Merchant Exports under GST

A merchant exporter is a person or company that engages in the activity of exporting goods and services. They do not have a manufacturing unit, but instead buy goods from manufacturers and then sell them to foreign customers. Merchant exporters play an important role in the global economy by providing a link between manufacturers and foreign buyers.

How Merchant Exporters Work

Merchant exporters typically operate in one of two ways:

Direct exporting: Merchant exporters buy goods directly from manufacturers and then ship them to foreign customers. They may also provide additional services, such as marketing and customer support.
Export trading company: Merchant exporters act as intermediaries between manufacturers and foreign buyers. They do not own the goods they sell, but instead act as agents for the manufacturers.

Benefits of Merchant Exports

There are several benefits to using merchant exporters:

Reduced risk: Merchant exporters can help reduce the risk of exporting by providing expertise and experience. They can also help to mitigate the risk of currency fluctuations and other market risks.
Increased market access: Merchant exporters can help companies to access new markets that they may not be able to reach on their own. They have the relationships and networks in place to make it easier to do business in foreign markets.
Cost savings: Merchant exporters can help companies to save money on shipping, marketing, and other costs associated with exporting.

If you are considering exporting, it is important to consider whether using a merchant exporter is the right option for you. There are many factors to consider, such as the size of your company, the products you sell, and the markets you want to target. If you are not sure whether using a merchant exporter is right for you, it is a good idea to consult with an export consultant.

Merchant Exports Under GST

Under GST, a taxable supply means “a supply of goods or services or both which is levied to tax as per provisions of Section 2(108) of the CGST Act.” Also, as per provisions of Section 7(5) of the IGST Act, where a supplier is located in India, and the place of supply is outside India, it is treated as an inter-state supply.

Thus, by reading the provisions of both sections, it can be concluded that merchant exports are liable to GST as the merchant exporter is located in India, and makes a supply to a place outside India. Thus, merchant exporters are compulsorily required to obtain registration under GST.

Export Procedures Under GST

Under the Goods and Services Tax (GST) regime, the procedure for exports has been simplified. There are two alternatives available to exporters:

Export under bond or letter of undertaking (LUT). Under this option, the exporter does not need to pay IGST upfront. Instead, they can export the goods under a bond or LUT, which is a guarantee that they will pay the IGST if they do not export the goods. Once the goods are exported, the exporter can claim a refund of the IGST that they did not pay upfront.
Export by paying IGST and then claiming a refund. Under this option, the exporter pays IGST upfront when they export the goods. They can then claim a refund of the IGST from the government. This option is only available if the exporter has not opted for the Special Relief Scheme of buying goods at 0.1% GST.

Shipping Bill

The only document that is required to be filed with Customs for exports under GST is the shipping bill. The shipping bill is a document that is used to declare the goods that are being exported. Once the shipping bill is filed, it is treated as an application for a refund of IGST.

Benefits of Simplified Export Procedures

The simplified export procedures under GST have several benefits for exporters, including:

Reduced compliance burden: The simplified procedures reduce the compliance burden on exporters. They no longer need to file multiple forms with Customs and the government.
Faster refunds: The simplified procedures also lead to faster refunds of IGST. Exporters can now get their refunds within a few weeks, instead of the several months that it used to take.
Improved ease of doing business: The simplified export procedures improve the ease of doing business for exporters. They can now focus on their core business activities, instead of spending time on compliance.

Conditions for availing the Concessional Rate Under Merchant Exports

The government has provided special relief to the merchant exporters by way of reducing the GST rate to 0.1% for purchasing goods from domestic suppliers. But, he needs to fulfil the below conditions for availing such concessional rate relief:

The tax invoice for the procured goods should clearly state the GST rate at 0.1%.
Such goods should be exported within 90 days of the issue of a tax invoice.
The GSTIN and the tax invoice number of the supplier should be mentioned on the shipping bill.
Such merchant exporters should be registered with an Export Promotion Council or Commodity Board.
A copy of the order placed at the concessional rate shall be provided to the jurisdictional tax officer of the registered supplier.
Such goods shall be directly moved to the place from where it shall be transferred to the port/ICD/Airport/LCS. This condition prevails even if the goods are purchased from multiple registered suppliers.
On export of goods, a copy of the shipping bill/bill of export along with the proof of EGM and export report shall be filed with the registered supplier as well as its jurisdictional tax officer.
The merchant exporter should export goods under LUT/bond but not with the payment of tax (IGST).

Further, if the merchant exporter fails to export the goods within 90 days from the date of issue of tax invoice, then the registered supplier cannot avail the benefit of the concessional tax rate.

Refund Process when a merchant exporter is involved

Below are some of the scenarios revolving around the refund process where a merchant exporter is involved:

Where a merchant exporter exports goods without payment of tax. Procures goods at 0.1% and then claims refund of the same: In this case, a supplier supplies goods to the merchant exporter charging GST at 0.1% and the merchant exporter exports the goods without payment of tax. As per Section 54(3) of the CGST Act, the merchant exporter can claim a refund of the unutilised ITC at the end of a tax period in case of zero-rated goods or goods involving an inverted tax structure.
Where a supplier of a merchant exporter procures goods from another supplier and claims refund under Inverted Duty Structure: In this case, there are two suppliers. The first supplier makes a supply to the second supplier at standard GST rates. But, the second supplier makes the supply to the merchant exporter at a concessional rate of 0.1%. Here, the second supplier is not directly exporting goods but providing goods to merchant exporters. Thus, as per Section 54(3), the second supplier can claim a refund of ITC under an inverted tax structure (rate of tax on inputs is higher than the rate of tax on outputs).
Where a supplier is supplying to a merchant exporter at a regular rate and exports are done with the payment of tax (IGST paid): In this case, the concessional tax rate on inputs can not be availed by the merchant exporter, as he decides to export goods by making payment of tax (IGST). Hence, the standard tax regime will be followed by the supplier, where ITC shall be used for payment of output tax and the balance liability is to be paid in cash. Merchant exporters can claim a refund of both unutilised ITC and IGST paid against zero-rated supply.

Thus, it can be ascertained that merchant exports are similar to regular exports. They boost the country’s economy by bringing in foreign currency. Therefore, the government has provided concessional rate benefits in the case of merchant exporters which helps them reduce their working capital requirements.

BY : CA GYATI GUPTA

DELHI NCR

Business

Merchant Exports under GST