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
An export supply pertains to the provision of goods or services that occur beyond the domestic borders of a country. Under the Goods and Services Tax (GST) law framework, export supplies are zero-rated. This classification signifies that no tax liability is imposed on these transactions, allowing exporters to conduct their business without the burden of paying GST on the exported goods or services. Moreover, exporters are entitled to claim a refund for the input tax credit associated with these export supplies, enhancing the competitiveness of their international trade endeavours and facilitating 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.
- Central government notification is required to designate the supply of goods as deemed exports under Section 147 of the CGST Act.
- Goods must be manufactured or produced within India.
- Payment can be received in either Indian rupees or convertible foreign currency.
- They are excluded from being executed under Bond / LUT (Letter of Undertaking).
- Tax liability must be fulfilled at the time of supply, and a refund can be claimed for the tax paid on such supplies.
Identifying export supply scenarios
Export of Goods:
It involves physically transporting goods from India to a destination outside the country.
The goods are taken to a location beyond the borders of India.
Cross-Border Service Provision:
The recipient is located outside India, the supplier is situated in India, the place of supply is beyond India, and payment is received in convertible foreign exchange or Indian rupees (permitted by 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. These could include specific categories of supplies that, while not physically leaving the country, are treated as if they have been exported 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 functioning of export supplies is overseen and regulated by the GST Council.
- Conditions and safeguards established by the Council must be adhered to by entities engaged in export activities.
Refund Options for Exporters
- Export Under Bond or Letter of Undertaking
- Exports can be conducted without the upfront tax payment, provided a bond or letter of undertaking is furnished.
- Accumulated ITC or input tax credit can be claimed as a refund.
- Export on Payment of Tax
- Export supplies can be made with 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:
- Export of goods, including its grammatical variations and cognate expressions, entails taking interests out of India to a location outside India.
- 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.
- Payment for such service is received in foreign exchange which can be converted or Indian rupees (permitted by the Reserve Bank of India) by the supplier.
- 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 situated in different countries, signifying an international trade relationship.
- The place of supply where the transaction is considered to occur, should be outside the borders of India.
- Payment for the supplied goods or services should be received in either convertible foreign exchange or Indian rupees, provided it is permitted by the Reserve Bank of India (RBI).
- 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. It holds the distinction of being treated as zero-rated under the Goods and Services Tax (GST). 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. 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. 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. Such transactions are accorded zero-rated status, meaning no GST is levied on them. 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 entails foreign exchange payments and is conducted 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. It stimulates international trade, positively impacting the country’s trade balance and promoting a robust economy.
