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Bond/LUT: Documentation and Procedure to furnish for export without payment of IGST

Central Board of Excise and Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India has issued a Circular No. 26/2017-Customs dated 01-Jul-2017 read with Circular No. 2/2/2017-GST dated 04-Jul-2017 clarifying that as per Rule 96A of the Central Goods and Services Tax Rules, 2017, any registered person/exporter availing the option to supply goods or services for export without payment of Integrated Tax (IGST) shall furnish, prior to export, a Bond or a Letter of Undertaking (LUT) in FORM GST RFD-11 on the common portal from 01-Jul-2017. The same will be submitted to the office of Jurisdictional Commissioner in the format specified in FORM RFD-11 till the module for furnishing of FORM RFD-11 is available on the common portal.

Trade and Industries are facing now the teething issues that how and which documents will be furnished with Letter of Undertaking (LUT). Keeping in mind all these problems of Trade & Industries, the author of this post hereby tried his level best to further clarify about the process and procedure for submission of Letter of Undertaking (LUT) to the office of Jurisdictional Commissioner.


At the outset, one must know that who can file a Letter of Undertaking (LUT).

CBEC has clarified on 07-Jul-2017 vide Notification no. 16/2017-Central Tax that the following person shall be eligible for submission of Letter of Undertaking (LUT) in place of a bond as mentioned below:

  • A status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020; or
  • Who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year, and

he has not been prosecuted for any offense under the Central Goods and Services Tax Act, 2017 (12 of 2017), or under any of the existing laws in the case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.

How to file a Letter of Undertaking (LUT)?​

  • The registered person/exporter will download the LUT FORM GST RFD-11 from www.cbec.gov.in.
  • The registered person/exporter will prepare and submit a request printed on its letterhead for acceptance of LUT FORM GST RFD-11 duly filled & signed by the Working Partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorized by such working partner or Board of Directors of such company or proprietor on the letterhead of the registered person as the case may be.

What documents a registered person/exporter need to submit with a Letter of Undertaking (LUT)?

Along with FORM RFD-11 supported by a request letter the following documents need to be submitted to the office of Jurisdictional Commissioner:

  • FORM GST RFD-11 duly filled and signed with the seal on company/firm letterhead.
  • Letter of Undertaking as prescribed on company/firm letterhead in duplicate duly signed with seal by the competent person as per Notification No. 16/2017-Central Tax dated 07-Jul-2017.
  • Certificate of Recognition (Status Holder Certificate) issued as per Para 5 & 3.20 of Foreign Trade Policy 2015-2020.

or

  • If a registered person/exporter is not a Status Holder as per Para 5 & 3.20 of Foreign Trade Policy 2015-20 then the following documents need to be submitted in lieu of Status Holder Certificate:
    • Bank Certificate, obtained from the bank where export realizations come, mentioning that the registered person/exporter has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year.
  • An undertaking/ declaration on letterhead that – the registered person/exporter has not been prosecuted for any offense under the Central Goods and Services Tax Act, 2017 (12 of 2017) or under any of the existing laws in the case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.
  • Copy of Provisional/Permanent GST Registration Certificate.
  • Copy of Importer-Exporter Code (IEC).
  • Copies of Returns (DVAT-16) of all four quarters 2016-17 or GSTR-3 of all months of the preceding year.
  • Export bill/invoice.

Will Status Holder need to furnish Bank Guarantee with Letter of Undertaking (LUT)?

The Status Holder is exempted from the furnishing of Bank Guarantee with Letter of Undertaking(LUT).

To whom will the registered person/exporter submit the Bond/LUT in the office of Jurisdictional Commissioner?

The request letter along with Letter of Undertaking (LUT) and all the above documents shall be submitted to the concerned Deputy/Assistant Commissioner (GST Export Cell) having jurisdiction over the principal place of business of the registered person/exporter. The registered person/exporter is at liberty to furnish the bond/LUT before Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented. However, if in a State, the Commissioner of State Tax so directs, by general instruction, to registered person/exporter, the Bond/LUT in all cases be accepted by Central tax officer till such time the said administrative mechanism is implemented.

