Merchant Exports Under GST: Procedure, Benefits, and Compliance

Merchant exports are an essential part of India’s export ecosystem. The GST framework provides several benefits to these exporters by simplifying compliance and reducing tax outflows. This blog explains the key aspects of merchant exports under GST in a way that’s easy to understand.

What Are Merchant Exports?

A merchant exporter buys goods locally and exports them without manufacturing. According to Section 7(5) of the IGST Act, any supply of goods from India to a place outside India is treated as an inter-state taxable supply. Hence, merchant exporters must register under GST, even if they don’t have a factory or produce anything themselves.

Two Ways to Export Under GST

Merchant exporters can choose one of the following two options:

1. Export Without Paying IGST (Under LUT/Bond)

You can export goods without paying Integrated GST (IGST) by submitting a Letter of Undertaking (LUT). After exporting, you can claim a refund of the unutilized input tax credit (ITC).

2. Export With Payment of IGST

Alternatively, you can pay IGST at the time of export and claim a refund later. However, this route is not allowed if you buy goods under the concessional 0.1% GST scheme.

In both methods, the shipping bill acts as the refund application. There’s no need to file a separate claim once it’s filed with customs.

What Is the 0.1% Concessional GST Rate?

To encourage exports, the government allows merchant exporters to buy goods from domestic suppliers at a concessional GST rate of 0.1%, if they meet the following conditions:

• You must export the goods within 90 days of the invoice date.
• The supplier’s GSTIN and invoice number should appear on the shipping bill.
• You need to register with an Export Promotion Council or Commodity Board.
• The supplier must send goods directly to the port, ICD, airport, or land customs station.
• Export must be done under an LUT or bond (without paying IGST).
• You must share copies of shipping documents with the supplier and their tax officer.

If you miss the 90-day export deadline, the concessional rate becomes invalid, and regular GST rates apply.

Refund Options for Merchant Exporters

There are three main refund scenarios under GST:

1. You Export Without Paying Tax and Buy at 0.1% GST

You can claim a refund of unutilized ITC, as allowed under Section 54(3) of the CGST Act.

2. A Supplier Faces an Inverted Tax Structure

If a supplier sells at a higher GST rate to another supplier, and that second supplier sells to you at 0.1%, the second supplier may face tax rate mismatch. They can claim a refund of ITC under the inverted duty structure.

3. You Export With Payment of IGST (No 0.1% Benefit)

In this case, you can claim a refund of the IGST paid on export and the input taxes used for making the goods.

Step-by-Step: How to Avail the 0.1% GST Rate

Follow these steps to use the concessional rate effectively:

1. Register under GST and get an Import-Export Code (IEC).
2. Submit your LUT to the GST portal.
3. Place an order with your supplier, clearly mentioning the 0.1% GST clause.
4. Ensure that the goods are shipped directly to the port or export point.
5. Export the goods within 90 days of purchase.
6. Share all export documents with the supplier and tax authorities.
7. File regular GST returns (GSTR-1 and GSTR-3B) and maintain records properly.

Why This Matters: Key Benefits

Choosing merchant export under GST provides several advantages:

• Lower tax costs: Buy goods at just 0.1% GST.
• Cash flow relief: Claim refunds quickly to improve liquidity.
• Simplified paperwork: LUT avoids the need to pay and later claim IGST.
• Encourages exports: More exporters can enter global markets with fewer barriers.
• Supports domestic trade: Manufacturers benefit from demand created by merchant exporters.

Compliance Checklist for Merchant Exporters

To stay compliant and avoid penalties, keep the following in mind:

• Export within the specified 90-day window.
• Make sure invoices and shipping bills are properly matched.
• File your LUT every financial year without fail.
• Maintain accurate records of purchases, exports, and GST filings.
• Coordinate closely with your supplier for shipping and documentation.

Frequently Asked Questions (FAQs)

1. What if I don’t export within 90 days?
You lose the benefit of the 0.1% rate, and standard GST rates apply.

2. Can I export with IGST payment if I bought at 0.1%?
No. You must export without IGST payment if you purchased at 0.1%.

3. Is registration with an Export Promotion Council mandatory?
Yes, this is a key requirement for claiming the concessional rate.

4. Can I claim both IGST refund and ITC refund?
Not if you bought goods at 0.1%. You can only claim ITC refund.

5. What happens if I make a mistake in documentation?
Incorrect or delayed filings can delay refunds or lead to penalties. Always double-check your documents.

Final Thoughts

Merchant exports under GST are designed to make international trade more accessible and cost-effective. When you follow the correct steps, use the concessional rate properly, and meet compliance rules, you can maximize tax benefits while contributing to India’s export growth.

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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

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