CHAPTER 14

9
IMPORT AND EXPORT
UNDER GST
The section numbers referred to in the Chapter pertain to IGST Act, unless otherwise
specified. Examples/illustrations/Questions and Answers given in the Chapter are
based on the position of GST law existing as on 30.04.2023.

LEARNING OUTCOMES

After studying this Chapter, you will be able to –

❑ determine if a given transaction is an import of goods or services

❑ comprehend and analyse the taxability of import of goods and import of

services and appreciate the difference in the mechanism of levy and collection
of tax between the two

❑ explain and analyse the provisions relating to registration of importer of goods

and services and availing of credit in case of import of goods and services

❑ determine if a given transaction is an export of goods or services

❑ comprehend and analyse the concept of zero rating and the mechanism by
which it works under the GST law

❑ comprehend and analyse the taxability of exports and deemed exports

❑ explain and analyse the provisions relating to merchant exports

❑ apply the above concepts in problem solving

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1. INTRODUCTION
India is well integrated into the
web of international business
transactions. There is inward as
well as outward flow of goods and
services between India and other
countries. GST, being a business
tax, impacts import and export too.
Provisions in the GST laws seek to
(i) provide level playing field to
domestic suppliers vis a vis
international suppliers in case of
import and (ii) make export more
competitive. The various provisions of GST law as applicable on import and export
supplies are discussed in this Chapter in detail. First, the provisions relating to
import of goods and services have been discussed followed by discussion on
provisions relating to export of goods and services. The relevant statutory
provisions have been extracted first followed by the analysis thereof.

2. RELEVANT DEFINITIONS
❖ Customs frontiers of India means the limits of a customs area as defined in
section 2 of the Customs Act, 1962 [Section 2(4)].

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❖ Customs area means the area of a customs station or a warehouse and

includes any area in which imported goods or export goods are ordinarily
kept before clearance by Customs Authorities [Section 2(11) of the Customs
Act, 1962].
❖ Customs station means any customs port, customs airport, international
courier terminal, foreign post office or land customs station [Section 2(13) of
the Customs Act, 1962].
❖ Deemed exports means such supplies of goods as may be notified under
section 147 [Section 2(39) of the CGST Act].
❖ Export of goods with its grammatical variations and cognate expressions,
means taking goods out of India to a place outside India [Section 2(5)].
❖ Export of services means the supply of any service when,–
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of
service in convertible foreign exchange or in Indian rupees wherever
permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely
establishments of a distinct person in accordance with Explanation 1 in
section 8 [Section 2(6)].
❖ Fixed establishment means a place other than the place of business which
is characterised by a sufficient degree of permanence and suitable structure
in terms of human and technical resources to supply services, or to receive
and use services for its own needs [Section 2(7)].
❖ Import of goods with its grammatical variations and cognate expressions,
means bringing goods into India from a place outside India [Section 2(10)].
❖ Import of services means the supply of any service, where –
(i) the supplier of service is located outside India;

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(ii) the recipient of service is located in India; and

(iii) the place of supply of service is in India [Section 2(11)].

❖ India means the territory of India as referred to in article 1 of the Constitution,

its territorial waters, seabed and sub-soil underlying such waters, continental
shelf, exclusive economic zone or any other maritime zone as referred to in
the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976, and the air space above its territory and territorial
waters [Section 2(56) of the CGST Act].

❖ Input tax in relation to a registered person, means the central tax, State tax,
integrated tax or Union territory tax charged on any supply of goods or
services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of
section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of
section 5 of the IGST Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of
section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of
section 7 of the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy [Section 2(62)
of the CGST Act].
❖ Intermediary means a broker, an agent or any other person, by whatever
name called, who arranges or facilitates the supply of goods or services or
both, or securities, between two or more persons, but does not include a
person who supplies such goods or services or both or securities on his own
account [Section 2(13)].
❖ Non-taxable online recipient means any unregistered person receiving
online information and database access or retrieval services located in
taxable territory.

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Explanation—For the purposes of this clause, the expression

"unregistered person" includes a person registered solely in terms of
section 24(vi) of the CGST Act, 2017 [Section 2(16)].
❖ Location of the recipient of services means:
(a) where a supply is received at a place of business for which registration
has been obtained, the location of such place of business;
(b) where a supply is received at a place other than the place of business
for which registration has been obtained, that is to say, a fixed
establishment elsewhere, the location of such fixed establishment;
(c) where a supply is received at more than one establishment, whether the
place of business or fixed establishment, the location of the
establishment most directly concerned with the receipt of the supply;
and
(d) in absence of such places, the location of the usual place of residence
of the recipient [Section 2(14)].
❖ Location of the supplier of services means:
(a) where a supply is made from a place of business for which registration
has been obtained, the location of such place of business;
(b) where a supply is made from a place other than the place of business
for which registration has been obtained, that is to say, a fixed
establishment elsewhere, the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the
place of business or fixed establishment, the location of the
establishment most directly concerned with the provision of the supply;
and
(d) in absence of such places, the location of the usual place of residence
of the supplier [Section 2(15)].
❖ Online information and database access or retrieval services means
services whose delivery is mediated by information technology over the
internet or an electronic network and the nature of which renders their supply

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impossible to ensure in the absence of information technology and includes

electronic services such as,–

(i) advertising on the internet;

(ii) providing cloud services;
(iii) provision of e-books, movie, music, software and other intangibles
through telecommunication networks or internet;
(iv) providing data or information, retrievable or otherwise, to any person
in electronic form through a computer network;
(v) online supplies of digital content (movies, television shows, music and
the like);
(vi) digital data storage; and

(vii) online gaming [Section 2(17)].

❖ Place of business includes-
(a) a place from where the business is ordinarily carried on, and includes a
warehouse, a godown or any other place where a taxable person stores
his goods, supplies or receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an
agent, by whatever name called [Section 2(85) of the CGST Act]
❖ Recipient of supply of goods or services or both, means—

• where a consideration is payable for the supply of goods or services or

both, the person who is liable to pay that consideration;

• where no consideration is payable for the supply of goods, the person

to whom the goods are delivered or made available, or to whom
possession or use of the goods is given or made available; and

• where no consideration is payable for the supply of a service, the person

to whom the service is rendered,

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and any reference to a person to whom a supply is made shall be construed

as a reference to the recipient of the supply and shall include an agent acting
as such on behalf of the recipient in relation to the goods or services or both
supplied [Section 2(93) of the CGST Act].
❖ Supplier in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent acting
as such on behalf of such supplier in relation to the goods or services or both
supplied [Section 2(105) of the CGST Act].

3. IMPORTS UNDER GST

Under the GST regime, Article 269A constitutionally mandates that supply of goods
and/or services in the course of import into the territory of India shall be deemed
to be supply of goods and/or services in the course of inter-State trade or
commerce.
So, import of goods or services is treated as inter-State supplies and is subject to
IGST. Supply of goods and/or services to a Special Economic Zone (SEZ)
unit/developer is also treated as an inter-State supply and thus, is subject to levy
of IGST.

In case of goods, the importer of goods pays IGST and in case of services, the
importer of services pays IGST on reverse charge basis. However, in respect of
import of online information and database access or retrieval (OIDAR) services by
unregistered, non-taxable recipients, the supplier located outside India is
responsible for payment of IGST. Either the supplier of OIDAR services has to take
registration or has to appoint a person in India for payment of taxes.
Importer Exporter Code (IEC): PAN of an entity is to be used as IEC. If importer
is registered under GST, he is required to declare only GSTIN as PAN is part of
GSTIN1.

1
DGFT’s Trade Notice No. 09 dated 12.06.2017

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A. IMPORT OF GOODS

STATUTORY PROVISIONS

Section Particulars

Levy of IGST on imported goods

Section 5(1) Subject to the provisions of sub-section (2), there shall be levied
of the IGST a tax called the integrated goods and services tax on all inter-
Act State supplies of goods or services or both, except on the supply
of alcoholic liquor for human consumption, on the value
determined under section 15 of the Central Goods and Services
Tax Act and at such rates, not exceeding forty per cent., as may
be notified by the Government on the recommendations of the
Council and collected in such manner as may be prescribed and
shall be paid by the taxable person.

Proviso to Provided that the integrated tax on goods imported into India
section 5(1) shall be levied and collected in accordance with the provisions
of the IGST of section 3 of the Customs Tariff Act, 1975 on the value as
Act determined under the said Act at the point when duties of
customs are levied on the said goods under section 12 of the
Customs Act, 1962.

Inter-State supply

Section 7(2) Supply of goods imported into the territory of India, till they
of the IGST cross the customs frontiers of India, shall be treated to be a
Act supply of goods in the course of inter-State trade or commerce

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Place of supply

Section 11 of Place of supply of goods imported into, or exported from India

the IGST Act
[Refer Chapter 3: Place of Supply in Module 1 of this Study
Material for discussion on these provisions]

Levy of customs duty

Section 12 of (1) Except as otherwise provided in this Act, or any other law
the Customs for the time being in force, duties of customs shall be
Act, 1962 levied at such rates as may be specified under the
Customs Tariff Act, 1975, or any other law for the time
being in force, on goods imported into, or exported from,
India.
(2) The provisions of sub-section (1) shall apply in respect of
all goods belonging to Government as they apply in
respect of goods not belonging to Government.

Provisions for collection of IGST on imported goods and warehoused

goods sold from a customs warehouse as also for determination of their
value under section 3 of the Customs Tariff Act, 1975

Section 3(7) Any article which is imported into India shall, in addition, be
of the liable to integrated tax at such rate, not exceeding forty per cent.
Customs as is leviable under section 5 of the Integrated Goods and
Tariff Act, Services Tax Act, 2017 on a like article on its supply in India, on
1975 the value of the imported article as determined under sub-
section (8) or sub-section (8A), as the case may be.

Section 3(8) For the purposes of calculating the integrated tax under sub-
of the section (7) on any imported article where such tax is leviable at
Customs any percentage of its value, the value of the imported article
Tariff Act, shall, notwithstanding anything contained in section 14 of the
1975 Customs Act, 1962, be the aggregate of-

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(a) the value of the imported article determined under sub-

section (1) of section 14 of the Customs Act, 1962 or the
tariff value of such article fixed under sub-section (2) of
that section, as the case may be; and
(b) any duty of customs chargeable on that article under
section 12 of the Customs Act, 1962, and any sum
chargeable on that article under any law for the time
being in force as an addition to, and in the same manner
as, a duty of customs, but does not include the tax referred
to in sub-section (7) or the cess referred to in sub-section
(9).

