The Good and Simple Tax 🙂 implemented in India with effect from 1st July – 2017 and this revolutionary regulation also made the significant changes in the business process. There are various pros and cons of the system which is implemented and at an initial level, several problems are being faced resulting into lesser business. Exporters also faced the several problems due to blockage of working capital, Slow refund process, Export with payment of duty etc. Export can be without payment if duty by submitting LUT or Bond in GST.
So in order to incentivize the exporters’ govt. released the circular no. – 5/5/2017 dated 11th August – 2017 which was aimed to relax the GST provisions for exports. Provisions of LUT and Bond were also extended to small exporters. So let’s understand what is LUT and Bond which is required for export of goods or services without payment of duty.
What is LUT and Bond?
LUT stands for the letter of undertaking which means self-declaration to be filled by the exporter for export of goods or services without payment of duty. in LUT declaration is required to be given for adherence to GST regulations. If conditions are not met later on then GST is required to be paid with interest and penalty.
Who can apply for LUT?
Any registered person who has received the minimum foreign inward remittance of 10% of export turnover in the previous year or minimum inward remittance of Rs. 1 cr whichever is higher is eligible to apply for LUT for export of goods without payment of duty. Status holders as defined in Foreign Trade Policy (2015-2020) is eligible for LUT irrespective of above conditions.
- As per circular no 8/8/2017-GST dated 4th Oct – 2017 LUT eligibility extended to all type of exporter except as below.
- A person is not eligible for LUT If he has been prosecuted for any offence 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 Rs. 250 lacs.
What is bond in GST?
When the conditions required for LUT cannot be fulfilled then Person needs to apply for Bond in GST. Bond is the declaration with payment of stamp duty that export of goods or services shall be compliance with GST regulations. Bond amount shall be equal to tax amount on turnover of the previous year or expected export turnover. If turnover is Rs. 1 cr in PY then the bond amount shall be 18% of PY T/o (assuming the tax rate of 18%). LUT and Bond shall be furnished on non-judicial stamp paper of value as per the respective state Stamp Act.
Along with export bond, bank guarantee may also be required to be filled equivalent to 15% of bond value. Bank Guarantee is to be issued in the name of “President of India (hereinafter called ” The Government”) acting through the Assist. Comm./ Dy. Commissioner of Central Tax (please address to appropriate division).”
However, the Commissioner may waive off the requirement to furnish bank guarantee taking into account the facts and circumstances of each case. It is expected that this provision would be implemented liberally, for example, an exporter registered with recognized Export Promotion Council can be allowed to submit bond without bank guarantee on submission of a self-attested copy of the proof of registration with a recognized Export Promotion Council
Documents required for applying LUT
- Covering letter – Download word copy from here
- Form RFD 11 on letterhead – Download word copy from here and here
- An undertaking (on the letterhead) that there was no prosecution under the GST Law in terms of Notification 16/2017 – Central Tax.
- A declaration (on the letterhead) of turnover of the company for FY 2016-17 along with Export turnover, SEZ Developer or units in FY 2016-17 and realisation made.
- Authority Letter
- PAN Card, GST Certificate of company
- PAN card of authorised signatory
- 3 months bank statement
- Screenshot of Principal place of Business from GST Site
(above documents are listed based on our practical experience may not hold true for all)
Documents required for Bond
- Covering letter
- FORM RFD 11 on letterhead
- Bond on stamp paper
- Bank guarantee
- Authority letter
- Additional documents (as mentioned above)
How to apply for LUT or Bond in GST?
With all above documents application for LUT or Bond shall be submitted to 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.
After submitting the application with all required documents, LUT will be signed or bond will be signed within 2-3 working days.
Other relevant points:
- CT-1 Form – earlier this was used for the purchase of goods by merchant exporter from manufacturer exporter without payment of excise duty, However, in GST regime, this form holds no good. supply by manufacturer exporter to merchant exporter is as good as normal supply.
- EOU concept in GST – Zero rated supply is not applicable in case of supply to EOU. Supply of goods or services to EOU is kept at par with normal supply transaction in which GST is leviable.
- Realization of export proceeds – export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan. Acceptance of LUT 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 the applicable RBI guidelines. It may also be noted that the supply of services to SEZ developer or SEZ unit under LUT will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan will be deemed to be the export of services only if the payment for such services is received by the supplier in convertible foreign exchange.
- Running Bond – The exporters shall furnish a running bond where the bond amount would cover the amount of self-assessed estimated tax liability on the export. The exporter shall ensure that the outstanding integrated tax liability on exports is within the bond amount. In case the bond amount is insufficient to cover the said liability is yet to be completed exports, the exporter shall furnish a fresh bond to cover such liability.
So this is all about LUT and Bond in GST regime.
For More information visit www.cbec.gov.in