LUT not applied but export of services made, Goods and Services Tax - GST

[Dilip Sanghvi]

What can be done now of the client has made export of services stating that he has LUT for Fy 19-20 and while applying for FY 20-21 he got to know that he did not apply for LUT in FY 19-20 and has made export supplies in FY 19-20.. He has received all the proceeds in time. Paying igst and taking refund is one option but it will cost interest. What could be the possible solution other than paying IGST and claiming refund.

Posts / Replies

[KASTURI SETHI]

If services have been exported and export proceeds (foreign exchange) have been received and you have received proof of export, then you have not caused any revenue loss to Govt. It is a procedural lapse. There is no logic to pay IGST now and then seek refund. You will have to be careful in future. If such mistake is repeated, the department may issue SCN for imposition of penalty under Section 125 of CGST Act.

[Kushal Mishra]

LUT is a undertaking given to the government that we are exporting goods and services and we will get money in convertible foreign exchange. the moment transaction qualifies as Export u/s 16 in IGST Act, then issuance of LUT is a mere procedural declaration of exporting without payment of taxes and assuring the government that we are not making any loss to the government by not paying taxes. the only issue which you can face that in case you go for a refund of taxes then the department may not allow you the same as you do not have LUT for FY 19-20.

[Dilip Sanghvi]

Thanks for your insights

I could not find any case law or circular which could support us in this view that it is a procedural lapse.

I would be very grateful if you could provide any case law or circular which i can show to client also to support our view

[Kushal Mishra]

Sir, this area is still not much litigated. We have to interpret the law which is connected with the need for LUT, the intention of government for bringing this concept of LUT and conditions of export as defined under the IGST Act. If I get any document supporting my views I will share but I feel till now only interpretation is going to work.

Sharing extract of circular no. 37 dated 15th March, 2018

Export without LUT

Export of goods or services can be made without payment of integrated tax under the provisions of rule 96A of the Central Goods and Services Tax Rules, 2017 (the CGST Rules). Under the said provisions, an exporter is required to furnish a bond or Letter of Undertaking (LUT) to the jurisdictional Commissioner before effecting zero rated supplies. A detailed procedure for filing of LUT has already been specified vide Circular No. 8/8/2017 –GST dated 4th October, 2017. It has been brought to the notice of the Board that in some cases, such zero rated supplies have been made before filing the LUT and refund claims for unutilized input tax credit have been filed.

4.1. In this regard, it is emphasised that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case.

circular no. 37 dated 15th March, 2018

Regards

CA Kushal Mishra

Pune

[KASTURI SETHI]

Circular mentioned by Sh.CA Kushal Mehra can help you in getting refund also. The purpose of LUT is to safeguard revenue. You have sufficient proof of export. Refund cannot be rejected. At this stage non-furnishing of LUT for this consignment of export will not be bottleneck. The department will examine genuineness of all docs before sanction of refund.

[KASTURI SETHI]

LUT is always furnished for future export consignment not for the past consignment.

[Spudarjunan S]

Dear Sir,

In terms of Section 16 of IGST Act, 2017 r/w rule 96A of CGST Rules, 2017 - supply goods or services for export / to SEZ without payment of integrated tax shall furnish, prior to export / supply to SEZ, a LUT to jurisdictional commissioner in RFD-11. Hence, LUT is just a procedure prescribed to comply with zero rated supply without payment of IGST.

A furnished LUT has a validity till 31st March of the respective financial year in which such LUT furnished (Refer circular 8/8/2017 dated 04/10/2017).

Moreover,i is also clarified by the department vide para 44 of circular no.125/2019 dated 18.11.2019 that the officer can condone the delay in filing LUT and he can proceed for refund.

Further, there are several judgement of SC and HCs stating substantial benefits cannot be denied based on a procedural lapse.

[Dilip Sanghvi]

Yes sir i have gone through circular which can condone the delay of LUT on case to case basis.. the only doubt is that it mentioned condonation of delay but in our case it is non filing of LUT.

Request you to guide on this sir

[KASTURI SETHI]

Dear Querist,

Go through this. It will help you.