Section 3(8A) Where the goods deposited in a warehouse under the provisions
of the of the Customs Act, 1962 are sold to any person before
Customs clearance for home consumption or export under the said Act,
Tariff Act, the value of such goods for the purpose of calculating the
1975 integrated tax under sub-section (7) shall be,-
(a) where the whole of the goods are sold, the value
determined under sub-section (8) or the transaction value
of such goods, whichever is higher; or
(b) where any part of the goods is sold, the proportionate
value of such goods as determined under sub-section (8)
or the transaction value of such goods, whichever is
higher:
Provided that where the whole of the warehoused goods or any
part thereof are sold more than once before such clearance for
home consumption or export, the transaction value of the last
such transaction shall be the transaction value for the purposes
of clause (a) or clause (b):
Provided further that in respect of warehoused goods which
remain unsold, the value or the proportionate value, as the case
may be, of such goods shall be determined in accordance with
the provisions of sub-section (8).

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Explanation.- For the purposes of this sub-section, the

expression “transaction value”, in relation to warehoused goods,
means the amount paid or payable as consideration for the sale
of such goods.

Section 3(11) The duty or tax or cess, as the case may be, chargeable under
of the this section shall be in addition to any other duty or tax or cess,
Customs as the case may be, imposed under this Act or under any other
Tariff Act, law for the time being in force.
1975

ANALYSIS
(i) IGST on imported goods in addition to duty of customs [Section 7(2)
read with section 5]
Import of goods means bringing goods in India [See definition under the
heading ‘Relevant Definitions’] from a place outside India [Section 2(10)].
Supply of goods imported into the territory of India till they cross the customs
frontiers of India is deemed to be an inter-State supply. IGST on goods
imported into India is levied and collected in accordance with the provisions
of section 3 of the Customs Tariff Act, 1975. Thus, though goods imported
into India are leviable to IGST under the IGST Act, machinery of the customs
law is used to levy and collect the same.
The place of supply of goods, imported into India is the location of the
importer [Section 11]. Thus, if an importer say is located in Rajasthan, the
State tax component of the IGST accrues to the State of Rajasthan.

IGST on imported goods is levied in addition to other customs duties levied

on the imported goods but the same is not customs duty. In addition, GST
Compensation Cess, may also be leviable on import of certain luxury and de-
merit goods under the Goods and Services Tax (Compensation to States) Cess
Act, 2017.

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Accordingly, goods imported into India are, in addition to the applicable

customs duties, liable to IGST at such rate as is leviable under the IGST Act
on a like article on its supply in India.
The bill of entry filed for import of goods now looks like this, with columns
for customs duty, additional duty, and IGST:

(ii) Point when IGST is levied on imported goods [Proviso to section 5(1)]
IGST on goods imported into India is levied and collected at the point when
duties of customs are levied on the said goods under the Customs Act, 1962.
Customs duty is leviable when importation of goods gets complete, i.e. when
the goods become part of the mass of goods within the country; the taxable
event being reached at the time when the goods reach the customs barriers
and bill of entry for home consumption is filed. Thus, the point of levy and
collection of IGST is the point when the bill of entry for home consumption is
filed.
(iii) Taxable value of imported goods for levying IGST [Section 3(8) of the
Customs Tariff Act, 1975]

The value of the goods for the purpose of levying IGST is the assessable value
of the imported goods determined under section 14 of the Customs Act, 1962
plus customs duty levied under that Act and any other sum chargeable on

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the said goods under any law for the time being in force as customs duties
excluding IGST and GST Compensation Cess (wherever applicable).

Wherever the goods are also leviable to GST Compensation Cess, the same is
collected on the value taken for levying IGST. In other words, IGST paid shall
not be added to the value for the purpose of calculating GST Compensation
Cess.
In cases where imported goods are liable to Anti-Dumping Duty or Safeguard
Duty, value for calculation of IGST as well as GST Compensation Cess also
includes Anti-Dumping Duty and Safeguard duty [Guidance Note for
Importers and Exporters issued by DGFT after introduction of GST].

Value for Value determined under section 14 of the Customs

levying IGST = Act, 1962 + Basic customs duty + any other sum
on imported leviable under any law for the time being in force
goods as customs duties excluding IGST and GST
Compensation Cess

[For examples/illustrations showing calculation of IGST chargeable on imported

goods, Chapters 2 & 4 of Module 4 on Customs Laws may be referred to.]
(iv) Applicability of IGST on goods supplied while being deposited in a customs
bonded warehouse [Section 3(8A) of the Customs Tariff Act, 1975]
The Customs Act, 1962
The “transfer/sale of goods while being
permits goods that have deposited in a customs bonded warehouse”
entered India to be deposited is a common trade practice whereby the
in a bonded warehouse on importer files an into-bond bill of entry and
filing ‘into-bond’ bill of entry, stores the goods in a customs bonded
without payment of duty. warehouse and thereafter, supplies such
The importer is at liberty to goods to another person who then files an
transfer the ownership of ex-bond bill of entry for clearing the said
such goods to another goods from the customs bonded warehouse
for home consumption.
person while the goods
remain deposited in the
warehouse.

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However, supply of warehoused goods to any person before clearance for

home consumption is neither a supply
GST is not leviable when
of goods nor a supply of services in
goods deposited in customs
terms of paragraph 8(a) of Schedule III
bonded warehouse are sold
to the CGST Act. Here, warehoused
before clearance; the same is
leviable when ex-bond bill of goods have the same meaning as
entry is filed for clearing such assigned to it in the Customs Act,
warehoused goods for home 1962.
consumption. Further, value of such in-bond sales is
included in the value of exempt supply
for the purpose of reversal of ITC under rules 42 and 43 of CGST Rules
[Explanation to section 17(3) of the CGST Act].
It is to be noted that the basic customs duty paid on the warehoused goods
at the stage of ex-bonding is calculated on the value determined under
section 14 of the Customs Act, 1962 at the time of filing of the into-bond bill
of entry.
However, value of imported goods for levying IGST in case of supply of
warehoused goods is determined as under:

Value for (a) Transaction value (Sale value)

levying
= OR
IGST in case
of supply of (b) Value determined at the time of filing into-
warehoused bond bill of entry under section 14 of the
goods Customs Act, 1962 + Basic customs duty + any
other sum leviable under any law for the time
being in force as customs duties excluding
IGST and GST Compensation Cess

WHICHEVER IS HIGHER

If goods are sold more than once while being deposited in the warehouse,
the last transaction value is taken as the transaction value for the purpose of
determining the value for levying IGST in the manner given above.

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If only a part of the goods are sold, the two values that are to be compared are
– (i) transaction value of the goods sold and (ii) proportionate value (of the goods
sold) determined at the time of filing into-bond bill of entry under section 14 of
the Customs Act, 1962 + Basic customs duty + any other sum leviable under any
law for the time being in force as customs duties excluding IGST and GST
Compensation Cess.
The remaining goods (which are not sold) are assessed on the value
determined under section 14 of the Customs Act plus basic customs duty and
any other sum leviable under any law for the time being in force as customs
duties excluding IGST and GST Compensation Cess.
(v) Taxability of High Sea Sale

'High Sea Sales' is a common trade practice whereby the original importer
sells the goods to a third person before the goods are entered for customs
clearance. After the high sea sale of the goods, the customs declarations, i.e.
bill of entry etc. is filed by the person who buys the goods from the original
importer during the said sale.
However, supply of goods by the consignee
to any other person, by endorsement of GST is not leviable on high
documents of title to the goods, after the sea sales. IGST is leviable
only when the goods are
goods have been dispatched from the port
cleared from customs for
of origin located outside India but before
home consumption.
clearance for home consumption (high sea
sale) is neither treated as supply of goods
nor supply of services in terms of paragraph 8(b) of Schedule III to the
CGST Act.
Further, value of such high sea sales is not included in the value of exempt
supply for the purpose of reversal of ITC under rules 42 and 43 of CGST Rules
[Explanation to section 17(3) of the CGST Act].
As per section 14 of the Customs Act, 1962, the value for the purpose of
charging customs duty on imported goods is the value at the time of
importation, i.e. at the time of filing of the bill of entry. Further, IGST on
imported goods is also levied at the time of filing of bill of entry. Therefore,

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in case of high sea sales, the assessable value of imported goods for levying
customs duty and IGST is determined on the basis of the price paid by the
last high sea sales buyer who files the bill of entry for home consumption.
Circular No. 33/2017 Cus dated 01.08.2017 has clarified that the importer (last
buyer in the chain) would be required to furnish the entire chain of
documents, such as original invoice, high seas sales contract, details of service
charges/commission paid etc. to establish a link between the first contracted
price of the goods and the last transaction.

(vi) Third country shipments

Third country shipments or triangular trade is a common practice in
international trade whereby goods move from one country to another
without touching India; only invoicing is done by the registered person in
India.
For example, ‘A’, a registered person in India, receives an order to supply
goods to ‘B’ in USA. ‘A’, finds a supplier ‘C’ in Singapore and asks him to
supply goods to ‘B’ in USA. Two invoices are raised here; one by ‘A’, the
registered person in India, on ‘B’ in USA and the other by ‘C’ in Singapore on
‘A’ in India. The point to be noted here is that goods do not touch Indian
shores; they are shipped by ‘C’ from Singapore to ‘B’ in USA.
Paragraph 7 of the Schedule III to CGST Act provides that supply of goods
from a place in the non-taxable territory to another place in the non-taxable
territory without such goods entering into India (third country shipments) is
treated neither as a supply of goods nor a supply of services. Thus, there is
no GST liability on such sales.
Further, value of such third country shipments is not included in the value of
exempt supply for the purpose of reversal of ITC under rules 42 and 43 of
CGST Rules [Explanation to section 17(3) of the CGST Act].
(vii) Taxability of goods imported by SEZ
Goods imported by a unit or a developer in the Special Economic Zone (SEZ)
for authorised operations are exempted from the whole of IGST leviable

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under section 3(7) of the Customs Tariff Act, 1975 vide Notification No.
64/2017 Cus dated 05.07.2017.

(viii) Taxability of goods imported by EOU

Goods imported by Export Oriented Undertaking (EOU) attract liability to
customs duty. Import of goods by 100% EOU’s are governed by Notification
No. 52/2003 Cus as amended. EOUs are allowed duty free import of goods
(exempt from Customs duties, IGST & GST Compensation Cess) under the said
notifications. However, exemption from IGST will be subject to fulfilment of
specified conditions.
(ix) Import as baggage
Passenger baggage is exempted from IGST as well as GST Compensation
Cess. The basic customs duty at the rate of 35% and the applicable social
welfare surcharge is leviable on the value which is in excess of the duty-free
allowances provided under the Baggage Rules, 2016.

