Execution of LUT Extended to All Exporters

NEW DELHI, October 9, 2017 /PRNewswire/ --

Till now, under GST, exporters in general and services exporters, in particular, were faced with a rather peculiar predicament viz., of the need to execute a bond or a letter of undertaking ('LUT')

Under this regime, the furnishing of a bond along with a bank guarantee of (not exceeding) 15% of the tax applicable on estimated exports was a must for all exporters including, especially, services exporters who do not have the track record of having received a minimum of 10% of the export turnover, (which should not be less than one crore rupees), in the preceding financial year, i.e. FY 2015-16. Thus, all new services exporters including start-ups had the daunting task of having to execute a bond with the Department, along with furnishing a bank guarantee for 15% of the estimated tax liability under GST. The requirement of furnishing the bank guarantee also applied to smaller services exporters who were operating over the years, whose forex realizations were less than the prescribed limit of Rs. 1 crore during FY 2015-16 said Neeraj Bhagat, FCA of Neeraj Bhagat & Co. This need of providing the bank guarantee under GST hit the smaller services exporters and the start-ups, especially considering the fact that no such requirement existed under the pre-GST era.

Now, a fresh Notification No. 37/2017 - Central Tax dated 4th October, 2017 has been issued which extends the facility of LUT to all exporters under rule 96A of the Central Goods and Services Tax Rules, 2017.

Eligibility to Export under LUT:

The facility of export under LUT has been now extended to all registered persons who intend to supply goods or services for export without payment of integrated tax except those who have been prosecuted for any offence under the CGST Act or the Integrated Goods and Services Tax Act, 2017 or any of the existing laws and the amount of tax evaded in such cases exceeds two hundred and fifty lakh rupees.

Validity of LUT: 

The LUT shall be valid for the whole financial year in which it is tendered.

Withdrawal of LUT Facility: 

In case the goods are not exported within the time specified in sub-rule (1) of rule 96A of the CGST Rules and the registered person fails to pay the amount mentioned in the said sub-rule, the facility of export under LUT will be deemed to have been withdrawn.

Restoring the LUT Facility:

If the amount mentioned in the said sub-rule is paid subsequently, the facility of export under LUT shall be restored. As a result, exports, during the period from when the facility to export under LUT is withdrawn till the time the same is restored, shall be either on payment of the applicable integrated tax or under bond with bank guarantee.

Form for bond/LUT: 

Till the time FORM GST RFD-11 is available on the common portal, the registered person (exporters) may download the FORM GST RFD-11 from the website of the Central Board of Excise and Customs (http://www.cbec.gov.in ) and furnish the duly filled form to the jurisdictional Deputy/Assistant Commissioner having jurisdiction over their principal place of business.

Self-declaration: 

Self-declaration to the effect that the conditions of LUT have been fulfilled shall be accepted unless there is specific information otherwise. That is, self-declaration by the exporter to the effect that he has not been prosecuted should suffice for the purposes of Notification No. 37/2017- Central Tax dated 4th October, 2017. Verification, if any, may be done on post-facto basis.

Time for acceptance of LUT/Bond: 

As LUT/Bond is a priori requirement for export, including exports to a SEZ developer or a SEZ unit, the LUT/bond should be processed on top most priority. It is clarified that LUT/bond should be accepted within a period of three working days of its receipt along with the self-declaration as stated in para 2(d) above by the exporter. If the LUT/bond is not accepted within a period of three working days from the date of submission, it shall deemed to be accepted.

Bank guarantee: 

Since the facility of export under LUT has been extended to all registered persons, bond will be required to be furnished by those persons who have been prosecuted for cases involving an amount exceeding Rupees two hundred and fifty lakhs. A bond, in all cases, shall be accompanied by a bank guarantee of 15% of the bond amount.

Payments Made in Indian Currency:

It is clarified that the acceptance of LUT for supplies of goods to Nepal or Bhutan or SEZ developer or SEZ unit will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with the applicable RBI guidelines. It may also be noted that the supply of services to SEZ developer or SEZ unit under LUT will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange.

Same Treatment for Supplies to Special Economic Zone Developer or Special Economic Zone Unit 

The provisions of this notification shall mutatis mutandis apply in respect of zero-rated supply of goods or services or both made by a registered person (including a Special Economic Zone developer or Special Economic Zone unit) to a Special Economic Zone developer or Special Economic Zone unit without payment of integrated tax.

Merchant Exporters also Eligible for LUT: 

It is clarified that there is no provision for issuance of CT-1 form which enables merchant exporters to purchase goods from a manufacturer without payment of tax under the GST regime. The transaction between a manufacturer and a merchant exporter is in the nature of supply and the same would be subject to GST.

Transactions with EOUs: 

Zero rating is not applicable to supplies to EOUs and there is no special dispensation for them under GST regime. Therefore, supplies to EOUs are taxable like any other taxable supplies. EOUs, to the extent of exports, are eligible for zero rating like any other exporter.

About the author:  

Neeraj Bhagat is a member of the Institute of Chartered Accountants of India (ICAI) since 1997. He is also an Associate member of Association of International Accountants, United Kingdom. He is the founder of Neeraj Bhagat & Co, an Indian chartered accountancy firm serving various MNCs from across the globe. Neeraj Bhagat & Co. has its offices at New Delhi, Gurgaon and Mumbai. They are part of Allinial Global Accounting Association which is one of the World's Top 10 in accounting associations.

For more information please log on to: http://www.neerajbhagat.com