This is a comprehensive explanation of the GST scheme for merchant exporters in India, allowing them to purchase goods at a concessional GST rate of 0.1% for export purposes. Here’s a breakdown of the key aspects and benefits:
Objective of the Scheme:
GST Concessional Rate Scheme for Merchant Exporters (0.1% GST)
In both traditional GST refund methods for exporters—export with payment of IGST and export without payment under LUT—there is a waiting period of 21 to 60 days for the refund to be processed. This delay is subject to many external factors such as pending Bank Realization Certificate (BRC), Export General Manifest (EGM) issues, or suspected fraudulent Input Tax Credit (ITC) in the supply chain. In extreme cases, refunds can be stuck for several months, locking up working capital for exporters.
To ease this burden, the government introduced a special scheme allowing merchant exporters to purchase goods at a concessional GST rate of 0.1%.
To alleviate the working capital blockage faced by merchant exporters due to delays in GST refunds under the regular export routes (export with IGST payment and export under LUT).
Eligibility – Who is a Merchant Exporter?
- Exporters who are primarily traders.
- They do not undertake any manufacturing process on the purchased goods, except for packing.
- They purchase goods from GST-registered suppliers.
Key Features and Conditions:
- Concessional GST Rate: Merchant exporters can purchase goods from GST-registered suppliers at a concessional GST rate of 0.1% (0.05% CGST + 0.05% SGST or 0.1% IGST). Here merchant exporters are accumulating minimum amount of ITC (input tax ctredit) i.e. 0.1% of each purchase transaction. Gradually, while doing exports, this 0.1% ITC accumulation becomes a handsome amount, merchant exporters can get refund of that 0.1% GST on purchase of goods.
- Merchant exporter Must export under LUT without payment of tax: When a merchant exporter buy goods at 0.1% concessional GST rate, he must export the said goods under LUT without payment of Tax. If, he is allowed to export with payment of IGST, then he will start paying export leg IGST using ITC related to other goods or services which are never used for exports. Hence, to prevent the exporters from getting this undue advantage, when you buy goods at 0.1% concessional GST rate, you must export the same goods under LUT without payment of IGST.
- Supplier’s Discretion: GST-registered suppliers are not obligated to sell goods at this concessional rate. It is their business decision based on trust and understanding of the scheme.
- Tax Invoice and Supplier Reporting:
- The GST-registered supplier must issue a proper tax invoice clearly mentioning the applicable concessional rate (0.1% IGST or 0.05% CGST + 0.05% SGST).
- The supplier must report the sale under the 0.1% rate in GSTR-1 on the GST portal.
- Although the supplier is allowed to sell at 0.1%, they are not obligated to do so—it remains a business decision.
- By buying at 0.1% GST rate, the merchant exporter saves 4.9%, 11.90%, 17.90%, or 28.90% GST based on the applicable GST rate.
- Refund of accumulated ITC to Supplier who sells goods to merchant exporter at 0.1% concessional GST rate:
This is a significant point for suppliers, especially those who are also traders (i.e., they purchase goods and then resell them).
Scenario: If the supplier purchased the goods at the standard GST rate (5%, 12%, 18%, or 28%) and then sells them to a merchant exporter at just 0.1%, they will have a significant amount of unused Input Tax Credit (ITC). This is because the ITC they accumulated on their purchases is much higher than the minimal output tax liability (0.1% GST on sales).
· Inability to Claim Export Refund: Since these suppliers are not the exporters themselves, they cannot claim GST refunds under the regular export refund mechanisms (like those available for direct exporters paying IGST or operating under LUT).
· Claiming Refund under Inverted Duty Structure: However, the GST law provides a mechanism for such suppliers to claim a refund of this accumulated unused ITC under the Inverted Duty Structure rule.
Benefit for the Supplier:
- This provision allows the GST-registered supplier to recover the GST they paid on their purchases, even though they are selling at a very low rate to the merchant exporter. This prevents their working capital from being blocked in the form of unused ITC.