B. IMPORT OF SERVICES

STATUTORY PROVISIONS

Activities to be treated as supply even if made without consideration

Paragraph (4) Import of services by a person from a related person or from any
of Schedule I of his other establishments outside India, in the course or
to the CGST furtherance of business.
Act

Levy of IGST on importation of services

Section 5(1) Subject to the provisions of sub-section (2), there shall be levied
of the IGST a tax called the integrated goods and services tax on all inter-
Act State supplies of goods or services or both, except on the supply
of alcoholic liquor for human consumption, on the value
determined under section 15 of the Central Goods and Services

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Tax Act and at such rates, not exceeding forty per cent., as may
be notified by the Government on the recommendations of the
Council and collected in such manner as may be prescribed and
shall be paid by the taxable person.

Reverse charge

Section 5(3) The Government may, on the recommendations of the Council,

of the IGST by notification, specify categories of supply of goods or services
Act or both, the tax on which shall be paid on reverse charge basis
by the recipient of such goods or services or both and all the
provisions of this Act shall apply to such recipient as if he is the
person liable for paying the tax in relation to the supply of such
goods or services or both.

Services provided through electronic commerce operator (ECO)

Section 5(5) The Government may, on the recommendations of the Council,

of the IGST by notification, specify categories of services, the tax on inter-
Act State supplies of which shall be paid by the electronic commerce
operator if such services are supplied through it, and all the
provisions of this Act shall apply to such electronic commerce
operator as if he is the supplier liable for paying the tax in
relation to the supply of such services:
Provided that where an electronic commerce operator does not
have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any purpose
in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator
does not have a physical presence in the taxable territory and
also does not have a representative in the said territory, such
electronic commerce operator shall appoint a person in the
taxable territory for the purpose of paying tax and such person
shall be liable to pay tax.

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Inter-State supply

Section 7(4) Supply of services imported into the territory of India shall be
of the IGST treated to be a supply of services in the course of inter-State
Act trade or commerce.

Supplies in territorial waters

Section 9 of Notwithstanding anything contained in this Act,––

the IGST Act (a) where the location of the supplier is in the territorial
waters, the location of such supplier; or
(b) where the place of supply is in the territorial waters, the
place of supply,
shall, for the purposes of this Act, be deemed to be in the coastal
State or Union territory where the nearest point of the
appropriate baseline is located.

Place of supply

Section 13 of Place of supply of services where location of supplier or location

the IGST Act of recipient is outside India.
[Refer Chapter 3: Place of Supply in Module 1 for discussion on
these provisions]

Special provision for payment of tax by a supplier of online information

and database access or retrieval (OIDAR) services

Section 14(1) On supply of online information and database access or retrieval

of the IGST services by any person located in a non-taxable territory and
Act received by a non-taxable online recipient, the supplier of
services located in a non-taxable territory shall be the person
liable for paying integrated tax on such supply of services:
Provided that in the case of supply of online information and
database access or retrieval services by any person located in a
non-taxable territory and received by a non-taxable online
recipient, an intermediary located in the non-taxable territory,
who arranges or facilitates the supply of such services, shall be

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deemed to be the recipient of such services from the supplier of

services in non-taxable territory and supplying such services to
the non-taxable online recipient except when such intermediary
satisfies the following conditions, namely:––
(a) the invoice or customer’s bill or receipt issued or made
available by such intermediary taking part in the supply
clearly identifies the service in question and its supplier in
non-taxable territory;
(b) the intermediary involved in the supply does not authorise
the charge to the customer or take part in its charge which
is that the intermediary neither collects or processes
payment in any manner nor is responsible for the payment
between the non-taxable online recipient and the supplier
of such services;
(c) the intermediary involved in the supply does not authorise
delivery; and
(d) the general terms and conditions of the supply are not set
by the intermediary involved in the supply but by the
supplier of services.

Section 14(2) The supplier of online information and database access or

of the IGST retrieval services referred to in sub-section (1) shall, for payment
Act of integrated tax, take a single registration under the Simplified
Registration Scheme to be notified by the Government:
Provided that any person located in the taxable territory
representing such supplier for any purpose in the taxable
territory shall get registered and pay integrated tax on behalf of
the supplier:
Provided further that if such supplier does not have a physical
presence or does not have a representative for any purpose in
the taxable territory, he may appoint a person in the taxable
territory for the purpose of paying integrated tax and such
person shall be liable for payment of such tax.

ANALYSIS

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(i) Taxability of import of service [Section 7 of the CGST Act read with
para 4 of Schedule I to the CGST Act]
To be taxable, the transaction of import of service needs to be a “supply”.
While the main definition of “supply” under section 7 of the CGST Act covers
supply of goods or services for a consideration in the course or furtherance
of business, clause (b) thereof includes services imported for a consideration
even if the import is not in the course or furtherance of business. Supply
under the IGST Act has been defined to mean the same as the supply under
section 7 of the CGST Act.
Significance of consideration and business test in taxability of
importation of services
As per section 7(1)(b) of the CGST Act, import of services for a consideration
whether or not in the course or furtherance of business, is considered as a
supply. Thus, in general, import of services without consideration is not
considered as supply. However, business test is not required to be fulfilled
for treating import of service, made for a consideration, as supply.
Furthermore, in view of the provisions contained in Schedule I to the CGST
Act, the import of services by a person from a related person or from his
establishment located outside India, in the course or furtherance of business
is treated as supply even if it is made without any consideration.
A conjoint reading of aforesaid provisions with the provisions of section 14
(discussed in the subsequent paras of this Chapter), import of free services
from Google and Facebook by all of us, without any consideration, is not
considered as supply. Import (downloading) of a song for consideration for
personal use would be a supply of service, even though the same is not in the
course or furtherance of business. Import of some services by an Indian
branch from their parent company outside India, in the course or furtherance
of business, even if without consideration, will be a supply.

Thus, import of services can be considered as supply based on whether there

is consideration or not and whether the service is supplied in the course or
furtherance of business. The same has been explained in the table below:

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Nature of Service Consideration Business Test

Import of services Necessarily Required Not required

Import of services by a Not required Necessarily

person from a related Required
person or from his
establishment outside India

Import of service into the territory of India is treated as inter-State supply in

terms of section 7(4) and thus, is liable to IGST under section 5.

(ii) Meaning of import of service [Section 2(11)]

IGST Act defines import of services as supply of any service where the supplier
is located outside India, the recipient is located in India, and the place of
supply of service is in India.

Import of services

Supply of any service where

Supplier of
Recipient Place of
service is
of service is supply of
located
located in service is in
outside
India, and India.
India,

Services supplied by a
supplier located outside
India to recipient located
in India and place of
supply is in India

Import of
services

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The concept discussed above has been explained by way of following

examples:

Location of Location of Place of Whether

Supplier Recipient Supply qualifies as
import of
services?

Delhi Yes
London Delhi

Paris
No
London Paris

Delhi No
Delhi Paris

London
No
London Delhi

Thus, only where the location of supplier is outside India but the location of
recipient and the place of supply is in India, the transaction shall qualify as
import of services.

‘India’ is the sum of the territory of its States and also includes its territorial
waters and Exclusive Economic Zone. This is an extended definition of ‘India’
over and above the area denoted by the expression in Article 1 of the
Constitution and is enabled by the rights of nations under the United Nations

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Convention on the Law of the Seas. The definition enables taxation of services
received from outside India into the area that is outside India as per the
definition in the Constitution but within the 200 nautical miles limit of the
Exclusive Economic Zone [Section 2(56) of the CGST Act].
The place of supply is to be determined in terms of section 13 of the IGST
Act. Section 13 provides for determination of place of supply in cases wherein
the location of the supplier of services or the recipient of services is outside
India. If the place of supply of service is in the territorial waters, the place of
supply is deemed to be in the coastal State/Union Territory where the nearest
point of the appropriate baseline is located [Section 9]. Thus, the State tax
component of the IGST accrues to such coastal State.

In addition to the place of supply being in India and the provider of service
being located outside India, the location of the recipient of service must be
in India for the transaction to qualify as import of service. This means that
the service should be received at the recipient’s place of business or fixed
establishment in India. In the absence of such a place, the usual place of
residence of the recipient is taken to be his location 2.

(iii) Person liable to pay tax on importation of service

➢ In case of importation of service, the recipient of imported service who

is located in India (other than non-taxable online recipient of OIDAR
service) is the person who has to pay IGST on the service under reverse
charge [Section 5(3) of the IGST Act read with Entry 1 of Notification No.
10/2017 IGST (R) dated 28.06.2017].

➢ In case of services supplied by a person located outside India by way of

transportation of goods by a vessel from a place outside India upto the
custom station of clearance in India, IGST is to be paid by the importer
located in India. In other words, in case of foreign shipping lines
providing inbound transportation of goods (from a place outside India

2
Provisions relating to place of supply, location of supplier of service, location of recipient of
service, fixed establishment, place of business etc. have been discussed in detail in Chapter 3 –
Place of Supply in Module 1 of this Study Material.

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upto the customs station of clearance in India), IGST is to be paid by

the importer [Section 5(3) of the IGST Act read with Entry 10 of
Notification No. 10/2017 IGST (R) dated 28.06.2017] 3.

However, Supreme Court in case of Union of India vs. Mohit

Minerals Pvt. Ltd. 2022 (61) G.S.T.L. 257 has held that since the
Indian importer is liable to pay IGST on the ‘composite supply’,
comprising of supply of goods and supply of services of
transportation, insurance, etc. in a CIF contract, a separate levy on
the Indian importer for the ‘supply of services’ by the shipping line
would be in violation of section 8 of the CGST Act, 2017 and would
amount to double taxation. Hence, there cannot be a separate levy
of IGST on the component of ocean freight paid by the foreign
exporter to the foreign shipping line in the CIF contract.

➢ In case of importation of OIDAR services by a non-taxable online

recipient, supplier of OIDAR services is liable to pay IGST [Discussed in
detail in subsequent paragraphs].

➢ In case of importation of notified services through ECO, ECO is liable to

pay IGST [Discussed in detail in subsequent paragraphs].

(iv) Exemptions related to import of service

Exemptions from IGST in context of cross border transactions relating to

services are discussed in Chapter 4: Exemptions from GST in Module 1 of this
Study Material. The relevant exemptions may be referred to from that Chapter.

(v) Importation of OIDAR services [Section 14]

Online Information Database Access and Retrieval services (OIDAR) is a

category of services provided through the medium of internet and received
by the recipient online; such services cannot be rendered in the absence of
information technology [See definition].

3
With effect from 01.10.2023, Entry 10 of Notification No. 10/2017 has been omitted vide Notification
No. 13/2023 IT (R) dated 26.09.2023, consequent to SC judgment in case of Mohit Minerals.