How a registered person/exporter will come to know that Bond/LUT is accepted by concerned authority?

The concerned Deputy/Assistant Commissioner (GST Export Cell) will process the request and after scrutiny of the documents will issue the Acceptance Letter in the prescribed format.

What happens if any document is found deficient?

On scrutiny, if any document is found deficient/ improper by the concerned Deputy/Assistant Commissioner (GST Export Cell) the same will be communicated to the applicant. Thereafter final decision on issuance of Acceptance Letter of Bond/LUT may be taken after the deficiencies have been removed by the applicant.

This blog or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review. Contents are published here with the consent of the author and these are purely related to personal view and knowledge of the author. 

Disclaimer: We expressly disclaim any and all liability to any person, whether a subscriber or not, arising out of the use of this blog. Please report errors to eximfriend@eximclinic.com

GST: Freight on Import of Goods into India

Post-implementation of GST in India there were so many concerns of exporters/importers related to export & import process and procedures which have been addressed and clarified by several Government Notifications/Circulars.

The author of this blog has been approached by the EX-IM community requesting the explanation of GST applicability on freight on Export & import of goods from/to India. 

Here, in this blog author has tried to explain the GST applicability on freight on import of goods into India in a simplified manner i.e. author used the “Question & Answer” method for explaining the same for ease of understanding of readers.


Ms. Seema: Good day sir, how are you?

Author: Hi, Seema! I am good, how about you?

Ms. Seema: I am doing good sir?

Author: Tell me how can I help you today?

Ms. Seema: Can you tell me about freight forwarding and logistics under GST Regime?

Author: Why not? I am here to help you in this matter. Freight forwarding and logistics are a “Supply of Services” including the movement of goods by air, sea, inland waterway, rail, and road. GST treatment on freight transportation will depend on whether transportation is international or domestic.

Practically, international freight transportation of goods is carried out in association with overseas agents (counterpart) of domestic freight forwarders as a part of a global network. They use each other’s services in order to provide last-mile delivery in the respective destination country of the logistics operation.

In export, an exporter appoints domestic freight forwarder to perform logistics operations till Consignee/Buyer’s facility. In a similar manner in import, an importer appoints a domestic freight forwarder to perform logistics operations from outside India to his/her facility in India.

Here, we will discuss GST applicability on Freight on the Import of Goods into India.

Ms. Seema: Thank you, sir, for clarifying the international freight transportation. Can you please tell me about the “Place of Supply” in such cases?

Author: Oh, great! You have asked a very good question. Place of Supply is very important to determine the taxability of Cross Border transaction.

In cross border transactions the area of impact is the “Place of Supply” provisions to determine the taxability.

At first, I make you understand the taxability on transportation of goods for import into India prior to the GST regime.

Prior to the GST regime, the transportation of goods by vessel/ship, outbound shipments, were considered as exports, whereas inbound shipments for import of goods into India by vessel/ship were subject to Service Tax.

In the case of transportation of goods by air in both types of shipments (outbound & inbound) were not subject to Service Tax.

Under the GST regime, the taxability depends on where is the Place of Supply of “Transportation of Goods” services?

Section 12(8) of IGST Act, 2017 defines The Place of Supply of Services by way of transportation of goods, including by mail or courier to:

– a registered person shall be the location of such person;

– a person other than a registered person shall be the location at which such goods are handed over for their transportation.

(The above section is essential to determine Place of Supply of Transportation of Goods services)

Ms. Seema: Can you please tell me the taxability under GST on various legs on the transaction involved in the import of goods into India?

Author: Sure Seema, you are right while importing the goods into India there are various legs involved in this transaction which are further defined as per agreed Delivery Terms (INCOTERMS) between Consignor/Shipper and  Consignee/Buyer.

INCOTERMS define the role and responsibilities of both the parties involved in the transaction by which their nominated freight forwarder and associated overseas agent do perform their activities to make goods clear for import into India and last-mile delivery till Consignee/Buyer’s facility.