- In Summary:
- While the concessional 0.1% GST rate for merchant exporters provides significant benefits to them, the GST framework also considers the implications for the supplying businesses. The ability for these suppliers (especially traders) to claim refunds under the inverted duty structure ensures that they are not financially disadvantaged by participating in this scheme. This makes the entire system more viable and encourages suppliers to sell at the concessional rate, ultimately benefiting the merchant exporters and promoting exports.
6. Export Timeline: The merchant exporter must export the purchased goods within 90 days from the date of the tax invoice issued by the GST-registered supplier.
- Shipping Bill Details: The merchant exporter must include the following details in the shipping bill via his CHA in “THIRD PARTY” details portion of shipping bill:
- Goods and Services Tax Identification Number (GSTIN) of the registered supplier.
- Tax invoice number issued by the registered supplier.
- This information should be provided against each item in the “third party” details column of the shipping bill.
- The GST invoice details of the registered supplier for each item should also be declared in the ARE certificate and date columns in the shipping bill format.
- Multiple Suppliers: For export consignments involving multiple suppliers, the merchant exporter needs to provide details of all registered suppliers and their corresponding invoices against each item in the shipping bill in THIRD PARTY” details portion of shipping bill.
- Export Promotion Council (EPC) Registration: The merchant exporter must be registered with the relevant Export Promotion Council based on their product category (e.g., EEPC, Chemxcil, APEDA, Spice Board, Tea Board, Coffee Board, FIEO).
- Purchase Order and Intimation to Tax Officer:
- The merchant exporter must place a purchase order on the registered supplier for procuring goods at the concessional rate.
- A copy of this purchase order must also be provided to the jurisdictional tax officer of the registered supplier. While email is an option, submitting a physical copy and obtaining a “received” stamp is advisable.
- Movement of Goods: The purchased goods must be moved directly from the registered supplier’s place to:
- (a) The port, inland container depot, airport, or land customs station for export, OR
- (b) A registered warehouse, from where they will be moved to the designated export gateway.
- Aggregation of Supplies: If the merchant exporter intends to aggregate supplies from multiple registered suppliers before exporting:
- Goods from each supplier must be moved to a registered warehouse.
- After aggregation, the goods will be moved to the final export gateway.
- In this case, the merchant exporter must endorse receipt of goods on the supplier’s tax invoice and obtain an acknowledgement of receipt from the warehouse operator.
- The endorsed tax invoice and the warehouse acknowledgement must be provided to the registered supplier and their jurisdictional tax officer.
- Post-Export Documentation: Once the goods are exported, the merchant exporter must provide the following documents to the registered supplier and their jurisdictional tax officer:
- A copy of the shipping bill or bill of export containing the GSTIN and tax invoice details of the registered supplier.
- Proof of export general manifest (EGM) or export report having been filed.
- Consequences of Non-Compliance: If the merchant exporter fails to export the goods within 90 days from the date of the tax invoice, the registered supplier will not be eligible for the concessional rate benefit and may be liable to pay the differential tax.
- Confidentiality of Export Details: Merchant exporters can exclude commercially sensitive information (like buyer’s name, export price) while sharing copies of the shipping bill with the registered suppliers.
Benefits for Merchant Exporters:
- Reduced Working Capital Requirement: Significant savings on upfront GST payment (4.9%, 11.90%, 17.90%, or 27.90% depending on the original GST rate).
- Elimination of Refund Hassle: Avoids the often lengthy and complex process of claiming GST refunds from the government.
- Improved Cash Flow: Frees up working capital that would otherwise be tied up in GST payments and pending refunds.
- Reduced Interest Costs: Saves on potential interest costs associated with blocked working capital.
Benefits for GST Registered Suppliers:
- Potential for increased sales to merchant exporters who find this scheme attractive.
- Streamlined transactions as they only charge a nominal GST rate and can get GST refund under inverted duty structure scheme.
Overall Impact:
This scheme is designed to simplify the export process for merchant exporters, reduce their financial burden, and promote exports by ensuring smoother cash flow. However, its success depends on the willingness of GST-registered suppliers to participate and the strict adherence of merchant exporters to the stipulated conditions and timelines.
