The introduction of LUT and Bonds under GST, enables exporters to easily claim refunds rather than paying integrated tax and claiming the refund on the same. Read this guide by earlyGST by H&R Block India to know more.

Using LUT and Bonds for Exports under GST

Last Update Date : May 21, 2018

lut and bonds for exporters under gst

Exporting goods and services have been one of the most crucial industry that helps in developing and enormously increase the capital inflows , hereafter, giving rise to employments and stabilizing the economy. From time to time the government has paid attention to boost the trading and exporting for the overall betterment. Under GST certain tax saving reliefs and facilities have been provided to the exporters, This guide explains LUT/Bonds under GST.

Export of Products/Services under GST

When product is supplied from India to outside the country then, it is acknowledged as export of goods. It is well described under sub-section (5) of section 2 of IGST Act, 2017 as “Export of Goods”.  To export services supplier of service(s) should be in India and the one receiving it in foreign land outside the nation. It is specified under sub-section (6) of section 2 of IGST Act, 2017 as “Export of services”.  Therefore, if the receiver of goods and services is located outside India, then supplies of goods and services will be considered as export.

Brief on Refund under IGST

Exporter has benefit of paying IGST and then claiming refund on the same under GST laws. This deal is made easy enough for the exporters to promote the same and boost them to increase their services. There is no need for filing refund application (GST RFD-01) instead, shipping bill filed with customs by the exporter acts as an application for refund claim if:

  • The person carrying export properties (goods) has filed an export patent or export general manifest.
  • The person should have filed the returns GSTR-3 or GSTR-3B.

After filing of table 6A in Form GSTR-1, refund process is initiated.  Refunds can also be claimed by exporters.

What is Letter of Undertaking (LUT) and Bonds?

Letter of Undertaking enables a customer to raise funds as a bank guarantee. It is a type of bond issued by Central Government which an Assessee undertakes in case of exporting.   Bond is an instrument of obligation of the bond issuer to the holders, paid at maturity of the same.  For detail on LUTs and Bond eligibility, click here.

To maintain  uniformity, the board under CGST Act, 2017 clarifies the following issues:

Validity of LUT

LUT is generally valid for a complete financial year in which it is given. However, if the goods or properties are not exported within time and if individual fails to make payment mentioned in the sub-rule 96A of CGST Rules then, the facilities provided to the exporter under LUT will be taken away till it is paid back.
During the period where LUT’s facility is withdrawn, the exports will be done either on payment applicable on integrated tax or under bank with bank guarantee.

Documents for LUT

Unless there is no specific information to specify, self-declaration will be enough to meet the requirements of LUT and accepted.
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 As LUT is an important requirement for export, including exports to a Special Economic Zone (SEZ) developer or a SEZ unit, the LUT should be treated as top most priority. It is explained that LUT 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 is not accepted within three working days from the date of submission, it shall have supposed 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 equipped by those persons who have been indicted for cases involving 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.

Clarification Regarding Running Bond

The exporters shall provide a running bond where the bond amount would cover the amount of self-assessed projected tax liability on the export. The exporter shall ensure that the outstanding integrated tax liability on exports is within the bond amount. In case the bond amount is insufficient to cover the said liability in yet to be completed exports, the exporter shall furnish a fresh bond to cover such liability. The burden of maintaining the debit / credit entries of integrated tax in the running bond will lie with the exporter. The record of such entries shall be provided to the Central tax officer as and when required.

Sealing by Officers

Till mandatory self-sealing is operationalized, sealing of containers, wherever necessary is carried out under the supervision of the officer and under the supervision of central excise officer having jurisdiction over the place of business where the sealing is required. A copy of this process of Sealing the container report is forwarded to Deputy/Assistant Commissioner having jurisdiction over the major place of the business.

Purchases from Manufacturer and Form CT-1

It is simplified that there is no provision for issuance of CT-1 form which allows 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 same as of supply and the same would be subjected to GST.

Transactions with EOUs

Zero rating is not applicable any transaction in terms of exporting goods/services to Export Oriented Units (EOUs) and there is no special allowance for them under GST regime. Hence, supplies exported to EOUs are taxable like any other taxable supplies. EOUs, to the extent of exports, are eligible for zero rating like any other exporter.

  1. Jurisdictional officer
    It is specified in sub-section (3) of section 5 of the CGST Act, that the LUT/Bond shall be accepted by the jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of business of the exporter. The exporter is at liberty to furnish the LUT/bond before either the Central Tax Authority or the State Tax Authority till the administrative mechanism for assigning of taxpayers to the respective authority is implemented.

Filing of LUT instead of Bonds

As per the notification issued by the central government, all the listed taxpaying individuals who wants to supply goods or services for export without paying IGST shall be required to file the LUT in place of bond.  However, that person who has been accused for any offense under the CGST or IGST or any other existing law in force where tax evaded is more than Rs.2.5 crore shall continue to file bond.

How to File and Furnish Bonds and LUT in RFD-11

Following are the steps on how to file and furnish Bonds in case where the exports are made without payment of taxes:

  1. Check the furnishing requirements (Bond) and jurisdiction. If a Bond is required to be filed then extra documents related to bank guarantee is required to be prepared.
  2. Prepare required documents for Bonds. Following is the list of documents that are to be filed for bonds:
    1. Form RFD-11 on letterhead
    2. Bond on stamp paper
    3. Bank guarantee
    4. Authority letter (it assures that the person who has signed the bond has acted on behalf of the company/entity, and has the right to take the step giving him the authority)
    5. Other supporting documents.
    6. It is not mandatory that an exporter can use a single bond for each consignment but, he can use a running bond. It helps the exporter to carry the same terms and conditions in the bond for next consignment. In the end the amount is freed up and can be used for next transactions for export.
  3. A duplicate copy with an office copy of the above must be prepared.
  4. Then submit your documents to the department and get it verified from the appropriate officer to avoid any rejections and resubmissions.
  5. A signed letter must be issued by the officer acknowledging the same within 2 to 3 days of filing the documents.