The Commissioner (Appeals), Chandigarh in the case of Drish Shoes Ltd. reported as 2006(197).ELT.437 = 2005 (9) TMI 461 - COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, (APPEAL) .Commissioner (Appeals) has held as under :-

11. As regards the issue mentioned at (ii), I have observed that the Adjudicating Authority has emphasized on Bond/LUT and the basis of rejection of export incentive is that the Exports of the appellants cannot be treated as exports under Bond/LUT as the goods being exempted were not required to furnish any Bond/LUT. As already held above, technically speaking, as per the provisions of sub-rule (5)(vi) of Rule 6 of the CCR, 2002. Bond is required to be furnished even in case of exempted goods also. The Adjudicating Authority has totally failed to understand the object of Bond/LUT. The Bond/LUT is a collateral security to ensure not only payment of duty in case of non-export of goods cleared without payment of duty but also of other statutory provisions/rules and has the significance till the goods are within the territory of India. Once the goods are exported out of the country and proof of exports in the nature of ARE-1, Shipping Bill/Bill of lading etc are on the record then the role of Bond/LUT is complete and has no further significance. The Adjudicating Authority has failed to see the other side of the coin. e.g. in case a manufacturer of dutiable goods exports certain goods without filing any Bond/LUT but the Exports is established from the relevant documents like ARE-1, Shipping Bill/Bill of lading then the question is as to whether the party is liable to pay duty of excise on the basis that they have not furnished Bond/LUT. Certainly not, the reason being the Exports have been established. Similarly, following the same analogy, I hold that once the Export are established, the filing or non-filing of Bond/LUT has no significance.

This was accepted by the department and this was referred in the following cases:-

(i) Referred in 2009 (236) ELT 260 (Tribunal Ahmedabad) = 2008 (10) TMI 152 - CESTAT AHMEDABAD

(ii) Referred in 2009 (242) ELT 562 (Tribunal Bangalore) = 2009 (1) TMI 171 - CESTAT BANGALORE

(iii) Referred in 2014 (312) ELT 886 (Government of India) = 2013 (6) TMI 685 - GOVERNMENT OF INDIA

[Dilip Sanghvi]

Thank you so much. Kasturi Sethi Ji Kushal Mishra Ji and Spudarjunan S ji

[YAGAY andSUN]

It is settled legal position that due to procedural lapses etc., substantial benefits cannot be denied wherever it is proved that export was coducted and completed.

[Dilip Sanghvi]

Sir are you referring to the cases above mentioned or do you have any other case law for this sir

[SHARAD ANADA]

Refer Circular No. 125/44/2019 - GST para 2:

the Circulars issued earlier laying down

the guidelines for manual submission and processing of refund claims need to be suitably modified and a fresh set of guidelines needs to be issued for electronic submission and processing of refund claims. With this objective and in order to ensure uniformity in the implementation of the provisions of law across field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby lays down the procedure for electronic submission and processing of refund applications in supersession of earlier Circulars viz. Circular No. 17/17/2017-GST dated 15.11.2017, 24/24/2017-GST dated 21.12.2017, 37/11/2018-GST dated 15.03.2018, 45/19/2018-GST dated 30.05.2018 (including corrigendum dated 18.07.2019), 59/33/2018-GST dated 04.09.2018 70/44/2018-GST dated 26.10.2018, 79/53/2018-GST dated 31.12.2018 and 94/13/2019-GST dated 28.03.2019. However, the provisions of the said Circulars shall continue to apply for all refund applications filed on the common portal before 26.09.2019 and the said applications shall continue to be processed manually as prior to deployment of new system.

Refer para 44 of circular 125

Export of goods or services can be made without payment of Integrated tax under the provisions of rule 96A of the CGST Rules. Under the said provisions, an exporter is required to furnish a bond or Letter of Undertaking (LUT) to the jurisdictional Commissioner before effecting zero rated supplies. A detailed procedure for filing of LUT has been specified vide Circular No. 8/8/2017 –GST dated 4.10.2017. It has been brought to the notice of the Board that in some cases, such zero-rated supplies were made before filing the LUT and refund claims for unutilized input tax credit got filed. In this regard, it is emphasized that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have

been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case.

