Merchant export refers to a common practice within international trade. This method of exporting goods holds similar significance to that of a manufacturer directly exporting products. A merchant exporter is an individual or entity whose primary business involves trading and exporting, or planning to export, goods. Unlike manufacturers, they do not produce these goods themselves; instead, they acquire them from a manufacturer-exporter and subsequently dispatch them to international buyers.

GST Applicability for Merchant Exports

Under the Goods and Services Tax (GST) framework, a taxable supply is defined in Section 2(108) of the CGST Act as the provision of goods, services, or both, subject to tax. Furthermore, Section 7(5) of the IGST Act specifies that when a supplier is based in India and the delivery location is outside the country, this transaction qualifies as an inter-state supply. Based on these provisions, it is clear that merchant exports are subject to GST. This is because the merchant exporter operates from India and dispatches goods to locations abroad. Consequently, merchant exporters are legally obligated to register under GST.

Streamlined Procedures for Merchant Exports

The export process has been streamlined under the GST system, offering two primary methods for merchant exporters. Exporters can either conduct exports under a Bond or Letter of Undertaking (LUT), allowing them to claim a refund for any unutilized input tax credit. Alternatively, they may export by remitting Integrated Goods and Services Tax (IGST) and subsequently apply for a refund of this amount. However, this second option is not available if the exporter has already utilized the Special Relief Scheme for purchasing goods at a concessional 0.1% GST rate. Additionally, only a shipping bill needs to be submitted to Customs, which serves as the official refund application once filed.

Eligibility for Concessional GST Rate on Merchant Exports

The government extends a special concession to merchant exporters, enabling them to procure goods from domestic suppliers at a reduced GST rate of 0.1%. To qualify for this preferential rate, specific conditions must be met:

• The tax invoice for the acquired goods must explicitly show the 0.1% GST rate.
• These goods must be exported within 90 days from the tax invoice's issuance date.
• The shipping bill must include both the supplier's GSTIN and the relevant tax invoice number.
• Merchant exporters must be registered with an authorized Export Promotion Council or Commodity Board.
• A duplicate of the concessional rate order needs to be submitted to the registered supplier's jurisdictional tax officer.
• The goods must be transported directly from the point of purchase to the port, Inland Container Depot (ICD), airport, or Land Customs Station (LCS) for export, even if sourced from various registered suppliers.
• Upon export, a copy of the shipping bill or bill of export, along with evidence of the Export General Manifest (EGM) and the export report, must be provided to both the registered supplier and their jurisdictional tax officer.
• The merchant exporter must conduct these exports under a Letter of Undertaking (LUT) or bond, rather than by paying IGST.

It is crucial to note that if the merchant exporter fails to export the goods within 90 days of the tax invoice date, the registered supplier will lose the entitlement to the concessional tax rate benefit.

Refund Scenarios for Merchant Exporters

Several situations outline the refund procedure for merchant exporters.

Export without Tax Payment and Concessional Procurement

In this scenario, a merchant exporter exports goods without paying tax, having acquired them at the 0.1% concessional GST rate, and then seeks a refund. Here, the initial supplier charges GST at 0.1%, and the merchant exporter dispatches the goods tax-free. According to Section 54(3) of the CGST Act, the merchant exporter is eligible to claim a refund for any unutilized Input Tax Credit (ITC) at the close of a tax period, particularly for zero-rated goods or those subject to an inverted tax structure.

Supplier Claims Refund Under Inverted Duty Structure

Another case involves a supplier to a merchant exporter who obtains goods from a different supplier and subsequently claims a refund under an inverted duty structure. In this two-tier supply chain, the first supplier charges standard GST rates to the second supplier, who then supplies the goods to the merchant exporter at the 0.1% concessional rate. Although the second supplier does not export directly, they are providing goods to a merchant exporter. Therefore, under Section 54(3), the second supplier can claim an ITC refund if their input tax rate exceeds their output tax rate.

Regular Rate Supply and Exports with IGST Payment

Finally, if a supplier provides goods to a merchant exporter at the standard GST rate, and the exports are carried out with IGST payment, the merchant exporter cannot benefit from the concessional input tax rate, as they chose to export by paying IGST. In this instance, the supplier adheres to the standard tax system, utilizing ITC to offset output tax, with any remaining liability paid in cash. The merchant exporter can then claim a refund for both the unutilized ITC and the IGST paid on the zero-rated supply. In conclusion, merchant exports share many characteristics with conventional exports and play a vital role in strengthening a nation's economy through foreign currency inflow. To support this, the government offers beneficial concessional rates to merchant exporters, effectively lowering their working capital demands.