By Rajat Mohan
Novice exporter should always ensure that he is aware of all regulations related to exports including registration procedure, compliances in terms of current taxation policy of the Government and do’s and don’ts for availing the benefits via schemes and refunds of taxes paid thereon. If such regulations are not adhered to, it may lead to difficulty in exports or denial of precious export incentives. This guide walks you towards key points to be kept in mind by an exporter.
Firstly, as per current export-import policy in India, no export or import shall be made by any person without an IEC number unless specifically exempted. The IEC Number is issued under the import-export policy and handbook of procedures issued by the Ministry of Commerce. This number is required to be filled in the shipping bill while made of exports or any other documents required for shipping.
The exporter shall register with Export Promotion Council for obtaining a Registration-cum-Membership Certificate for availing benefits available to exporters under Foreign Trade Policy. Incentives under FTP would go a long way in lowering your costs.
Export under GST is treated as inter-state supply and under GST law, any person engaged in the inter-state taxable supply of goods or services or both is required to obtain compulsory registration with the exception in case of the service provider if taxable turnover during the year exceeds Rs. 20 lakhs.
The exporter of goods is required to file shipping bills details for processing of refund under GST. Thus, in order to enable for filling online Shipping Bills and Bill of Entries and other documents, one is required to have a registered ICEGATE ID.
Export of goods or services is treated as a zero-rated supply. An exporter dealing in zero-rated supplies can make exports with or without payment of tax. The exporter may supply goods or services or both after paying the amount of IGST and can claim a refund of the amount of tax paid on such goods or services or both. The exporter may supply goods or services or both under bond or Letter of Undertaking without payment of integrated tax and then claim a refund of the unutilized input tax credit.
Exporter should properly file GSTR-1 and provide export details along with shipping bills & properly file GSTR-3B for the relevant tax period timely. Any minor difference can lead to significant delay in refund processing.
Letter of undertaking (LUT ) has to be filed /submitted online before exporting the goods/services in case an exporter wants to export without payment of taxes. It can be applied for a financial year and need to be re-applied for every financial year. This is one of the best mechanisms by which an exporter can restrict its cash flow situation. However, any person who has been prosecuted for tax evasion for an amount of Rs. 2.5 crore or above under the act is not eligible to furnish LUTs, instead bonds should be furnished if the export is being made without payment of IGST.
Once, the export is done, the next challenge is the refund claim which is currently manually being filed with the jurisdiction officer and leading to delays. This is because the jurisdiction officer might reject the claim even on the account of minor errors in return filing due to technical glitches of GSTN, and then the exporter will have to file rectified claim again.
Exporters are further benefitted through Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) with the aim to promote manufacture and export of goods and services from India by providing duty scrip credit for eligible exports. Under this scheme, credit scrip is issued to exporters at a notified rate on goods and services exported.
Credit scrip is just like ‘E-Credit ledger or E-wallet’. These may be used to pay duty on inputs or even make other payments but in the absence of provision, it cannot be used to pay GST. Duty credit scrip issued after January 1, 2016 will be valid for a period of 24 months from the date of issue.
For example, Ram makes exports worth Rs 100. He is entitled to credit scrip @ 5%. Hence, he will have a credit scrip of Rs 5. If Ram wants to import inputs for use in exports and duty thereon is Rs 4, he can pay Rs 4 out of Rs 5 credit scrip.
In the light of the above discussion, GST is in its nascent stages and it is expected to rationalize over a period of next few years. Any new exporter initiating its operations must ensure full compliance of law together with a mechanism to file correct online tax returns. Every new exporter needs to weigh and balance all schemes of refund before jumping into any scheme, as incorrect selection of tax refunds may lead to a business taking a hit on its working capital hit or even result in credit accumulation.
The author is Partner, AMRG & Associates.