Steps to Furnish the LUT from GST Portal

Step 1: Login to GST Portal

File LUT under GST step 1

File LUT under GST step 1-2

Step 2: Go to ‘SERVICES’ Tab then select ‘User Services’, under which you will get the option to choose ‘Furnish Letter of Undertaking(LUT)’

File LUT under GST step 2
Step 3: Specify the financial year for which Letter of Undertaking is applied for under the ‘LUT Applied for Financial Year’ drop-down list. E.g.: 2017-18.

File LUT under GST step 3

Note: If the Letter of undertaking has been already furnished previously, then please upload the same by Clicking on ‘Choose File’ option from the window under ‘Document Upload’.

Ensure:

  1. Only PDF or JPEG file formats are allowed.
  2. Maximum file size for upload is 2 MB.

Step 4: Fill up the required details in the Letter of Undertaking Form/ GST RFD-11 that appears on the screen
The following things are needed to be filled in the form:

  1. Self-Declaration: Tick mark by clicking against each of the three boxes respectively.

By doing this, Exporter undertakes the following:

  1. Export of goods/services must be completed within the period of 3 months from the date of issue of Export invoice or further period allowed by the Commissioner if any.
  2. To stand by GST law in respect of exports
  3. To pay IGST along with Interest* if failed to Export

* Interest must be paid at the rate of 18% p.a. for the period from date of issue of export invoice up to date of Payment of IGST.

File LUT under GST step 4

2.  Give Independent Witnesses Information: Under this section you need to mention the Name, Occupation and Address of two independent witnesses in the boxes highlighted in red colour mandatorily.
Note: Witnesses declared in the Letter of Undertaking (LUT) are the ones declared in the running Bond/ Bank guarantee.

File LUT under GST step 5

Step 5: Enter the Place of filing LUT and Name of Authorized Signatory & place then, click on ‘SAVE’. You can select ‘PREVIEW’ to verify the correctness of the form before submission.
Note: Currently, the revision of a signed/submitted form is not possible.

 

File LUT under GST step 6

Step 6: Sign and file the form using either of the following options:
Who Should sign? – The Primary authorised signatory/ any other authorised signatory can sign the Letter of Undertaking.
Authorised signatory can be the working partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorised by such working partner or Board of Directors of such company or proprietor to execute the form.

  • Submit with DSC (Digital Signature Certificate): Sign the application using the registered Digital Signature Certificate of the selected authorized signatory.

To use this option, click on ‘SIGN AND FILE WITH DSC’ then a warning message box will appear on screen, click on ‘PROCEED’ due to which System will generate a unique ARN (Application reference number) **

OR

  • Submit with EVC (Electronic Verification Code): To use this option, click on ‘SIGN AND FILE WITH EVC’. The system will trigger an OTP to the registered mobile phone number and e-mail address of the authorized signatory. Enter that OTP in the pop-up to sign the application, a warning message box for submission appears where you need to click ‘PROCEED’. The system generates a unique ARN (Application reference number)

Note: Companies and LLPs can file only using DSC

A confirmation message appears. GST Portal sends this ARN at registered email and mobile of the Taxpayer by e-mail and SMS.

File LUT under GST step 7

You can click on the DOWNLOAD button to download the acknowledgement.

You can also check out the Letter of Undertakings previously furnished on the GST portal. Go to the home page, go to ‘SERVICES’ tab, select ‘User Services’ and there click on ‘View my Submitted LUTs’. Now Select period for which you want the LUT of and check out the list of LUTs furnished during the selected period.

Click ‘VIEW’ against the Letter of Undertaking to view the detail.

File LUT under GST step 8

Submitting LUT vs Payment of GST

If you choose for the submission of LUT then, you only need to submit LUT once in a year and there will be no other additional compliances to be taken care of. Best part is there is no money involved in process of submission of LUT.  Whereas, if you go with the alternative you must first pay the GST and then you will have to claim the refund back. In this process money will be blocked till the time it is refunded from the time of payment. You will be required to file an additional form every month to claim refund back every month.  The 1st option seems more comfortable and easy then the 2nd option w.r.t. money and time.

Consequence on Non-Compliance of Conditions of Bond

The violation of the condition of bond and its consequences and penalties are same as that of GST Violations.

What Happens if Goods or Services are not Exported?

As per the specifications laid in Rule 96A of the CGST Rules,

  • The exporter shall be responsible to pay taxes, with interest if:
    1. Goods are not exported outside India within 3 months of issuing the export invoice tax should be paid within 15 days from the end of such three months period);
    2. On a failure to render services or if the payment for goods is not received in convertible foreign exchange within one year then within 15 days from the expiry of such one year.
  • Form GSTR-1 should be filed with details of invoices of export with a confirmation of goods that have been exported out of India.
  • If the goods are not exported and the assessee does not makes the payment accordingly, the amount will be recovered as described in the act (Section 79) and the export cannot be undertaken.
  • As soon as the payment is made, the exports are restored. Also in cases where the exports take place after three months, the benefit is restored.

Taxes and GST troubles every individual, but we ensure that it remains friendly to you. All your solutions are a click away, at earlyGST by H&R Block India we take privilege to solve crucial tax related situations and problems with the help of certified team of experts.

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