Here, I will explain 04 INCOTERMS which are majorly used in the legs of a transaction for transportation of goods into India for import. These are:

  • Ex-Works
  • FOB
  • CIF
  • DDP     

Considering the aforesaid, and basis the origin and destination of the transaction, analysis of each transaction under GST are below mentioned:

EX-WORKS

(Where Consignee/Buyer is responsible to discharge the entire liability of transactions)

Type of Transactions

A transaction between Consignee/Buyer & Indian Freight Forwarder including custom clearance in India.

Scope of Services

Consignee/Buyer does contract for the delivery of goods from the Consignor/Shipper (outside India) facility to Consignee/Buyer’s facility in India including clearance of goods for import.

Taxability prior to GST under Service Tax​

Service Tax was applicable under Rule 10 of POPS, 2012 including Ocean Freight.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Taxable under Rule 9 of GST- Place of Supply
  • GST on Ocean Freight is @ 5%
  • GST on Air Freight is @ 0%
  • GST on all Origin & Destination Charges are @18%

FOB

(Where Consignee/Buyer will liable to pay Ocean Freight(FOB) / Air Freight (FCA) and Destination Charges)

Type of Transactions

The transaction between Consignee/Buyer & Indian Freight Forwarder including custom clearance in India.

Scope of Services

Consignee/Buyer does contract for the delivery of goods from Port of Loading (outside India) to Consignee/Buyer’s facility in India including custom clearance in India.

Taxability prior to GST under Service Tax​

Service Tax was applicable to entire consideration under Rule 10 of POPS, 2012.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Taxable under Rule 9 of GST- Place of Supply
  • GST on Ocean Freight is @ 5%
  • GST on Air Freight is @ 0%
  • GST on all Destination Charges are @18%

CIF

(Where Consignor/Shipper is liable to deliver the goods and pay Cost, Insurance & Freight till Port of Discharge/Import in India)

Type of Transactions

A transaction between Consignee/Buyer & Indian Freight Forwarder for Customs Clearance and Domestics Transportation till Consignee/Buyer’s facility in India.

Scope of Services

Consignee/Buyer does contract for clearance of goods at Port of Discharge/Destination Port and transportation of goods from clearance port to Consignee/Buyer’s facility in India.

Taxability prior to GST under Service Tax​

Service Tax was applicable to entire consideration under Rule 10 of POPS, 2012.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Taxable under Rule 9 of GST- Place of Supply
  • GST on Ocean Freight is @ 5% under Reverse Charge Mechanism (RCM). If freight is not known then GST would be 5% on 10% of the CIF value of goods. Hence tax applicability would be 0.5% on the CIF value of goods. 
  • GST on Air Freight is @ 0%
  • GST on all Destination Charges are @18%

Refer IGST Tax (Rate) Notification No 8/2017 dated 28-Jun-2017 read with Corrigendum dated 30-Jun-2017

Author comment: Please obtain Freight Certificate in any form along with Import Documents to avoid paying higher tax on Invoice Value.​

DDP

(Where Consignor/Shipper is liable to discharge entire liability to make deliver the goods clear for import and transportation till Consignee/Buyer’s facility in India)

Type of Transactions

A transaction between Overseas Agent and Indian Freight Forwarder for Destination legs of transactions.

Scope of Services

Overseas Agent does contract to Indian Freight Forwarder to perform Indian leg of transactions involved to make clear goods for import and delivery till the Consignee/Buyer’s facility in India.

Taxability prior to GST under Service Tax​

Service Tax was applicable under Rule 10 of POPS, 2012.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Chargeable under GST @ 18% for entire consideration of the Indian leg of the transaction.
  • If Indian Freight Forwarder will Bill into Foreign Currency to Overseas Agent then GST will not apply.
  • GST on Ocean Freight will be governed by IGST (Rate) Notification No 8/2017 dated  28-Jun-2017 read with Corrigendum dated 30-Jun-2017.
  • GST on Air Freight is @ 0%

This blog or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review. Contents are published here with the consent of the author and these are purely related to personal view and knowledge of the author. 

