GST Export Invoice - Exporting under Bond or LUT

An invoice for export is GST tax invoice that you create for outside of India clients, in a foreign currency. It has the same format and requirements as a normal GST tax invoice, but it requires some extra information on it.
One vital information in export invoices is adding the type of export. You can choose from 3 options, depending on the situation:

Export under Bond/ LUT - supply of goods, services or both, under bond or letter of undertaking, without paying IGST, and them claiming a refund of unutilized ITC on purchases of inputs used for supplying the respective exported goods or services

Export with IGST - Any exporter, the UN, any Embassy or other agencies who supply goods or services, paying IGST, can claim a refund on the IGST paid on the supplied goods or services

SEZ with IGST - Since the supply of goods or services to SEZ is treated as a zero-rated supply, no IGST will be paid on such supply. If you enter the GSTIN of their receiver, the country of supply will be selected as India and the currency of the invoice will be INR.

We will further discuss the 1st option, Export under Bond/ LUT.

The scope of zero rated supplies

There are two categories of supplies that are considered by law (Sec. 16 of IGST Act) “Zero Rated Supplies”.

• Export of goods, services or both

• Supply of goods, services or both to a SEZ Developer or SEZ Unit

To clarify:

Export of goods refers to taking goods from India to a place outside of it.

Export of services - refers to supply a service in any of these situations:

• The supplier of said services is located in India

• The recipient of said service is located outside of India

• The place of supply for the service is outside of India

• The payment for said service is received by the supplier of said service in convertible foreign currency and

• Both the supplier and receiver of said service are not just establishments of a distinct person in accordance with Explanation 1, Section 8 of IGST Act.

Input tax Credit on Zero Rated Supplies

With the scope to incentivize export, Section 16 of the IGST Act states that input tax credit can be claimed for making zero rated supplies.
Claiming ITC on zero rated supplies, just as in the case of other ordinary supplies, is subject to the restrictions noted in Section 17(5) of the CGST Act.
ITC for zero rated supply can be claimed even if the supply is exempted.

Refund of input tax credit claimed on exports

A registered person who makes zero rated supplies such as exports has no output liability. Hence, the ITC claimed by this person keeps accumulating.

In order to convert ITC in cash, said person has the following options:

• Supply goods, services or both under a Bond and claim refund on unutilised IGST

• Supply goods, services or both under a Letter of Undertaking (LUT) and claim refund on unutilised IGST

• Supply goods, services or both on payment of IGST, and claim refund on taxes paid for goods or services supplied

Supply under a bond

1. A bond (indemnity bond) in form GST RFD-11 is executed on a non-judicial stamp paper between an export and the government, through the president of India.

2. The Bond does not have to be given separately for every export, to ease compliance.

3. The Bond should cover the total amount of tax in the export, based on estimated tax liability by the exporter. It is the responsibility of the exporter to ensure that the amount of outstanding tax is within the bond amount. In case the bond amount is insufficient to cover tax liability, the exporter must issue a new bond to cover the eventual liability.

4. To ease compliance, the Bond will be accepted by the jurisdictional deputy / assistant commissioner that has jurisdiction over the maine place of business of the exported (Rule 96A(1) has to be filed with the commissioner).

5. In the Bond, the exporter agrees that he will export the good or services under the rules of the Act with respect to the exports of goods / services.

6. A bank guarantee will have to be furnished to the commissioner as a security under the bond. The jurisdictional commissioner has the right to decide on the amount of the bank guarantee, depending on the track record of the exporter. If the commissioner is satisfied with said track record, then providing a bond without a bank guarantee is sufficient. The bank guarantee normally doesn’t exceed 15% of the bond amount.

7. Any Bond(s) should also state that in the event of a failure in performance or breach, the government will invoke the bank guarantee to cover the loss or damages.

8. The Bond has to be provided prior to the export. Once it is provided, the exporter can export the goods or services.

9. No tax has to be paid on the exported supply and the invoice needs to contain a declaration under the following form “SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”.

10. The format of form GST RFD-11, along with the format of the bond can be found in Circular No. 26 / 2017 - Customs, dated July 1st, 2017.

11. The form GST RFD-11 has to be downloaded from here and furnished manually to the jurisdictional Commissioner.

12. Under GST, the ARE-1 form will only be applied to commodities for which the rules of Central Excise Act are still applicable.

Supply under Letter of Undertaking (LUT)

1. If the bond provided is supported by a bank guarantee, the working capital is blocked due to the bank asking the exporter for a money deposit against the guarantee.

2. Given this, any exporter would choose the option to export under LUT, instead of a bond.

3. The registered person who exports under LUT is entirely eligible for submitting LUT in place of Bond, as per CBEC Notification No. 16/2017 - Central Tax dated July 7, 2017:
   “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 Rs. 1 Crore, in the preceding financial year, and he has not been prosecuted for any offence under the CGST Act, 2017 or under any of the existing laws in case where the amount of tax evaded exceeds Rs. 2.5 lakhs. “

4. To ease compliance, the LUT is accepted by the jurisdictional Commissioner of the principal place of business of the exporter (as stated by Rule 96(1)).

5. In the LUT, the exporter will commit to:

   • Export goods within 3 months of the date of invoice.
   • Receive consideration for export of services in a foreign currency within 1 year from date of invoice.
   • Observe all requirements of the Act / Rules in respect to export.
   • In the event of failure to do the export, he or she must pay IGST along with interest at a rate of 18% on the IGST, from the invoice date till the payment date.

6. The LUT has to be provided before the export One the LUT is provided, the exporter can export the supply of goods / services.

7. Tax will not be paid on the export supply, and the invoice will contain a declaration under the format “SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF INTEGRATED TAX”

8. The LUT is valid for 12 months and has to be provided for each financial year, in duplicate.

9. A bank guarantee is not required to be provided to the commissioner. In case the exporter fails to comply with the LUT conditions, he or she might be asked to provide a Bond.

10. The format for form GST RFD-11 and LUT are available in Circular No. 26 /2017 - Customs, dated July 1st, 2017.

11. Under GST, the ARE-1 form will only be applied to commodities for which the rules of Central Excise Act are still applicable.

Payment of IGST and claiming refund on tax paid on export supply

1. The exporter should create an invoice showcasing the IGST payable on the value of export.

2. The invoice should contain a statement under the format “SUPPLY MEANT FOR EXPORT ON PAYMENT OF INTEGRATED TAX”.

3. The IGST liability present on the invoice is only for informational purposes and it is not required to collect it from the customer.

4. The exporter can use their available ITC credit from their ledger to clear the IGST liability from the export.

5. The IGST liability that has been cleared can then be claimed as refund.

How to make an export invoice in Sleek Bill?

It’s now easier than ever to make GST tax invoices for export in Sleek Bill. All you need to do is create a new invoice and select a client outside of India, and Sleek Bill will configure your invoice for export. This is how your invoice format will look like:

Find out more about making an export invoice in Sleek Bill

Sources for this article:
The Integrated Goods & Service Tax Act, 2017
The Central Goods & Service Tax Act / Rules, 2017
Circular – Customs – 26/2017 dt July 1, 2017 – Exports Procedures and Self-sealing of containers
Circular – CBEC – 2-2-2017 dt July 4, 2017 – Issues related to furnishing of Bond and LUT for Exports
Circular – CBEC – 4-4-2017 dt July 7, 2017 – Issues relating to Bond / LUT for exports without payment of IGST
Notification – CBEC – 16/2017 Central Tax dt July 7, 2017 – Conditions for submission of LUT in place of bond