GST: More Clarifications From CBEC On Letter Of Undertaking For Exports

The Central Board of Excise and Customs had issued circulars 2/2/2017-GST and 4/4/2017-GST to clarify the issues relating to furnishing of bonds/letter of undertaking (LUT) for exports without payment of IGST. Considering the large number of representations, the CBEC issued circular 5/5/2017-GST on August 11, 2017, clarifying as follows:

• Eligibility to export under LUT: Any registered person, who has received a minimum foreign exchange inward remittance of 10 percent of export turnover in the preceding financial year is eligible for submitting LUT, provided that the amount of foreign inward remittance should be minimum Rs 1 crore. A status holder as specified in paragraph 3.20 and 3.21 of the Foreign Trade Policy 2015-2020 can submit an LUT.
• Form for submission of bond/LUT: Bonds are furnished on non-judicial stamp paper, while LUTs are generally submitted on a letterhead containing signature and seal of the authorised person.
• Time for acceptance of bond/LUT: The bond/LUT should be accepted by the authorities within a period of three working days from the date of submission of bond/LUT along with complete documentation.
• Procurements by merchant exporters under form CT 1: The facility of procurement of goods without payment of excise duty under form CT 1 by merchant exporters is no longer available. The merchant exporters have to procure the goods on payment of GST.
• Supplies to export oriented units: Supplies to EOUs do not enjoy any benefit of zero rating and are subject to tax similar to any other taxable supply.
• Acceptance of LUT in case of payment in Indian Rupees for supplies made to Nepal, Bhutan, and special economic zones: Acceptance of LUT instead of a bond 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 applicable Reserve Bank of India guidelines. However, the supply of services to Nepal or Bhutan will be deemed to be an export of services only if payment for such services is received in convertible foreign exchange.
• Submission of bank guarantee along with bond: Circular 4/4/2017 provided that in the case of submission of a bond, the bank guarantee should not normally exceed 15 percent of the bond amount and the commissioner may waive off the requirement to furnish a bank guarantee, considering the facts of each case. Some of the cases, where the commissioner can waive off bank guarantee are as under: a) in the case of an exporter registered with a recognised export promotion council, if he submits a self-attested copy of the proof of registration with a recognised Export Promotion Council; or b) if the condition of receipt of 10 percent foreign inward remittance, subject to a minimum of Rs 1 crore (as mentioned above), is not fulfilled by a registered person in one state but the condition is fulfilled for the entity as a whole (including registrations in all states).
• Jurisdiction for submission of bond/LUT: The bond/LUT submitted by an exporter will be accepted by the DC/AC having jurisdiction over his principal place of business. The exporter can submit a bond/LUT to the central tax authority or the state tax authority, till the administrative mechanism for assigning taxpayers to respective authority is implemented. However, the central tax officers will facilitate all exporters, whether or not they were registered with the Central Government in the earlier regime.
• Documents for LUT: Documents submitted as proof of fulfilling the conditions of LUT shall be accepted unless there is evidence to the contrary. Further, the self-declaration of documents should be accepted unless there is specific information otherwise and verification, if any, may be done on post facto basis. For status holders, a self-attested copy of the proof of status should suffice.
• Time of applicability of the circulars: Applicability of all the instructions and clarifications issued relating to submission of bond/LUT in previous circulars as well as present circulars are applicable for exports on or after July 1, 2017.

Comments

There was a significant lack of clarity on exports including supplies made to Nepal, Bhutan, and SEZs and divergent practices were being adopted. The clarification would redress most of the practical challenges faced by the exporters with regard to bond/LUT. The clarifications regarding (i) waiving bank guarantee requirement along with bond, when the exporter fulfills the conditions at an entity level (and not at the individual registration level) and (ii) LUT for supplies to SEZ unit/developer against payment in Indian Rupees are welcome. The clarifications are quite industry friendly and would remove the hardship faced by the exporters in this new regime.

This note was first published on the PwC India Indirect Tax News Flash bulletin.

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