[I Bhasin]

We would like to have advice of the experienced CA's in the forum.

We are exporters of Educational Books which have NIL rated duty and our export took place without applying for LUT for all FY since GST was introduced. We had filed for our refund for FY2017-18 and were able to submit application for refund without LUT, but unfortunately we are unable to do the same for refund application for FY 2018-2019. We were issued a partial refund for the FY 2017-2018 in fact.

Since not applying for LUT is a procedural lapse what we understand from the above posts, what is the way out for us to get our refund application submitted for refund without LUT as we have not caused any loss to Govt.

[Dilip Sanghvi]

Sir pls refer to point 49 of circular 44 dated 18-11-2019 for expempted goods and need of LUT. It is clarified that LUT is not needed.

[I Bhasin]

Sir, thanks for your prompt reply.

Your response was great for our knowledge. Now, how do we submit our Refund application as the portal doesn't accept without LUT.

[Dilip Sanghvi]

Regarding LUT not aaplied in case of Expemted good:

As department is not working straight let us also do jugaad.

while filing online application for refund we get LUT number to chose and second option is others

chose others and upload relevant page of the circular . Do mention on circular number as file name .. and file application.

make a detailed covering letter stating all the facts and circulars are binding on department so they will give refund

[Vikash Agarwal]

Hi,

We are the exporter of services and as such we applied for LUT for 2017-18 and 2018-19, however somehow we missed to file LUT of 2019-20 on time and it was filed in the month of Aug 2019. However we had exported services during the period 01-Apr-2019 to 31-Aug-2019 and all the money were realized within 30 days of invoice date.

So need the expert opinion as to whether we have to pay IGST for the service exports made between the period 01-Apr-2019 to 31-Aug-2019 and then claim it.

Please advice.

[KASTURI SETHI]

No need to pay now. You must have all documentary evidence in support of services exported.

[Vikash Agarwal]

Thank you Sir for the response. However want to know, does export without LUT is treated as non-compliance and it there any penalty or action that can be taken by department and how to safeguard from this?

[KASTURI SETHI]

Dear Vikash Aggarwal Ji,

Yours is a procedural lapse. No penalty will be imposed. Do not worry. Go through the relevant extract of Board's Circular No. 37/11/2018-GST, dated 15-3-2018:-

 

[Yadav Gmv]

Hi dilip, almost similar situation. I have the LUT for 18-19 and 20-21 but missed to file for 19-20. My client is a large IT services organisation and they are in sez. We have raised zero GST invoices in 19-20 and received all the proceeds.

Now Client is asking us to furnish the LUT for both 19-20 and 20-21.

While checking now we realise that we have LUT for 20-21 but missed to file LUT for 19-20.

Can u kindly guide us on this issue pl?

Thanks,

Yadav GMV

[Yadav Gmv]

Hi kasturi sir, kunal sir, dilip sir and all, quite informative and healthy forum. Firstly Thanks to you all.

My situation as below.

1. Client is in SEZ.

2. I supply resources to my client from 2018 to till date.

3. Since my client is in SEZ, i raised zero invoice.

4. My client has proceased all invoices til date.

5. Now my client is asking me to furnish LUT. I have for 18-19 and 20-21 but unfortunately not for 19-20.

6. Worried what should i do now?

A. Should i try and get LUT from department, offline? Is it possible?

B. If not how should i respond back to my client.

Kinsly pl suggest.

[KASTURI SETHI]

Has the department issued any notice to you or SEZ unit in this regard ?

When the export proceeds have been received and no revenue loss has been caused during the relevant period, what is logic of filing LUT for the past period ? It is just a phobia of the department nothing else. As already detailed above, LUT is not required at this stage.

[Yadav Gmv]

Thank you kasturi sir.

My client at sez has sent an email asking me to submit the LUT document.

Probably could be as part of their audit or documentation process.

I am worried if they will force me to pay the GST since i am unable to furnish the LUT. Is my worry unnecessary?

How should i respond to my client sir?

Thx sir.