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(1) Download of an e-book online for a payment would amount to

receipt of OIDAR services by the consumer.
❑ Taxability of OIDAR services imported by business entity and non-
taxable online recipient
Importation of OIDAR services by a business entity

For any supply to be taxable under GST, the place of supply in respect of the
subject supply should be in India. In case, both the supplier of OIDAR service
and the recipient of such service are in India, the place of supply would be
the location of the recipient of service, i.e. it would be governed by the default
provision of place of supply and would be liable to GST under forward charge.
However, OIDAR services can also be provided online even from a remote
location outside the taxable territory. In such cases also - where the supplier
of OIDAR service is located outside India and the recipient is located in India
- the place of supply 4 would be India and the transaction would be amenable
to tax under reverse charge if the recipient is a business entity (excluding
Government, Governmental authority or Local authority). Thus, in such cases
the recipient located in India, will be liable to pay IGST under reverse charge
and undertake necessary compliances.
Importation of OIDAR services by non-taxable online recipient
Now what happens if the supplier is located outside India and the recipient
in India is an individual consumer! In such cases also, the place of supply
would be India and the transaction would be amenable to levy of GST, but
the problem would be, how such tax would be collected. It would be
impractical to ask the individual in India to register and undertake the
necessary compliances under GST for a one-off purchase on the internet.
However, if a similar service is provided by an Indian service provider, from
within the taxable territory, to individual consumer in India, the same would
be taxable under forward charge . Therefore, overseas suppliers of such

4
Provisions relating to place of supply for OIDAR services under section 14 of the IGST Act have
been discussed in detail in Chapter 3: Place of Supply in Module 1 of this Study Material.

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services would have an unfair tax advantage should the services provided by
them be left out of the tax net.

For such cases, the IGST Act provides that on supply of OIDAR services by any
person from a location outside India to an unregistered recipient in India [i.e.
to a non-taxable online recipient (See definition)], the supplier who is outside
India is liable to pay IGST on the supply.
Provision or facilitation of OIDAR services by intermediary located
outside India: Now if an intermediary (See definition) located outside India
arranges or facilitates supply of such service to a non-taxable online recipient
in India, the intermediary would be treated as the supplier of the said service
who must get registered in India and pay IGST on the supply.
However, if the intermediary has nothing to do with the payment or
authorising the delivery of the service or setting of the terms and conditions
of the supply, and if his invoice clearly identifies the service and its supplier,
the responsibility for registration remains with the supplier.
Provisions enabling supplier of OIDAR services located outside India to
comply with the responsibilities entrusted under GST laws: The supplier
(or intermediary) of OIDAR services shall, for payment of IGST, take a single
registration under the Simplified Registration Scheme.
If the overseas supplier has a representative in India for any purpose, such
person (representative in India) shall get registered and pay IGST on behalf
of the supplier.
In case the overseas supplier neither has a physical presence nor has any
representative for any purpose in India, it may appoint a person in India for
the purpose of paying IGST.
❑ Examples of what could be or could not be OIDAR services
In order to determine whether a particular service is an OIDAR service, the
following tests need to be applied:

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A B

Services whose delivery is OIDAR

mediated by information Services are impossible to
ensure in the absence of Services
technology over the
information technology
internet/electronic network

Thus, a service qualifies as OIDAR services if above two conditions have been
satisfied. The inclusive part of the definition is only indicative and not
exhaustive.

Service Whether Whether Whether

condition conditio it is
‘A’ is n ‘B’ is OIDAR
fulfilled? fulfilled? service or
not?

PDF document YES YES YES

automatically emailed by
provider’ s system

PDF document YES YES YES

automatically downloaded
from site

Stock photographs YES YES YES

available for automatic
download

Online course consisting of YES YES YES

pre-recorded videos and
downloadable PDFs

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Indicative List of OIDAR Services

Website supply, web-hosting, distance maintenance of programmes and
equipment
❑ Website hosting and webpage hosting
❑ Automated, online and distance maintenance of programmes
❑ Remote systems administration
❑ Online data warehousing where specific data is stored and retrieved
electronically
❑ Online supply of on-demand disc space
Supply of software and updating thereof
❑ Accessing or downloading software (including procurement/
accountancy programmes and anti-virus software) plus updates
❑ Software to block banner adverts, otherwise known as Banner blockers
❑ Download drivers, such as software that interfaces computers with
peripheral equipment (such as printers)

❑ Online automated installation of filters on websites

❑ Online automated installation of firewalls
Supply of images, text and information and making available of
databases
❑ Accessing or downloading desktop themes
❑ Accessing or downloading photographic or pictorial images or
screensavers
❑ The digitised content of books and other electronic publications
❑ Subscription to online newspapers and journals

❑ Weblogs and website statistics

❑ Online news, traffic information and weather reports
❑ Online information generated automatically by software from specific

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data input by the customer, such as legal and financial data, (in
particular, data such as continually updated stock market data, in real
time)
❑ The provision of advertising space including banner ads on a
website/web page
❑ Use of search engines and internet directories
Supply of music, films and games, including games of chance and
gambling games, and of political, cultural, artistic, sporting, scientific
and entertainment broadcasts and events
❑ Accessing or downloading of music on to computers and mobile
phones
❑ Accessing or downloading of jingles, excerpts, ringtones, or other sounds
❑ Accessing or downloading of films
❑ Downloading of games on to computers and mobile phones
❑ Accessing automated online games which are dependent on the
internet or other similar electronic networks, where players are
geographically remote from one another
(vi) Services provided through ECO located outside India [Section 5(5)]
An ECO is required to pay IGST on notified services if these are supplied
through its portal5.
If the ECO does not have a physical presence in India but there is a person in
India representing such overseas supplier in India for any purpose, such
person (representative in India) is liable to pay IGST. However, if the ECO
does not have a physical presence in India and does not have a representative
here either, it is required to appoint a person in India for the purpose of
paying tax on such notified services.

5
Provisions relating to Electronic Commerce Operator are discussed in detail in Chapter 12:
Electronic Commerce Transactions in Module 2 of this Study Material.

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C. REGISTRATION AND ITC IN CASE OF IMPORT OF

GOODS AND SERVICES
❑ Registration
Registration for importer of goods
Reverse charge provisions do not cover importers of goods. Importers are
also not listed among the categories of persons in section 24 of the CGST Act
for whom registration is compulsory. It may be noted here that it is
mandatory for the importers who are registered under GST to quote GSTIN
in the bill of entry for the purpose of payment of IGST on import of goods as
also for availing ITC of such IGST.
Registration in case of import of exempted goods
In terms of section 23 of the CGST Act, persons engaged exclusively in the
supply of goods (import and export) that is either not liable to tax or is wholly
exempt from tax under the CGST or IGST Acts are not required to obtain
registration. In such cases, PAN (which is authorized as IEC by DGFT) of the
importer and exporter would suffice [Instruction No. 10/2017 Cus dated
06.07.2017].

Registration for importer of services

Section 24(iii) of the CGST Act mandates compulsory registration for persons,
without any benefit of the threshold limit for registration, who are required
to pay tax under reverse charge. Accordingly, importer of services who are
required to pay IGST under reverse charge have to obtain compulsory
registration under GST law so as to be able to pay tax on imported services
under reverse charge.
Thus, recipient of imported services other than non-taxable online recipient
must register compulsorily.

❑ Input Tax Credit

ITC of IGST paid on imported goods
The definition of “input tax” in relation to a registered person means inter alia
integrated tax and includes IGST charged on import of goods [Section 2(62)

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of the CGST Act (See definition)]. Thus, ITC of IGST paid at the time of import
is available to the importer subject to the conditions and restrictions provided
under sections 16 and 17 of the CGST Act for availing such credit. Such ITC
can be utilized by the registered person for payment of taxes on his outward
supplies. GST Compensation Cess paid on import of goods is also available
as ITC.
IGST and GST Compensation Cess paid at the time of import of goods thus,
in essence, are a pass through to this extent. The ITC of GST Compensation
Cess, however, can only be used for payment of GST Compensation Cess.
Furthermore, ITC of basic customs duty and social welfare surcharge paid on
the imported goods is not available.

ITC of IGST paid on importation of services

The definition of “input tax” in relation to a registered person means inter alia
integrated tax and includes tax payable under reverse charge under sub-
sections (3) and (4) of section 5 of the IGST Act [Section 2(62) of the CGST Act
(See definition)]. Therefore, IGST paid on importation of services is available
as ITC at par with IGST paid on any other supply subject to conditions and
restrictions prescribed under sections 16 and 17 of the CGST Act for availing
such credit.

4. EXPORTS
One of the fundamental principle to make exports competitive in the international
market is that taxes should not be exported. Hence, export to destinations outside
India as well as supplies to SEZ have been ‘zero-rated’, i.e. the goods or services
exported are relieved of GST levied upon them either at the input stage or at the
final product stage by way of refund of taxes paid. Thus, it can be seen that supply
to SEZ unit/developer is treated at par with physical exports.
Supplies made for export through merchant exporters are taxed at 0.1% with ITC
benefit. Supplies of goods from Domestic Tariff Area (DTA) to EOU/ Electronic
Hardware Technology Park (EHTP) Unit/ Software Technology Park (STP) Unit/ Bio-
Technology Parks (BTP) Unit are considered as ‘deemed exports’ and are allowed
some of the benefits that actual export enjoy.

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STATUTORY PROVISIONS

Inter-State supply

Section 7(5) Supply of goods or services or both,-

of the IGST (a) when the supplier is located in India and the place of
Act supply is outside India;
(b) to or by a Special Economic Zone developer or a Special
Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and
not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the
course of inter-State trade or commerce.

Establishments of distinct persons

Explanation For the purposes of this Act, where a person has,––

1 to section 8 (i) an establishment in India and any other establishment
of the IGST outside India;
Act
(ii) an establishment in a State or Union territory and any other
establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any
other establishment registered within that State or Union
territory,
then such establishments shall be treated as establishments of
distinct persons.

Explanation 2 A person carrying on a business through a branch or an agency

to section 8 of or a representational office in any territory shall be treated as
the IGST Act having an establishment in that territory.