Disclaimer: We expressly disclaim any and all liability to any person, whether a subscriber or not, arising out of the use of this blog. Please report errors to eximfriend@eximclinic.com

Post GST: Export & Import

We are now under 1 Nation, 1 Tax & 1 Market GST Regime. With the beginning of GST, there were many concerns about the procedures particularly relating to the documentation for Export & Import of goods. The Government has recently issued several notifications and guidance notes for Exporters and Importers detailing the procedures. I am here under summarizing the procedures to be followed for the Export & Imports of goods.


HOW TO MAKE ZERO RATED SUPPLY

Under GST Law Export of goods has been treated as “Zero Rated Supply” under Section 16 of the Integrated Goods & Services Tax Act, 2017 (‘IGST Act’). Hence, GST Law provides the following options as mentioned below to a registered tax-payer exporting the goods.

Option A: Export of goods without payment of duty under bond or letter of undertaking (LUT) and subsequently claim the refund of unutilized Input Tax Credits. Here no requirement of payment of IGST.

Option B: Export of goods on payment of IGST and claim the refund of such tax paid on Export of Goods. Here Exporter would be required to pay IGST first then claim the refund of such tax paid on Export of Goods. 

FORMAT OF LETTER OF UNDERTAKING OR BOND

The exporter needs to file Bond or LUT prior to export in Form GST RFD – 11 on the common portal (www.gst.gov.in) but due to difficulties faced by trade and industry while filing online GST Policy Wing has issued a Circular No. 2/2/2017-GST Dated 04-Jul-2017 stating physical submission of Bond or LUT to the jurisdictional Deputy / Assistant Commissioner.

WHO CAN FILE LUT (LETTER OF UNDERTAKING) IN PLACE OF BOND

Vide Notification No. 16/2017 – Central Tax the CBEC has clarified that either a registered person having a status holder as specified in paragraph 5 of the Foreign Trade Policy 2015-2020 or who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year, and one has not been prosecuted for any offense under the Central Goods and Services Tax Act, 2017 (12 of 2017) or under any of the existing laws in the case where the amount of tax evaded exceeds two hundred and fifty lakh rupees can file LUT in place of Bond for export of Goods and Service or both in the annexure to FORM GST RFD – 11 referred to in sub-rule (1) of rule 96A of the Central Goods and Services Tax Rules, 2017.

LUT shall be valid for twelve months. If the exporter fails to comply with the conditions of the LUT he may be asked to furnish a bond.

Exports may be allowed under existing LUTs/Bonds till 31-July-2017. Exporters shall submit the LUTs/bond in the revised format latest by 31st July, 2017.

WHO CAN FILE BOND

All exporters, not covered by the said notification No. 16/2017 – Central Tax, would submit a bond. The procedure for submission and acceptance of the bond has already been prescribed by CBEC vide circular No. 2/2/2017-GST. The bond shall be furnished on non-judicial stamp paper of the value as applicable in the State in which bond is being furnished. 

Due to consignment wise bond would be a significant compliance burden on the exporters. Hence CBEC has directed that the exporters shall furnish a running bond, in case he is required to furnish a bond, in FORM GST RFD -11. The bond would cover the amount of tax involved in the export based on estimated tax liability as assessed by the exporter himself. The exporter shall ensure that the outstanding tax liability on exports is within the bond amount. In case the bond amount is insufficient to cover the tax liability in yet to be completed exports, the exporter shall furnish a fresh bond to cover such liability.

Exporter has to furnish a Bank Guarantee with Form GST RFD – 11 Bond which should normally not exceed 15% of the bond amount.

It is further stated that the Bond/LUT 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 bond/LUT before Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented.

FILING OF SHIPPING BILL

The format of the shipping bill has been changed and aligned with IGST Law. An exporter is required to file details of exports in the revised format of the shipping bill. In the shipping bill, the exporter needs to declare the choice of exports whether exports are made without payment of IGST or on payment of IGST with an option between (a) or (b)

FILING OF ARE-1

The requirement of filing ARE-1 has been dispensed for the goods to be exported under the GST Regime.

