Overview

The Central Board of Excise and Customs (“CBEC”) has issued Notification No. 37/2017 – Central Tax dated October 04, 2017 extending the facility of Letter of Undertaking (“LUT”) to all exporters under Rule 96A of the Central Goods and Service Tax Rules (“CGST Rules”) subject to the certain conditions and safeguards.

It has been issued in supersession of Notification No. 16/2017 – Central Tax dated July 07, 2017 except as respects things done or omitted to be done before such supersession.
The Notification has laid down conditions and safeguards for furnishing a Letter of Undertaking in place of a Bond by a registered person who intends to supply goods or services for export without payment of Integrated Goods and Services Tax (“IGST”).

The Notification doesn’t speak about the threshold limit of one crore. Exporters can furnish Letter of Undertaking subject to the fulfillment of the following conditions:

1. Eligibility to export under LUT: All registered persons who intend to supply goods or services for export without payment of integrated tax shall be eligible to furnish a LUT in place of a bond except those who have been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 (12 of 2017)(“CGST Act”) or the Integrated Goods and Services Tax Act, 2017 (13 of 2017)(“IGST Act”) or any of the existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees;
2.  Form for bond/LUT: The LUT shall be furnished on the letter head of the registered person, in duplicate, for a financial year in the annexure to FORM GST RFD – 11 referred to in sub-rule (1) of Rule 96A of the CGST Rules and it shall be executed by the working partner, the Managing Director or the Company Secretary or the proprietor or by a person duly authorised by such working partner or Board of Directors of such company or proprietor;
3. Validity of LUT: Where the registered person fails to pay the tax due along with interest, as specified under CGST Rules, within the prescribed period, the facility of export without payment of integrated tax will be deemed to have been withdrawn and if the amount is paid, the facility of export without payment of integrated tax shall be restored.

The above conditions are equally applicable “in respect of zero-rated supply of goods or services or both made by a registered person (including a Special Economic Zone developer or Special Economic Zone unit) to a Special Economic Zone developer or Special Economic Zone unit without payment of integrated tax”.

Following the Notification, CBEC has issued a Circular No. 8/8/2017- GST dated October 04, 2017 clarifying certain issues on eligibility to export under LUT, validity of LUT, Form for bond/LUT, related documents, time for acceptance of LUT/Bond, etc.

Clarification Pointers:

1. Documents for LUT: Self- declaration by the exporter will suffice to the effect that the conditions have been fulfilled and he has not been prosecuted. Verification if any, may be done on post-facto basis.

1. Bank Guarantee: It is clarified that since the facility of export under LUT has been extended to all registered persons, bond will be required to be furnished by those persons who have been prosecuted for cases involving an amount exceeding Rupees two hundred and fifty lakhs. A bond, in all cases, shall be accompanied by a bank guarantee of 15% of the bond amount.

1. Running Bond: The exporters are required to 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 in yet to be completed exports, the exporter shall furnish a fresh bond to cover such liability. 

1. Purchases from manufacturer and Form CT-1: It is clarified that there is no provision for issuance of CT-1 Form which enables merchant exporters to purchase goods from a manufacturer without payment of tax under the GST regime. 

1. Transactions with EOUs: Zero rating is not applicable to supplies to EOUs and there is no dispensation for them under GST regime. Therefore, supplies to EOUs are taxable like any other taxable supplies.