Introduction

Under the Goods and Services Tax (GST) regime in India, a merchant exporter is an individual involved in trade, specializing in purchasing goods for export or with the intention to export them. They do not participate in any manufacturing activities. Instead, their focus is on gathering supplies from multiple registered suppliers to be exported. They receive orders from foreign companies and relay those orders to Indian manufacturers. Once the goods are produced, the merchant exporter is responsible for exporting them. They play a crucial role in facilitating international trade and promoting exports from India.

What is the tax rate applied on the purchases made by the Merchant Exporter?

The transaction between a manufacturer (‘supplier’) and a merchant exporter (‘recipient’) is supplied as per the definition provided under Section 7 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”)  and the same is liable to tax under GST as any other normal taxable supply.

The GST Council in its 22nd meeting, in order to promote merchant exports, had decided that merchant exporters can pay a nominal tax under GST at the rate of 0.1% for procuring goods from a domestic supplier with the purpose of exporting the same. Thus, according to the Notification no. 40/2017 – Central Tax (Rate) the tax rate would be CGST is 0.05% and SGST is 0.05% for intra-state supply and IGST would be @0.1% according to the Notification no. 41/2017- Integrated Tax (Rate) in case of inter-state supply.

Example: A product that is ordinarily sold at a 12% rate of tax.

What conditions need to be fulfilled to come within the purview of a Merchant Exporter?

Under Notification No. 40/2017-Central Tax (Rate) dated 23.10.2017, the government brought relief for the merchant exporters subject to the fulfillment of the following conditions:

1. The merchant exporters shall be registered with the Commodity Board recognized by the Department of Commerce or an Export Promotion Council.
2. The registered supplier (Manufacturer) shall supply the finished goods, upon manufacturing, to the registered recipient (Merchant Exporter) on a Tax invoice.
3. Goods must be exported outside the Indian territory within 90 days from the date of issue of the tax invoice.
4. The manufacturer is liable to pay the difference amount of tax under GST [i.e. (Prevailing GST Rate of the Commodity Sold) – (Concessional GST paid in Invoice)] along with interest if the registered recipient fails to export the said goods within the said period of ninety days. So, the manufacturer, before sending the goods, should carry out proper due diligence of the merchant exporter.
5. Merchant exporters shall mention the GST number and invoice Number of the manufacturer in the Shipping bill. The Shipping bills along with EGM and tax invoices shall be given to the supplier and jurisdictional tax officer of such supplier.

Is Export with Payment of IGST allowed in the case of Merchant Exporter?

According to Notification No. 40/2017-Central Tax (Rate), 23rd October, 2017, Notification No. 41/2017–Integrated Tax (Rate), 23rd October, 2017, notification No. 3/2018-Central Tax, dated 23.01.2018 and Circular No. 37/11/2018-GST; Dated the 15th March 2018, the benefit of procuring the goods at Concessional Rate of 0.1% is allowed to Merchant Exporters subject to the condition that the Merchant Exporter of such goods is Exporting the goods only under LUT / bond and cannot export on payment of integrated tax per Rule 96(10) of the CGST Rules.

If the merchant exporter is exporting the goods with the payment of IGST then in that case the benefit of a concessional rate of 0.1% will not be allowed to him.

What can be different scenarios to claim a refund related to Merchant Exports?

The following scenarios are there to claim a refund related to merchant exports:

1. In the First Scenario, according to Circular No. 37/11/2018-GST; dated the 15th March 2018, the goods have been procured at a Concessional Rate of GST. The Merchant Exporter after Export under LUT / Bond must apply for ITC Refund on the account of such exports made under LUT/without tax payment and the manufacturer can apply for a Refund of ITC under an Inverted Tax Structure.
2. In the Second Scenario, the Merchant Exporter after exporting the goods with payment of tax can avail of the refund from the automatic route.

Also Read: Deemed Exports: Definition, Differences, and Tax Treatment

What is the procedure for exporting the goods by the Merchant Exporters?

The procedure for exporting the finished goods by a merchant exporter shall be as follows:

Step 1: An order is to be placed by the merchant exporter to the manufacturer and a copy of the order shall be submitted to the jurisdictional tax officer of the registered supplier.

Step 2: For exporting the goods, the recipient shall directly move the said finished goods from the supplier’s place:

1. To the port/airport/custom station; or
2. To a registered warehouse from where the goods shall be transported to the port/airport/custom station;

from where the goods are to be exported outside the Indian Territory.

Step 3: If the merchant exporter intends to procure cumulative supplies from multiple suppliers and then export, he can move the finished goods from all those suppliers to the registered warehouse and then to the port/ICD/airport or LCD and thereafter export the goods.

In the above case, the merchant exporter shall get endorsed the tax invoice and obtain an acknowledgment of the same from the warehouse operator. The endorsed tax invoice along with the acknowledgment shall be provided to the supplier as well as to the jurisdictional tax officer of such supplier.

Step 4: Once the goods are exported outside the country, the merchant exporter shall provide the following documents to the supplier as well as the jurisdictional tax officer of the supplier:

1. Copy of the shipping bill (incorporating supplier’s GST Number).
2. Export General Manifest/ Export report.

What is the procedure for refund of the Merchant Exporters?

1. The GST refund process for Merchant Exporters follows the provisions specified in Section 54 of the CGST Act, 2017, read in conjunction with Rule 89 of the CGST Rules, 2017. These regulations outline the framework for claiming refunds on account of exports without payment of GST. Merchant Exporters are required to comply with the prescribed procedures, including filing the necessary documents and supporting evidence, ensuring accuracy and validity.
2. The refund application goes through a verification process by the GST authorities to ascertain the eligibility and authenticity of the claim. This verification includes validating export-related details, ensuring compliance with export procedures, and verifying the accuracy of the submitted documents.
3. Upon successful verification, the refund amount is determined based on eligible input tax credits and other applicable factors. The approved refund is then credited directly to the bank account provided by the Merchant Exporter during the registration process.

In conclusion, it is evident that merchant exports, similar to regular exports, significantly contribute to the country’s economy by attracting foreign currency. Recognizing the importance of this sector, the government has implemented GST refund provisions specifically tailored for merchant exporters. These provisions aim to provide concessional rate benefits, thereby assisting merchant exporters in mitigating their working capital requirements. By facilitating timely GST refunds, the government fosters a favorable business environment for merchant exporters, promoting their growth and enhancing their competitiveness in international markets.

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