, which determines the place of supply.
Did you know that in 2023, India’s exports of goods and services reached a substantial $534 billion, constituting 18.7% of its Gross Domestic Product (GDP)? In this essay, we delve into the definition of export supply, highlighting its distinctive characteristics, providing examples, and delving into its legal aspects.
Definition of export supply
Firstly, an export supply pertains to the provision of goods or services that occur beyond the domestic borders of a country. In addition, under the Goods and Services Tax (GST) law framework, the authorities classify export supplies as zero-rated. As a result, this classification removes the burden of tax liability from exporters, enabling them to operate without paying GST on exported goods or services. Furthermore, exporters claim refunds for the input tax credit associated with these exports, which enhances their competitiveness in international trade. As a result, this system facilitates smoother cross-border transactions.
Some characteristics of transactions classified as export supplies are:
- Specifically applicable to the supply of goods; not relevant to services.
- There is no obligation for the physical transportation of goods outside India.
- The central government must issue a notification to designate the supply of goods as deemed exports under Section 147 of the CGST Act.
- The goods must be manufactured or produced within India.
- Additionally, payment can be received in either Indian rupees or convertible foreign currency.
- Exporters cannot execute these transactions under a Bond or Letter of Undertaking (LUT).
- Businesses must fulfill tax liability at the time of supply. Additionally, they can claim a refund for the tax paid on these supplies.
Identifying export supply scenarios
Export of Goods:
It involves physically transporting goods from India to a destination outside the country.
The goods move beyond the borders of India to a destination outside the country.
Cross-Border Service Provision:
Specifically, the recipient is located outside India, the supplier is situated in India, the place of supply is beyond India, and the payment is received in convertible foreign exchange or Indian rupees, as permitted by the RBI.
Supply to Special Economic Zone (SEZ) Unit or Developer:
Providing goods or services to a Special Economic Zone or developer within India.
Deemed Exports:
Supplying goods or services are officially notified as deemed exports by the Central Government. Specific categories of supplies include those that, although they do not physically leave the country, the law treats as exports due to their nature or purpose.
Legal aspects of export supplies
Legal Framework – IGST Act, 2017
- Export supplies fall under the regulatory framework of the 2017, Integrated Goods and Services Tax (IGST) Act, 2017.
- The Act provides the legal basis and guidelines for conducting export transactions.
Regulatory Oversight by the GST Council
- The GST Council oversees and regulates the functioning of export supplies.
- Moreover, the Council establishes conditions and safeguards that entities engaged in export activities must adhere to.
Refund Options for Exporters
- Export Under Bond or Letter of Undertaking
- Exporters can conduct exports without the upfront tax payment by furnishing a bond or letter of undertaking.
- They can also claim a refund for accumulated ITC (input tax credit).
- Export on Payment of Tax
- Export supplies can involve the payment of tax.
- The exporter can subsequently claim a refund for the tax paid on export transactions.
Compliance with Documentation and Procedure
- Entities engaged in export supplies must strictly comply with GST authorities’ documentation and procedural requirements.
- Adherence to these requirements ensures transparency and facilitates the smooth execution of export transactions within the GST framework.
Export supply in GST regulations
Export of Goods:
- To export products, in all its grammatical forms and similar idioms, is to transfer ownership of an interest from India to a foreign country.
- Defined under Section 2(5) of the Integrated Goods and Services Tax (IGST) Act.
Export of Services:
- Export of services involves the supply of any service under specific conditions:
- The service supplier is based in India.
- The user of the service is based outside India.
- The place of supply of the service is outside India.
- The supplier and recipient of the service are not mere establishments of a distinct person, as per Explanation 1 in Section 8 of the IGST Act.
- Exporters can conduct exports without the upfront tax payment by furnishing a bond or letter of undertaking. They can also claim a refund for accumulated ITC (input tax credit).
- Defined under Section 2(6) of the IGST Act.
Deemed Exports:
- Deemed exports refer to supplies of goods notified explicitly under Section 147 of the Central Goods and Services Tax (CGST) Act.
- Defined under Section 2(39) of the CGST Act.
Criteria for transactions to be considered export supplies
- The supplier and the recipient must be in different countries, indicating an international trade relationship.
- Additionally, the transaction should occur outside the borders of India, which determining the place of supply.
- Supplier should receive payment for the supplied goods or services in either convertible foreign exchange or Indian rupees, provided the Reserve Bank of India (RBI) permits it
- The supplier and the user involved in the transaction should not be merely establishments of a distinct person, emphasising the entities’ independence.
Also Read: What Are The GST Rates That Apply To Export Supplies?
Conclusion
Export supply represents a category of transactions conducted beyond the domestic borders of a country. As such, it holds the distinction of being treated as zero-rated under the Goods and Services Tax (GST) law. Characterised by elements like cross-border movement, payments in foreign exchange, and the involvement of distinct entities, export supply plays a pivotal role in influencing economic growth, fortifying trade balance, and contributing to GST revenue in India. Moreover, its positive impact extends to enhancing production, consumption, and investment within the economy, easing the current account deficit, and broadening the tax base and collection. Therefore, recognising its significance, the encouragement and facilitation of export supply are vital for the government, GST authorities, and exporters.
Frequently Asked Questions(FAQs)
What is Export Supply under GST?
Export supply under GST refers to the provision of goods or services that takes place outside the domestic territory of a country. As a result, such transactions are accorded zero-rated status, meaning no GST is levied on them. Moreover, it is a crucial aspect of international trade and commerce.
How is Export Supply Different from Other Supply Types?
Export supply is distinct due to its cross-border nature, involving the movement of goods or services across international boundaries. Additionally, it often involves foreign exchange payments and occurs between entities in different countries.
Why is Export Supply Important for Economic Growth?
Export supply significantly contributes to economic growth by fostering increased production, consumption, and investment. Furthermore, it stimulates international trade, positively impacting the country’s trade balance and promoting a robust economy.
