Understanding Merchant Exporters and Refunds in the Context of GST
By Yogesh Verma (CS/LLB) / 5 min read / Article
The Goods and Services
Tax (GST) regime has streamlined taxation for exporters in India, and Merchant
Exporters are a key part of the system. A Merchant Exporter, in simple terms,
is a supplier who has received goods under a particular notification issued by
the Ministry of Finance, Government of India. This notification provides for
the concessional rate of tax that is applicable to the intra-State/inter-state supply of
goods for export.
In this article, we will
explore the meaning of Merchant Exporters, the conditions they must comply with
to claim exemptions, and how they can claim refunds under GST laws.
What is a Merchant
Exporter?
A Merchant Exporter
refers to a registered supplier of goods who benefits from the government’s
notification for concessional tax rates when supplying goods to another
registered recipient for export. This concession allows the goods to be sold at
a reduced GST rate of 0.1%(IGST) or 0.05% CGST and 0.05% SGST. The aim is to promote exports by ensuring that
exporters are not burdened by excessive taxes on the goods they export.
The notification that
defines the Merchant Exporter concept is the Ministry of Finance
Notification No. 40/2017-Central Tax (Rate), issued on October 23, 2017(Notification No. 41/2017-Integrated Tax(Rate).
These notifications provides a framework under which intra-State/Inter state supply of goods
made by a registered supplier to a registered recipient for export is exempt
from tax. However, the concession is subject to certain conditions that the
parties involved must meet.
Conditions for Claiming
Exemption of Concessional Tax Rate
To claim this
concessional rate, the Merchant Exporter and the registered recipient must
ensure compliance with the following conditions:
1. Tax
Invoice Issuance: The registered supplier must provide a
tax invoice to the registered recipient when supplying the goods.
2. Export
Timeline: The recipient must export the goods within 90 days
from the date of issue of the tax invoice by the supplier. If this timeline is
not followed, the exemption will not apply.
3. Shipping
Bill Details: The recipient must indicate the Goods and
Services Tax Identification Number (GSTIN) of the registered supplier and the
tax invoice number on the shipping bill or bill of export.
4. Registration
with Export Promotion Council: The recipient should be
registered with an Export Promotion Council or a Commodity Board recognized by
the Department of Commerce. This ensures that the recipient is a legitimate
exporter under Indian law.
5. Order
Placement for Procurement: The recipient must place an order
with the registered supplier for the goods at the concessional rate. A copy of
this order must also be provided to the jurisdictional tax officer of the
registered supplier.
6. Movement
of Goods: The goods must be moved directly from the registered
supplier’s place to the port, airport, or customs station where the export will
take place. Alternatively, they may be moved to a registered warehouse before
being transported to the export location.
7. Aggregation
of Goods: If the recipient wishes to aggregate supplies from
multiple registered suppliers before export, the goods from each supplier
should first be moved to a registered warehouse. Afterward, they can be
transported together to the export location.
8. Endorsement
and Acknowledgement: In cases of aggregation, the recipient
must endorse the receipt of goods on the tax invoice and obtain an
acknowledgment from the warehouse operator. Both the endorsed invoice and
acknowledgment must be provided to the registered supplier and the jurisdictional
tax officer.
9. Proof
of Export: Once the goods are exported, the recipient must
provide the shipping bill or bill of export with the relevant GSTIN and tax
invoice details. Proof of export, such as a general manifest or export report,
must also be submitted to both the registered supplier and the tax officer.
If the recipient does not
fulfill these conditions or fails to export the goods within the stipulated
90-day period, the exemption is revoked, and the supplier becomes ineligible to
claim the concessional tax rate.
Refund of Unutilized
Input Tax Credit (ITC) for Merchant Exporters
One of the advantages of
the GST system for exporters is the ability to claim refunds for unutilized
Input Tax Credit (ITC). ITC refers to the tax paid on inputs that are used to
manufacture goods or provide services. Since exports are considered zero-rated
supplies, exporters are entitled to a refund of the unutilized ITC.
Refund Process for
Merchant Exporters
The process for claiming
a refund under GST for Merchant Exporters is governed by Rule 89(4B) of the GST
Rules. This rule outlines the procedure for claiming refunds on unutilized ITC
when the supplies received by the Merchant Exporter fall under the concessional
tax rate as mentioned in the notification.
Here’s how the refund
process works for Merchant Exporters:
1. Eligibility
for Refund: The Merchant Exporter can claim a refund
of the ITC accumulated on the goods supplied for export at the concessional
rate, as long as the supplier has availed the benefit of the said notification.
The refund can be claimed for the inputs used in the export process.
2. Form
GST RFD-01: The refund claim must be submitted using
Form GST RFD-01 under the category “any other” instead of “refund of unutilized
ITC on account of exports without payment of tax.”
3. Supporting
Documents: Along with the refund application, the Merchant
Exporter must provide supporting documents that validate the claim. These may
include tax invoices, shipping bills, export reports, and proof of payment of
taxes.
4. Scrutiny
of Application: Once the refund application is submitted,
the tax officer will scrutinize it to verify if the refund is due. If the
officer finds that the refund is due, they will request the taxpayer to debit
the claimed amount from their electronic credit ledger through Form GST DRC-03.
5. Issuance
of Refund Order: Upon receipt of the debit proof, the tax
officer will issue a refund order (Form GST RFD-06) and a payment order (Form
GST RFD-05). The refund will be processed and paid to the exporter.
Challenges and
Considerations for Merchant Exporters
While the GST framework
provides several benefits for exporters, including the concessional tax rate
and the possibility of claiming refunds, Merchant Exporters must navigate a
number of administrative challenges.
- Timely Export:
The 90-day window for exporting goods can be a tight deadline, especially
for large orders or shipments that require logistics coordination.
- Documentation:
Maintaining proper documentation and adhering to the specific filing
requirements is critical for claiming refunds. Missing or incorrect
details in the shipping bill or invoices can lead to delays or rejection
of the refund claim.
- Complex Procedures:
The requirement to submit detailed documentation and follow specific
procedures for claiming refunds can be complex for small and medium-sized
enterprises (SMEs) that may lack dedicated tax departments or resources.
Conclusion
The GST system in India
has introduced a simplified and structured way for Merchant Exporters to
benefit from concessional tax rates and claim refunds for unutilized ITC. By
complying with the conditions set out in the Ministry of Finance notification
and following the required procedures, Merchant Exporters can contribute to
India’s export growth while minimizing their tax burden.
However, it is essential
for Merchant Exporters to be aware of the detailed requirements and timelines
associated with the concessional tax scheme and the refund process. By doing
so, they can make the most of the opportunities offered by GST, thereby ensuring
smooth operations and compliance with the law.
Ultimately, the Merchant
Exporter mechanism, if utilized effectively, can prove to be a valuable tool
for businesses looking to export goods while ensuring tax efficiency and
compliance.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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