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Place of supply

Section 11 of Place of supply of goods imported into, or exported from India

the IGST Act [Refer Chapter 3: Place of Supply in Module 1 for discussion on
these provisions]

Section 13 of Place of supply of services where location of supplier or location

the IGST Act of recipient is outside India
[Refer Chapter 3: Place of Supply in Module 1 for discussion on
these provisions]

Zero Rated Supply

Section 16 of (1) “Zero rated supply” means any of the following supplies of
the IGST Act goods or services or both, namely :-
(a) export of goods or services or both; or
(b) supply of goods or services or both for authorised
operations to a Special Economic Zone developer or
a Special Economic Zone unit.
(2) Subject to the provisions of sub-section (5) of section 17 of
the Central Goods and Services Tax Act, credit of input tax may
be availed for making zero-rated supplies, notwithstanding
that such supply may be an exempt supply.
(3) A registered person making zero rated supply shall be
eligible to claim refund of unutilised input tax credit
on supply of goods or services or both, without
payment of integrated tax, under bond or Letter of
Undertaking, in accordance with the provisions of
section 54 of the CGST Act or the rules made
thereunder, subject to such conditions, safeguards and
procedure as may be prescribed.
Provided that the registered person making zero rated
supply of goods shall, in case of non-realisation of
sale proceeds, be liable to deposit the refund so
received under this sub-section along with the

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applicable interest under section 50 of CGST Act

within 30 days after the expiry of the time limit
prescribed under the Foreign Exchange Management
Act, 1999 for receipt of foreign exchange remittances,
in such manner as may be prescribed.
(4) The Government may, on the recommendation of the
Council, and subject to such conditions, safeguards
and procedures, by notification, specify––
(i) a class of persons who may make zero rated
supply on payment of integrated tax and claim
refund of the tax so paid;
(ii) a class of goods or services which may be exported
on payment of integrated tax and the supplier of
such goods or services may claim the refund of
tax so paid.

Deemed Exports

Section 147 The Government may, on the recommendations of the Council,

of the CGST notify certain supplies of goods as deemed exports, where goods
Act supplied do not leave India, and payment for such supplies is
received either in Indian rupees or in convertible foreign
exchange, if such goods are manufactured in India.

ANALYSIS
A supply of goods and/or services whose place of supply is outside India and is
made by a supplier in India is treated as inter-State supply under the IGST Act.
Further, supply of goods and/or services to a SEZ unit/developer or supply of goods
and/or services by a SEZ unit/developer are also treated as inter-State supply under
the IGST Act [Section 7(5)]. The place of supply of goods and services in cross
border transactions is determined in accordance with the provisions of sections 11
and 13 respectively.
Inter-State supplies of goods and/or services are liable to IGST in terms of
section 5. Hence, on a strict interpretation of section 5, IGST is payable on such

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supplies where the supplier is located in India and the place of supply is outside
India. However, at the same time it can be argued that since IGST Act extends to
whole of India, IGST cannot be levied on a supply whose place of supply is outside
India. Also, fundamentally GST is a consumption tax and thus, tax cannot be levied
if goods and/or services are consumed outside India.
An inter-State supply under section 7(5)(a) cannot automatically be construed as
export of goods and/or services; only when the conditions stipulated in the
definitions of export of goods and export of services are fulfilled, will such
inter-State supplies be considered as exports and, in turn, be zero rated.

A. ZERO RATED SUPPLY [SECTION 16]

(i) What is Zero Rating?
By zero rating it is meant that the entire value chain of the supply is exempt
from tax. This means that in case of zero rating, not only is the outward
exempt from payment of tax but there is also no bar on taking/availing credit
of taxes paid on the input side for making/providing the outward supply.
Under GST Law, exports and supplies to SEZ units/developers are zero rated.
Supply to SEZ units/developers for authorised operations is zero-rated in
the same manner as is applicable for the physical exports.
(ii) What is the need of zero rating?
As per section 2(47) of the CGST Act, a supply is said to be exempt, when it
attracts nil rate of duty or is specifically exempted by a notification or kept
out of the purview of tax (i.e. a non-GST supply). But if a goods or service is
exempted from payment of tax, it cannot be said that it is zero rated. The
reason is not hard to find. The inputs and input services which go into the
making of the goods or provision of service have already suffered tax and
only the final product is exempted. Moreover, when the output is exempted,
tax laws do not allow availment/utilisation of credit on the inputs and input
services used for supply of the exempted output. Thus, in a true sense the
entire supply is not zero rated. Though the output suffers no tax, the inputs
and input services have suffered tax and since availment of tax credit on input
side is not permitted, it becomes a cost for the supplier. The concept of zero
rating of supplies aims to correct this anomaly

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(iii) How does zero rating work?

As already seen, the concept of zero rating of outward supplies requires the
outward supplies as well as the inputs or input services used in supplying the
outward supplies to be free of GST. This is done by employing the following
means:
a) The outward supplies which are zero rated can be made without
payment of integrated tax, under bond or Letter of Undertaking or
where such zero-rated supplies are exempted, they may be supplied
without payment of tax;
b) The refund of unutilized credit input tax credit on supply of goods or
services or both used in supplying the zero rated supply is allowed;
Thus, a registered person making zero rated supply may supply goods
and/or services under bond or Letter of Undertaking (LUT) without
payment of IGST and claim refund of unutilized ITC. Further, notified
class of persons may make zero-rated supply or notified class of goods
or services may be exported, on payment of IGST and refund of such tax
paid on goods and/or services supplied may be claimed. Circular No. 01/
2017 CC dated 26.07.2017 has clarified that the provisions of section 16
relating to zero rated supply will apply to GST Compensation Cess also.
Hence, (i) exporters can claim refund of GST Compensation Cess paid on
goods exported by him in case of notified class of persons making zero-rated
supply or export of notified class of goods or services, or (ii) GST
Compensation Cess will not be charged on goods exported under bond/LUT
and he will be eligible for refund of ITC of GST Compensation Cess relating
to goods exported.
Refer Chapter 15: Refunds in this Module for detailed discussion on provisions
relating to refunds associated with zero rated supplies.

(iv) How do zero rated and exempt supplies differ?

The difference between zero rated supplies and exempted supplies is
tabulated as below:

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Exempted Supplies Zero rated supplies

Exempt supply means supply of any Zero-rated supply means (i)
goods or services or both which export of goods and/or services
attracts nil rate of tax or which may be or (ii) supply of goods and/or
wholly exempt from tax and includes services for authorised
non-taxable supply. operations to SEZ unit/SEZ
developer.
No tax on the outward exempted No tax on the outward supplies;
supplies, however, the input supplies Input supplies also to be tax free
used for making exempt supplies to be (by way of refund of ITC)
taxed
Credit of input tax needs to be Credit of input tax may be
reversed, if taken. availed for making zero-rated
No ITC on the exempted supplies. supplies, even if such supply is
an exempt supply.
ITC allowed on zero rated
supplies.
Value of exempt supplies, for Value of zero rated supplies
apportionment of ITC, shall include shall be added along with the
supplies on which the recipient is liable taxable supplies for
to pay tax on reverse charge basis, apportionment of ITC.
transactions in securities, sale of land
and, subject to clause (b) of paragraph
5 of Schedule II, sale of building.
Any person engaged exclusively in the A person exclusively making
business of supplying goods or services zero rated supplies needs to
or both that are not liable to tax or register as refund of unutilized
wholly exempt from tax under the CGST ITC or IGST paid shall have to be
or IGST Act shall not be liable to claimed.
registration.
A registered person supplying Normal tax invoice shall be
exempted goods and/or services shall issued.
issue, instead of a tax invoice, a bill of
supply.

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B. EXPORT OF GOODS/SERVICES

Export of goods or services are treated as inter-State supply and zero rated. This
means that even if there is full exemption for the supply, ITC is still available to the
exporter. The exporter can export under Bond/LUT without payment of IGST and
claim refund of ITC. The notified class of persons may make zero-rated supply or
notified class of goods or services may be exported, on payment of IGST and refund
of such tax paid on goods and/or services supplied may be claimed. The objective
is to make Indian exports competitive in the international market.
It may be noted that since exports are inter-State supplies, the tax associated with
them will always be IGST.

(i) Physical exports [Section 2(5)]

Export of goods requires taking the goods from India to a place outside India.
India is defined as extending to the limits of its maritime zone, which is 200
nautical miles from the coastal baseline. This is far beyond the normal
definition of India, which only includes its territorial waters, which in turn
extend 12 miles from the baseline. Given the extended meaning of India,
export would require that the goods must travel beyond 200 miles from the
baseline in order to qualify as having been exported.
Sending/ taking goods out of India for exhibition or on consignment
basis for export promotion: Circular No. 108/27/2019 GST dated 18.07.2019
has clarified that the activity of sending/ taking goods out of India for
exhibition or on consignment basis for export promotion, except when such
activity satisfy the tests laid down in Schedule I of the CGST Act, do es not
constitute supply as the said activity does not fall within the scope of
section 7 of the CGST Act as there is no consideration at that point in time.
Since such activity is not a ‘supply’, the same cannot be considered as “zero
rated supply” as per the provisions contained in section 16 of the IGST Act.

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Thus, activity of sending/ taking specified goods out of India is not a zero-
rated supply. That being the case, execution of a bond or LUT, as required
under section 16 of the IGST Act, is not required.
(ii) Deemed exports
Deemed exports refers to supplies of goods manufactured in India (and not
services) which are notified as deemed exports under section 147 of the CGST
Act. Such supplies do not leave India and the payment for the same is
received either in Indian rupees or in convertible foreign exchange.
Following categories of supply of goods have been notified as deemed
exports by the Government vide Notification No. 48/2017 CT dated
18.10.2017:
(a) Supply of goods by a registered person against Advance Authorisation
(AA)

If exports have already been made after availing ITC on inputs used in
manufacture of such exports, the goods so supplied should be used in
manufacture and supply of taxable goods (other than nil rated or fully
exempted goods) and a certificate to this effect from a Chartered
Accountant should be submitted to the jurisdictional Commissioner of
GST or any other officer authorised by him within 6 months of such
supply.
(b) Supply of capital goods by a registered person against Export
Promotion Capital Goods Authorisation (EPCG)

(c) Supply of goods by a registered person to Export Oriented Unit (EOU)

(d) Supply of gold by a bank or Public sector Undertaking specified in
Notification No. 50/2017 Cus dated 30.06.2017 (as amended) against AA

“AA” means an authorisation issued by the Director General of Foreign Trade

under Chapter 4 of the Foreign Trade Policy 2023 for import or domestic
procurement of inputs for physical exports.

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“EPCG” means an authorisation issued by the Director General of Foreign

Trade under Chapter 5 of the Foreign Trade Policy 2023 for import of capital
goods for physical exports.
“EOU” means an EOU or Electronic Hardware Technology Park Unit or
Software Technology Park Unit or Bio-Technology Park Unit approved in
accordance with the provisions of Chapter 6 of the Foreign Trade Policy, 2023.
The above have been discussed in detail in Chapter 8: Foreign Trade Policy in
Module 4 of this Study Material.