SEALING OF CONTAINERS

CBEC has prescribed a simplified procedure for self-sealing of containers. Going-forward, an exporter can undertake self-sealing of goods under the supervision of the customs officials (instead of excise officials as done currently). CBEC has decided that the revised procedure of sealing of containers would come into effect from 01-Sep-2017. In the interim, sealing of containers under the supervision of excise officials will continue.

DUTY DRAWBACK

The duty drawback scheme for the export of goods manufactured in India will continue under the GST regime as well. For the initial 03 months, the existing drawback scheme will continue. Hence, exporters will be entitled to claim a higher rate of duty drawback subject to the condition that no credit or refund of CGST / IGST is claimed and no CENVAT credit related to export goods is carried forward (a declaration needs to be filed towards the same). In the post-transition period of three months, the drawback will be limited to customs duties paid on imported goods (as known as “lower rate” presently). For GST paid on the procurement of goods and services, the exporter needs to go for credit or refund.

CONDITION FOR EXPORT OF GOODS/ SERVICES

In the case of goods, Exporter have to export the goods within 3 months from the date of issue of invoice

In case of service, Exporter must be received the convertible foreign currency within one year from the issue of invoice for export

Exporter has to pay tax along with interest within 15 days from the default in the above conditions.

GSTIN – IEC & PAN

Import Export Code (‘IEC’) would be PAN post-01-Jul-2017. GSTIN would be used as an identifier at the transaction level for every import and export transaction.

IMPORT DUTIES

Basic Customs Duty and Customs Cess, IGST, and Compensation Cess under Section 3(7) and 3(9) of the Customs Tariff Act, 1975 (‘CTA’) will apply on import consignments.

VALUATION METHOD 

Customs valuation rules will apply for the computation of IGST and Compensation Cess to be paid on imported goods. The following points as mentioned below are relevant in this regard:

IGST is payable on assessable value (as per Section 14 of the Customs Act, 1962) plus (a) basic customs duty; (b) customs cess; (c) anti-dumping duty; (d) safeguard duty; and (b) any other duty of customs

Compensation Cess shall payable on the value taken for levying IGST.

FORMATS FOR BILLS OF ENTRY

Formats of bills of entry have been revised to capture IGST and Compensation Cess details.

TRANSITIONAL PROVISIONS

Applicability of IGST clarified as follows for the below transitional scenarios:

Cargo imported before 01-Jul-2017 and bill of entry filed after 01-Jul-2017: IGST and Compensation Cess, as applicable, to be paid

Bill of entry filed before 01-Jul-2017 and cargo imported after 01-Jul-2017: Proper officer may recall bill of entry and reassess the same for levy of IGST and Compensation Cess.

N J Singh Comment: Importers can apply for re-assessment  or revision of bill of entry

Filing of an ex-bond bill of entry post-July 1, 2017: IGST and compensation cess, as applicable, to be paid.

USE OF EXIM SCRIPS

Scrips (MEIS, SEIS etc.) can be utilized only for payment of basic customs duty (‘BCD’) and additional duties of customs. These scrips cannot be utilized for payment of IGST and Compensation Cess (on imports) and CGST and SGST / IGST (on domestic procurements).

N J Singh Comment: This could pose a challenge in utilizing the scrips as these generally have time validity.

TREATMENT OF SAD PAID ON GOODS IMPORTED BEFORE 01-JUL- 2017

The credit of SAD can be availed on the goods imported before 01-Jul-2017 and can be set off against the GST liability on the supply of such goods in the domestic market post 01-Jul-2017.

ELIGIBLE DOCUMENT FOR AVAILMENT OF CREDIT

Bill of entry to be considered as an eligible document for availing of credit and following needs to adhere:

GSTIN to be mandatorily disclosed on the bill of entry. Provisional IDs can be used during the transition period. Ensuring the details GST paid matches in auto-populated Form GSTR-2 (return for inward supplies)

This blog or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations in a book review. Contents are published here with the consent of the author and these are purely related to personal view and knowledge of the author. 

Disclaimer: We expressly disclaim any and all liability to any person, whether a subscriber or not, arising out of the use of this blog. Please report errors to eximfriend@eximclinic.com