the initial IGST payment.

Refund Mechanisms and Avoiding Payment

Commerce and trade entities should take advantage of the refund mechanism to avoid unnecessary payment. Merchants and manufacturers can strategically document transactions, especially when making purchases, by providing a guarantee that goods are intended for export. Doing so can help in avoiding payment of IGST, as the Government tends to refund dues after a considerable period.

Zero-rated Supply and Output Tax Liability

While exports are not exempt under GST, they are considered as zero-rated supply. This means that no output tax liability emerges, but the exporter can still claim input tax credit on inputs used for manufacturing export goods. This input tax credit can be utilized in future transactions, thereby providing a financial advantage to the exporter.

Refund Process through SB

The process of claiming a refund of the initial IGST payment made on merchandise exports is straightforward. Merchants can apply for a refund through the Standing Bond (SB) mechanism within 90 days of making the application. The refund will be processed electronically, ensuring timely resolution of the exporter's financial obligations.

Export Without Payment of Duty

For facilitating the refund, the exporter can also file an RFD-11 along with the necessary export proof. This documentation forms the basis for requesting a refund on the accumulated input tax credit. It's crucial to maintain proper records and ensure compliance with all procedural requirements to ensure a successful refund.

Understanding the intricacies of IGST applicability on merchandise exports is crucial for merchants and manufacturers. By leveraging the refund mechanisms and claiming input tax credit, exporters can navigate the GST regime more effectively, ensuring that their operations remain efficient and profitable.

Companies looking to export goods under the GST regime should familiarize themselves with the IGST Act 2017 and the mechanisms for claiming refunds and input tax credits. With proper planning and understanding, exporters can harness the benefits of the GST regime and navigate the world of international trade with ease.