Taxability of deemed exports

Deemed exports are not zero rated supplies by default, unlike the regular
exports. Hence, all supplies notified as supply for deemed export are subject
to levy of taxes, i.e. such supplies can be made on payment of tax and cannot
be supplied under a Bond/LUT. However, the refund of tax paid on the supply
regarded as deemed export is admissible to either the supplier or the
recipient. Thus, the application for refund has to be filed by the supplier or
the recipient (subject to certain conditions) of deemed export supplies, as the
case may be. [Refer Chapter 15: Refunds in this Module for detailed discussion
on these provisions].
(iii) Merchant exports
There is no specific provision in GST law for export through third parties,
commonly known as merchant exports. However, a low rate of GST of 0.1%
on supplies for export through third parties has been provided by way of
exemption notifications. [This is expressed as 0.1% IGST on inter-State supplies
or 0.05% CGST plus 0.05% SGST on intra-State supplies].
Circular No. 125/44/2019 GST dated 18.11.2019 has clarified that the exporter
receiving goods at concessional rate of tax @ 0.1% (0.05% CGST + 0.05%
SGST & 0.1% IGST) will be eligible to take credit of the concessional tax so
paid by him. The supplier who supplies goods at the concessional rate will
be eligible for refund of ITC on account of inverted tax structure as per the

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provisions of section 54(3)(ii) of the CGST Act 6. However, it may be noted

that the exporter of such goods can export the goods only under LUT / bond
and cannot export on payment of IGST.
Circular No. 08/08/2017 dated 04.10.2017 has 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. The transaction between a manufacturer and a merchant exporter is
in the nature of supply and the same would be subject to GST.

Manufacturer exporter means a person who exports goods manufactured by

him or intends to export such goods. Merchant exporter means a person
engaged in trading activity and exporting or intending to export goods [As
defined under Foreign Trade Policy 2023].

A registered supplier can supply goods to a merchant exporter at low rate of

GST (0.1%) prescribed under Notification Nos. 41/2017 IT(R) and 40/2017
CT(R) both dated 23.10.2017 if following conditions (specified in the said
notifications) are fulfilled-
(a) the registered supplier (manufacturer) shall supply the goods to the
registered recipient (merchant exporter) on a tax invoice;
(b) the registered recipient shall export the said goods within a period of
90 days from the date of issue of a tax invoice by the registered supplier;
(c) the registered recipient shall indicate the GSTIN of the registered
supplier and the tax invoice number issued by the registered supplier
in respect of the said goods in the shipping bill or bill of export;

(d) the registered recipient shall be registered with an Export Promotion

Council;
(e) the registered recipient shall place an order on registered supplier for
procuring goods at concessional rate and a copy of the same shall also
be provided to the jurisdictional tax officer of the registered supplier;

6
Provisions relating to refund of unutilized ITC on account of inverted duty structure have been
discussed in detail in Chapter 15: Refunds in this Module of the Study Material.

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(f) the registered recipient shall move the said goods from place of
registered supplier –

i. directly to the Port, Inland Container Depot, Airport or Land

Customs Station from where the said goods are to be exported;
or

ii. directly to a registered warehouse from where the said goods

shall be moved to the Port, Inland Container Depot, Airport or
Land Customs Station from where the said goods are to be
exported;
Registered principal place of business or registered additional
place of business are deemed to be a registered warehouse
[Circular No. 42/2017 Cus dated 07.11.2017].
(g) if the registered recipient intends to aggregate supplies from multiple
registered suppliers and then export, the goods from each registered
supplier shall move to a registered warehouse and after aggregation,
the registered recipient shall move goods to the Port, Inland Container
Deport, Airport or Land Customs Station from where they shall be
exported;
(h) in case of situation referred to in condition (g), the registered recipient
shall endorse receipt of goods on the tax invoice and also obtain
acknowledgement of receipt of goods in the registered warehouse from
the warehouse operator and the endorsed tax invoice and the
acknowledgment of the warehouse operator shall be provided to the
registered supplier as well as to the jurisdictional tax officer of such
supplier; and
(i) after goods have been exported, the registered recipient shall provide
copy of shipping bill or bill of export containing details of GSTIN and
tax invoice of the registered supplier along with proof of export general
manifest or export report having been filed, to the registered supplier
as well as jurisdictional tax officer of such supplier.

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Merchant exporters may exclude commercially sensitive information

while providing copies of shipping bills to registered suppliers [Circular
No. 42/2017 Cus dated 07.11.2017].

Supply of service qualifies to be an ‘export of service’ if it fulfills the following

conditions:
(a) the service is supplied from India to a recipient located outside India,
(b) the place of supply of the service is outside India,
(c) the consideration for the service is received in freely convertible foreign
exchange or in Indian rupees wherever permitted by the Reserve Bank of
India, and
(d) the transaction is between separate entities, i.e. not merely between two
establishments of an entity

Branch and Head Office of one taxable person are not treated as two separate
entities for this purpose. In other words, provision of outbound services inter se
Head Office and Branch is not construed as export of service. However, Notification
No. 9/2017 IT(R) dated 28.06.2017 exempts the services provided by an Indian
establishment to its foreign establishment from IGST if the place of supply is
outside India – For details, refer Chapter 4: Exemptions from GST in Module 1 of this
Study Material.
Apparently, subsidiary and holding companies may not be treated as mere
establishments of one entity since these are two separate legal persons (with
different PAN). Thus, seemingly, provision of outbound services inter se subsidiary
company and holding company can be construed as export of service if all other
condition of export of services are fulfilled. Under service tax law, similar view was
taken by the Gujarat High Court in the case of Linde Engineering India Private
Limited Other vs. Union of India [R/Special Civil Application No. 12626 of 2018 dated
16.01.2020]. Service tax law had identical provisions on this aspect.

As in case of export of goods, in case of export of services also, India extends to the
limits of its maritime zone, which is 200 nautical miles from the coastal baseline.

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For example, Raman of Delhi has supplied services to John of USA.

Place of supply is
outside India and John
and Raman are two
separate entities

John
John
Export of services

Payment for Raman

service is
received in
convertible
FOREX

In the given example, supplier of service – Raman – is located in India, recipient of

service – John – is located outside India and the place of supply of service is USA.
Payment for services provided by Raman has been received in convertible FOREX
and Raman and John are not merely establishments of a distinct person as per
explanation to section 8 of IGST Act. Since all the requisite conditions have been
satisfied, such services qualify as export of services.
In this regard, following circulars have been issued:
(A) Sub-contracting of services by an exporter of services to another person
located outside India - Circular No. 78/52/2018 GST dated 31.12.2018
If an exporter of services outsources a portion of the services contract to
another person located outside India, there may be instances where the full
consideration for the outsourced services is not received by the exporter in
India. The tax treatment of the said portion of the contract at the hands of
the exporter has been explained as under:
Where an exporter of services located in India is supplying certain services to
a recipient located outside India, either wholly or partly through any other

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supplier of services located outside India, the following two supplies are
taking place: -

(a) Supply of services from the exporter of services located in India to the
recipient of services located outside India for the full contact value;
(b) Import of services by the exporter of services located in India from the
supplier of services located outside India with respect to the outsourced
portion of the contract.
Thus, the total value of services as agreed to in the contract between the
exporter of services located in India and the recipient of services located
outside India will be considered as export of services if all the conditions laid
down in section 2(6) read with section 13(2) are satisfied.
The supplier of services located in India would be liable to pay IGST on reverse
charge basis on the import of services on that portion of services which has
been provided by the supplier located outside India to the recipient of
services located outside India. Furthermore, the said supplier of services
located in India would be eligible for taking ITC of the IGST so paid.
Thus, even if the full consideration for the services as per the contract value
is not received in convertible foreign exchange in India due to the fact that
the recipient of services located outside India has directly paid to the supplier
of services located outside India (for the outsourced part of services), that
portion of the consideration shall also be treated as receipt of consideration
for export of services in terms of section 2(6)(iv) of the IGST Act, provided the:
(a) IGST has been paid by the supplier located in India for import of services
on that portion of the services which has been directly provided by the
supplier located outside India; and
(b) RBI by general instruction or by specific approval has allowed that part
of the consideration for such exports can be retained outside India.
(2) ABC Ltd. India has received an order for supply of services
amounting to $ 500,000/- to a US based client. ABC Ltd. India is
unable to supply the entire services from India and asks XYZ Ltd. Mexico (who
is not merely an establishment of a distinct person viz. ABC Ltd. India, in

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accordance with the Explanation 1 in section 8 of the IGST Act) to supply a

part of the services (say 40% of the total contract value). ABC Ltd. India shall
be the exporter of services for the entire value if the invoice for the entire
amount is raised by ABC Ltd. India. The services provided by XYZ Ltd. Mexico
to the US based client shall be import of services by ABC Ltd. India and it
would be liable to pay IGST on the same under reverse charge and also be
eligible to take ITC of the IGST so paid.
Further, if the provisions contained in section 2(6) of the IGST Act are not
fulfilled with respect to the realization of convertible foreign exchange, say
only 60% of the consideration is received in India and the remaining amount
is directly paid by the US based client to XYZ Ltd. Mexico, even in such a
scenario, 100% of the total contract value shall be taken as consideration for
the export of services by ABC Ltd. India provided IGST on import of services
has been paid on the part of services provided by XYZ Ltd Mexico directly to
the US based client and RBI (by general instruction or by specific approval)
has allowed that a part of the consideration for such exports can be retained
outside India. In other words, in such cases, the export benefit will be
available for the total realization of convertible foreign exchange by ABC Ltd.
India and XYZ Ltd. Mexico.
(B) Supply from a company incorporated in India to its related
establishments outside India, which are incorporated under the laws
outside India qualifies as ‘export of services’ - Circular No. 161/17/2021
GST dated 20.09.2021
Generally, services are provided by a subsidiary/ sister concern/ group
concern, etc. of a foreign company in India, which is incorporated under
the laws in India, to the foreign company incorporated under laws of a
country outside India.
Definition of “export of services” (discussed herein), places a condition
that the services provided by one establishment of a person to another
establishment of the same person, considered as establishments of
distinct persons as per Explanation 1 of section 8 of the IGST Act, cannot
be treated as export. Thus, any supply of services by an establishment of
a foreign company in India to any other establishment of the said foreign

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company outside India will not be covered under definition of export of

services.

Further, perusal of the Explanation 2 to section 8 of the IGST Act suggests

that if a foreign company is conducting business in India through a
branch or an agency or a representational office (hereinafter referred to
as RBA), then the said RBA of the foreign company, located in India, shall
be treated as establishment of the said foreign company in India.
Similarly, if any company incorporated in India, is operating through a
RBA in any country outside India, then that RBA shall be treated as the
establishment of the said company in the said country.
In view of the above, it can be stated that supply of services made by a
RBA of a foreign company, not incorporated in India, to any
establishment of the said foreign company outside India, shall be treated
as supply between establishments of distinct persons and shall not be
considered as “export of services” in view of condition (v) of section 2(6)
of IGST Act.

India Outside India

Establishments of distinct
persons

RBA of foreign Supply not

company not Establishment of the
considered as foreign company
incorporated in India export of services

Similarly, any supply of service by a company incorporated in India to its

RBA, located in any other country and not incorporated under the laws
of the said country, shall also be considered as supply between
establishments of distinct persons and cannot be treated as export of
services.

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India Outside India

Establishments of distinct
persons

RBA of Indian
Supply not company, not
Company incorporated considered as incorporated in
in India export of services foreign country

From the perusal of the definition of “person” under section 2(84) of the
CGST Act and the definitions of “company” and “foreign company” under
section 2 of the Companies Act, 2013 7, it is observed that a company

7
Section 2(84) of the CGST Act provides that “person” includes-
(a) ……..
(b) ……..
(c) a company;
(d) ……..
(e) ……..
(f) ……..
(g) ……..
(h) any body corporate incorporated by or under the laws of a country outside India;
(i) ……..
(j) ……..
(k) Central Government or a State Government;
(l) ……..
(m) ……..
(n) ……..
Definitions of company and foreign company as provided under section 2 of Companies Act
2013 are as under:
Company means a company incorporated under this Act or under any previous company
law.

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incorporated in India and a foreign company incorporated outside India,

are separate “person” under the provisions of CGST Act and accordingly,
are separate legal entities.
Thus, a subsidiary/ sister concern/ group concern of any foreign company
which is incorporated in India, then the said company incorporated in
India will be considered as a separate “person” under the provisions of
CGST Act and accordingly, would be considered as a separate legal entity
than the foreign company.
In view of the above, it is clarified that a company incorporated in India
and a body corporate incorporated by or under the laws of a country
outside India, which is also referred to as foreign company under the
Companies Act, are separate persons under the CGST Act, and thus are
separate legal entities. Accordingly, these two separate persons would
not be considered as “merely establishments of a distinct person in
accordance with Explanation 1 in section 8”.
Therefore, supply of services by a subsidiary/ sister concern/ group
concern, etc. of a foreign company, which is incorporated in India under
the Companies Act, 2013 (and thus qualifies as a ‘company’ in India as
per Companies Act), to the establishments of the said foreign company
located outside India (incorporated outside India), would not be barred
by the condition (v) of section 2(6) for being considered as export of
services, as it would not be treated as supply between merely
establishments of distinct persons under Explanation 1 of section 8.
Similarly, the supply from a company incorporated in India to its related
establishments outside India, which are incorporated under the laws
outside India, would not be treated as supply to merely establishments
of distinct person under Explanation 1 of section 8.
Such supplies, therefore, would qualify as ‘export of services’, subject to
fulfilment of other conditions as provided under section 2(6).

Foreign company means any company or body corporate incorporated outside India
which—
(a) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(b) conducts any business activity in India in any other manner.

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India Outside India

Not merely establishments of distinct

persons

Subsidiary/ sister Establishments of the

Supply considered
concern/ group said foreign
as export of
concern of a foreign company located
services
company, outside India
incorporated in India (incorporated
under Companies Act, outside India)
2013

(i) Supplies to a SEZ unit or SEZ developer

Supply to a SEZ unit/developer is zero-rated but all the supplies are not zero-
rated. The supplies to a SEZ unit/developer shall be zero rated and the
supplier shall be eligible for refund of unutilized ITC or tax paid as the case
may be, only if such supplies have been received by the SEZ developer or SEZ
unit for authorised operations.

An endorsement to this effect shall have to be issued by the specified officer

of the Zone. Therefore, subject to the provisions of section 17(5) of the CGST
Act, if event management services, hotel, accommodation services,
consumables etc. are received by a SEZ unit/developer for authorised
operations, as endorsed by the specified officer of the Zone, the benefit of
zero rated supply shall be available in such cases to the supplier.

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Services of short-term accommodation, conferencing, banqueting etc.

provided to a SEZ developer/SEZ unit – whether to be treated as an inter-
State supply or an intra-State supply
As per section 7(5)(b) of the IGST Act, the supply of goods or services or both
to a SEZ developer or a SEZ unit shall be treated to be a supply in the course
of inter-State trade or commerce.

However, as per section 12(3)(c) of the IGST Act, the place of supply of
services by way of accommodation in any immovable property for organising
any functions shall be the location at which the immovable property is located
[Please refer Chapter 3 – Place of Supply in Module 1 of this Study Material for
detailed discussion of said provisions]. Thus, in such cases, if the location of
the supplier and the place of supply is in the same State/ Union territory, it
would be treated as an intra-State supply.
It is an established principle of interpretation of statutes that in case of an
apparent conflict between two provisions, the specific provision shall prevail
over the general provision.
In the instant case, section 7(5)(b) of the IGST Act is a specific provision
relating to supplies of goods or services or both made to a SEZ developer or
a SEZ unit, which states that such supplies shall be treated as inter-State
supplies.

It is therefore, clarified that services of short term accommodation,

conferencing, banqueting etc., provided to a SEZ developer or a SEZ unit shall
be treated as an inter-State supply [Circular No. 48/22/2018 GST dated
14.06.2018].

(ii) Transactions with EOUs

Zero rating is not applicable to supplies to EOUs and there is no special
dispensation for them under GST regime. Therefore, supplies to EOUs are
taxable like any other taxable supplies. EOUs, to the extent of exports, are
eligible for zero rating like any other exporter [Circular No. 8/8/2017 GST
dated 04.10.2017 as amended].
However, supplies to EOUs are treated as deemed exports and refund of tax
paid on deemed exports is admissible either to the supplier or the recipient.

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(iii) Procedure for export under bond/LUT without payment of tax

Procedure for merchant exports
Refer point (iii) under heading “Export of goods”.

Procedure for direct exports [Rule 96A of the CGST Rules]

(a) Exporter has to execute the bond or LUT prior to export, binding himself
to pay the tax due along with interest @ 18% within: -

Export of goods Export of services

15 days after the expiry of 15 days after the expiry of 1 year, or

3 months, or such further such further period as may be allowed
period as may be allowed by the Commissioner, from the date of
by the Commissioner, issue of the invoice for export, if the
from the date of issue of payment of such services is not
the invoice for export, if received by the exporter in convertible
the goods are not foreign exchange or in Indian rupees,
exported out of India. wherever permitted by the Reserve
Bank of India

These provisions are also applicable in respect of zero-rated supply of

goods and/or services to a SEZ unit/developer without payment of IGST.
Proviso to section 16(3) provides that the registered person making
zero rated supply of goods, without payment of tax shall, in case of
non-realisation of sale proceeds, be liable to deposit the refund so
received under section 16(3) along with the applicable interest
under section 50 of the CGST Act within 30 days after the expiry of
the time limit prescribed under the Foreign Exchange Management
Act, 1999 (FEMA) for receipt of foreign exchange remittances, in
such manner as may be prescribed. Rule 96B prescribing the manner
in relation to this, lays down that proceeds of export of goods need to
be realized within the period allowed under FEMA for receipt of foreign
exchange remittances. Non/partial realization of such proceeds may
result in recovery of any refund paid to the taxpayer with interest under

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section 50 of the CGST Act. [Provisions of rule 96B have been discussed
in detail in Chapter 15 - Refunds in this Module of the Study Material.]

(b) Failure to export goods and pay the tax due along with interest within
the period specified in (a) above results in withdrawal of the facility of
export without payment of IGST and recovery of the said amount under
section 79 of the CGST Act. The facility, however, can be restored on
payment of the said amount [Notification No. 37/2017 CT dated
04.10.2017].

(c) All registered persons are eligible to furnish a LUT in place of a bond
except those who have been prosecuted for cases involving an amount
exceeding ` 250 lakh [Notification No. 37/2017 CT dated 04.10.2017].

(d) The details of the export invoices should be submitted in GSTR-1. These
details shall be electronically transmitted to the system designated by
Customs and a confirmation that the goods covered by the said invoices
have been exported out of India shall be electronically transmitted to
the common portal from the said system.

Clarification on furnishing of bond/LUT

Circular No. 08/08/2017 GST dated 04.10.2017 as amended vide Circular No.
40/14/2018 GST dated 06.04.2018 & Circular No. 88/07/2019 GST dated
01.02.2019 has clarified the following with regard to furnishing of bond/LUT
for export without payment of tax:
(a) Validity of LUT: The LUT shall be valid for the whole financial year in
which it is tendered. However, in case the goods are not exported
within the time specified in sub-rule (1) of rule 96A of the CGST Rules
(as given in the table above) and the registered person fails to pay the
amount mentioned in the said sub-rule, the facility of export under LUT
will be deemed to have been withdrawn. If the amount mentioned in
the said sub-rule is paid subsequently, the facility of export under LUT
shall be restored. As a result, exports, during the period from when the
facility to export under LUT is withdrawn till the time the same is
restored, shall be either on payment of the applicable IGST or under
bond with bank guarantee.

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(b) Form for bond/LUT: The registered person (exporter) shall fill the
relevant form on the common portal. An LUT shall be deemed to be
accepted as soon as an acknowledgement for the same, bearing the
Application Reference Number (ARN), is generated online.
(c) Documents for LUT: No document needs to be physically submitted
to the jurisdictional office for acceptance of LUT.
(d) Acceptance of LUT/bond: A LUT shall be deemed to have been
accepted as soon as an acknowledgement for the same, bearing the
Application Reference Number (ARN), is generated online. If it is
discovered that an exporter whose LUT has been so accepted, was
ineligible to furnish a LUT in place of bond, then the exporter’s LUT will
be liable for rejection. In case of rejection, the LUT shall be deemed to
have been rejected ab initio.
(e) Bank guarantee: 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 ` 250 lakh. A bond, in all cases, shall
be accompanied by a bank guarantee of 15% of the bond amount.
(f) Clarification regarding running bond: The exporters shall 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. The onus of maintaining the debit / credit
entries of integrated tax in the running bond will lie with the exporter.
The record of such entries shall be furnished to the Central tax officer
as and when required.
(g) Sealing by officers: Till mandatory self-sealing is operationalized,
sealing of containers, wherever required to be carried out under the
supervision of the officer, shall be done under the supervision of the
central excise officer having jurisdiction over the place of business
where the sealing is required to be done. A copy of the sealing report

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would be forwarded to the Deputy/Assistant Commissioner having

jurisdiction over the principal place of business.

(h) Realization of export proceeds in Indian Rupee: Para A(v) Part-I of

RBI Master Circular No. 14/2015-16, dated 1st July, 2015 (updated as on
5th November, 2015) states that “there is no restriction on invoicing of
export contracts in Indian Rupees in terms of the Rules, Regulations,
Notifications and Directions framed under the Foreign Exchange
Management Act, 1999. Further, in terms of Para 2.52 of the Foreign
Trade Policy (2023), all export contracts and invoices shall be
denominated either in freely convertible currency or Indian rupees, but
export proceeds shall be realized in freely convertible currency.
However, export proceeds against specific exports may also be realized
in rupees, provided it is through a freely convertible Vostro account of
a non-resident bank situated in any country other than a member
country of Asian Clearing Union (ACU) or Nepal or Bhutan”. Further,
section 2(6) of the IGST Act, 2017 allows realization of export proceeds
of services in INR, wherever allowed by the RBI.
Accordingly, it is clarified that the acceptance of LUT for supplies of
goods or services to countries outside India or SEZ developer or SEZ
unit will be permissible irrespective of whether the payments are made
in Indian currency or convertible foreign exchange as long as they are
in accordance with the applicable RBI guidelines.
(i) Jurisdictional officer: In exercise of the powers conferred by sub-
section (3) of section 5 of the CGST Act, it is hereby stated that the
LUT/Bond shall be accepted by the jurisdictional Deputy/Assistant
Commissioner having jurisdiction over the principal place of business
of the exporter. The exporter is at liberty to furnish the LUT/bond
before either the Central Tax Authority or the State Tax Authority till the
administrative mechanism for assigning of taxpayers to the respective
authority is implemented.
(iv) Export to Nepal and Bhutan
Export of goods: Export of goods to Nepal or Bhutan falls within the
definition of ‘export of goods’ under the IGST Act as goods are taken from

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India to a place outside India. India has rupee trade with Nepal and Bhutan.
The RBI regulations allow receipt of payment in Indian rupees in case of
exports to Nepal and Bhutan. In case of export of goods under GST law,
receipt of export proceeds in convertible foreign exchange is not a pre-
requisite. [However, non-realization of export proceeds within the time
prescribed under FEMA may result in recovery of any refund paid to the
taxpayer.] Hence, export of goods to Nepal and Bhutan will be treated as
zero rated and consequently will also qualify for all the benefits available to
zero rated supplies under the GST regime.
Export of services: In case of export of services, wherever permitted by the
Reserve Bank of India, receipt of payment in Indian rupees is allowed in terms
of section 2(6). As stated earlier, the RBI regulations allow receipt of payment
in Indian rupees in case of exports to Nepal and Bhutan. Consequently,
supply of services having place of supply in Nepal or Bhutan, against payment
in Indian Rupees is considered as export of services subject to fulfillment of
other conditions.
Therefore, exports of both goods and services to Nepal and Bhutan are
treated as ‘normal exports’, i.e. goods and services can be exported to Nepal
and Bhutan under LUT.

TEST YOUR KNOWLEDGE

1. Explain how imports are taxed under GST.
2. Describe how exports are taxed under GST.
3. Is it necessary to execute a bond for effecting zero rated supplies? Elucidate.
4. A Ltd. enters into an agreement for sale of goods with B Ltd., a company based
in UAE. B Ltd. requires the goods to be delivered by A Ltd. to C Ltd., a company
based in Karnataka.
Whether the transaction will qualify as export of goods under GST? Analyze the
scenario and offer your comments.

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5. A Ltd. is making zero rated supplies which are also specifically exempt from
GST. The company has paid input tax of ` 2,00,000 on inputs and input services
which have been used exclusively in effecting such zero rated supplies.

Examine if A Ltd. can avail ITC of input tax of ` 2,00,000 paid on inputs and
input services used exclusively in effecting such zero rated supplies.

6. Whether services of short-term accommodation, conferencing, banqueting etc.

provided to a SEZ unit/developer by a supplier located in the same State as that
of the SEZ unit/developer should be treated as an inter-State supply under
section 7(5)(b) or an intra-State supply in terms of section 8(2) read with section
12(3)(c)? Examine.

7. Mr. Amar Kant, a Chartered Accountant, being a partner in GST registered firm
orders a gaming software for his son from a company located in USA. He makes
the payment for the same from his personal bank account.

Examine whether the transaction will be liable to GST. If yes, in whose hands
the tax liability will arise?

8. ‘Separate LUT is to be furnished for every export supply.’

With reference to the provisions of the GST law, examine the veracity or
otherwise of the statement.

9. AXT Ltd. entered into a high sea sale transaction with BYU Ltd. for certain
goods. AXT Ltd. is of the view that GST on such sale transaction is payable at
the time of such sale and basic customs duty is payable at the time of filing the
bill of entry for import of goods.

Examine whether the view taken by AXT Ltd. is correct.

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ANSWERS/HINTS

1. All imports are deemed as inter-State supplies for the purposes of levy of GST
(IGST). The incidence of tax follows the destination principle and the tax
revenue accrues to the State where the imported goods and services are
consumed. IGST paid on import of goods and services is available as ITC for
set off against the output tax liability. IGST on import of goods is levied under
the IGST Act but the machinery of the customs law is used to levy and collect
the same.
2. Exports of goods and services are zero rated. The exporter can export under
bond/LUT without payment of IGST and claim refund of ITC. In case of
notified class of persons or notified goods or services, he may pay IGST at the
time of export and claim refund thereof.
3. No. The facility to export under LUT has been extended to all zero rated
suppliers (barring a few exceptions such as those who have been prosecuted
for an offence involving tax of ` 2.5 crore) vide Notification No. 37/2017 CT
dated 4.10.2017. The other conditions for executing LUT have been specified
in Circular No. 8/8/2017 GST dated 4.10.2017 as amended.
4. As per the definition of export of goods provided under section 2(5), export
of goods means taking goods out of India to a place outside India.

Since in the given case, the goods remain in India, i.e. with C Ltd. located in
Karnataka, the transaction between A Ltd. and B Ltd. cannot be treated as
export of goods under GST.
5. As per section 16(2), ITC may be availed for making zero rated supplies,
notwithstanding that such supplies are exempt supplies. However, the same
is subject to provisions u/s 17(5) of the CGST Act, i.e. blocked credit.

Hence, A Ltd. can take credit of ` 2,00,000 even if the outward zero rated
supply is exempt from GST. However, the credit would not be available in
respect of the inputs and input services, the credit on which is blocked under
section 17(5) of the CGST Act.

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6. Circular No. 48/22/2018 GST has clarified on this issue as under:

As per section 7(5)(b), the supply of goods and/or services to a SEZ
unit/developer is treated as a supply of goods and/or services in the course
of inter-State trade or commerce. Whereas, as per section 12(3)(c), the place
of supply of services by way of accommodation in any immovable property
for organising any functions shall be the location at which the immovable
property is located. Thus, in such cases, if the location of the supplier and
the place of supply are in the same State/ Union territory, it would be treated
as an intra-State supply.
It is an established principle of interpretation of statutes that in case of an
apparent conflict between two provisions, the specific provision shall prevail
over the general provision. In the instant case, section 7(5)(b) is a specific
provision relating to supplies of goods and/or services made to a SEZ
unit/developer, which states that such supplies shall be treated as inter-State
supplies.
Further, proviso to section 8(2) also lays down that intra-State supply of
services do not include supply of services to a SEZ unit/developer. It is,
therefore, clarified that services of short-term accommodation, conferencing,
banqueting etc., provided to a SEZ unit/developer shall be treated as an inter-
State supply.
7. The supply of gaming software is in the nature of OIDAR service in terms of
section 2(17).
The transaction is for personal consumption of Mr. Amar Kant and the
payment has also been made from the personal bank account of Mr. Amar
Kant and not from the bank account of his GST registered firm. Therefore,
being an unregistered person receiving OIDAR service in taxable territory, Mr.
Amar Kant is a non-taxable online recipient in terms of section 2(16).
Services received from a provider of service located in a non- taxable territory
by an individual in relation to any purpose other than commerce, industry or
any other business or profession is exempt from IGST. However, such
exemption is not available in case of OIDAR services [Notification No. 9/2017
IT (R) dated 28.06.2017].

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Therefore, being an OIDAR service provided by a supplier located outside

India and received by a non-taxable online recipient, the same is liable to GST.

Tax on service supplied by any person located in a non-taxable territory to

any person other than non-taxable online recipient is payable by the recipient
of such service under reverse charge. Therefore, tax on OIDAR services
provided by the company located in USA to Mr. Amar Kant, a non-taxable
online recipient, will be payable by such company under forward charge.
8. No, the statement is not correct.

The LUT remains valid for the whole financial year and there is no need to
furnish separate LUT for each export supply.
However, in case goods are not exported within the time limit specified in
rule 96A(1) of the CGST Rules and the registered person fails to pay the
amount mentioned in the said sub rule, the facility of export under LUT will
be deemed to have been withdrawn. However, if the amount mentioned in
the said sub-rule is paid subsequently, the facility of export under LUT shall
be restored. As a result, exports, during the period from when the facility to
export under LUT is withdrawn till the time the same is restored, shall be
either on payment of the applicable IGST or under bond with bank guarantee.
Rule 96A(1) provides inter alia that an exporter of goods has to execute the
bond or LUT prior to export, binding himself to pay the tax due along with
interest @ 18% within 15 days after the expiry of 3 months, or such further
period as may be allowed by the Commissioner, from the date of issue of the
invoice for export, if the goods are not exported out of India.

9. AXT Ltd.’s view is partially correct.

Supply of goods by the consignee to any other person, by endorsement of
documents of title to the goods, after the goods have been dispatched from
the port of origin located outside India but before clearance for home
consumption (high sea sale) is neither treated as supply of goods nor supply
of services in terms of paragraph 8(b) of Schedule III to the CGST Act.

Thus, GST is not leviable on high sea sales. Therefore, AXT Ltd.’s view that
GST is payable on a high-sea sale transaction at the time of sale, is not correct.

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As per section 14 of the Customs Act, 1962, the value for the purpose of
charging customs duty on imported goods is the value at the time of
importation, i.e. at the time of filing of the bill of entry. Further, IGST on
imported goods is also levied at the time of filing of bill of entry. Therefore,
in case of high sea sales, the assessable value of imported goods for levying
customs duty and IGST is determined on the basis of the price paid by the
last high sea sales buyer who files the bill of entry for home consumption.
Therefore, AXT Ltd.’s view that basic customs duty is payable at the time of
filing the bill of entry for import of goods is correct.

© The Institute of Chartered Accountants of India