Merchant Exports Under GST: Meaning, Procedures, & Refunds

Merchant exports contribute significantly to India’s economy, accounting for nearly 35% of the country’s total export value. This export model is particularly beneficial for MSMEs and small manufacturers, allowing them to access international markets without direct involvement. Merchant exporters focus solely on trading goods overseas without a production facility. They buy products from manufacturers in India and sell them to buyers abroad. 

The taxation rules for merchant exports under GST can impact the manufacturer and the merchant exporter. Understanding how these regulations work is necessary to ensure compliance and use available benefits. This guide will explore merchant exports, their role under GST, and the processes involved in exporting goods through this channel.

Understanding Merchant Exports: What They Are and How They Work

Merchant exports involve selling locally sourced goods to international buyers without additional processing. A merchant exporter buys goods from local manufacturers and sells them abroad, acting as a middleman between the domestic producer and the foreign buyer.

Unlike a manufacturer exporter, merchant exporters don’t produce goods themselves. They focus on building relationships with suppliers who provide the necessary products. Once a buyer is secured, the merchant exporter places an order with the supplier and handles the export process.

This type of export is mainly advantageous for small and medium-sized enterprises (SMEs). It allows them to access global markets without investing in production infrastructure. Governments often encourage merchant exports under GST by offering incentives and schemes to support this important aspect of the export economy.

The Role of Merchant Exporters Under GST: Key Insights

Here are some insights into their role under GST:

• Merchant exporters focus on exporting goods acquired from manufacturers rather than producing items themselves.
• They possess extensive knowledge of global markets and products, often supported by a broad network of international contacts.
• These exporters stay updated with market trends and develop strategies to gather market intelligence.
• They manage export documentation and logistics, ensuring compliance with export regulations and GST requirements.
• They connect manufacturers with overseas buyers, easing the export process without needing production capabilities.
• They build relationships with multiple suppliers to source products for export and use marketing tools to attract international clients.
• After receiving orders, they arrange for products to be supplied by the manufacturer, sometimes using their facilities for storage or processing.
• Goods can be exported directly from the manufacturer’s site or through the merchant exporter’s premises, with applicable rebates or bonds.

Step-by-Step Procedure for Merchant Exports Under GST

The process for merchant exports under GST requires careful attention to detail to abide by tax regulations. Here’s a simple step-by-step guide for merchant exporters:

1. GST Registration: Merchant exporters must obtain a GSTIN to be eligible to export goods. This registration is compulsory for fulfilling tax obligations.
2. Order Placement: Exporters should place orders with local suppliers or manufacturers for goods they plan to export. A copy of the order must be given to the supplier’s tax officer.
3. Goods Procurement: After placing the order, exporters procure goods from suppliers without any further processing, as they are meant for export.
4. Documentation: Maintain tax invoices from suppliers and copies of export orders to show compliance during audits.
5. Export Procedure: Goods are shipped directly from the manufacturer’s location to the port or customs office. Alternatively, exporters can ship them from their premises under a bond or rebate claim.
6. Export Timelines: Goods must be exported within 90 days of invoice issuance to comply with the rules and avoid penalties.
7. Invoice Details: Exporters should ensure that the supplier’s GSTIN and tax invoice number are listed on the export documents for proper documentation.
8. Submission of Documents: After export, submit copies of the export invoice or document, including the supplier’s GSTIN, for validation and certification.

How to Become a Merchant Exporter?

Starting an export business involves several key steps. Here’s how you can get started:

• Obtain Your PAN: Get a Permanent Account Number (PAN) for your business. Both you and any partners must verify your identities and addresses with the Income Tax department to secure this essential document.
• Select Your Business Type and Name: Decide on the structure of your business, whether it’s a sole proprietorship, partnership, or another type. Choose a unique name for your company that reflects its identity and operations.
• Open a Current Account: Once your business is registered and you have your PAN, open a current bank account specifically for your export transactions. This account will handle all financial activities related to your export business.
• Secure an Import Export Code (IEC): Apply for an Import Export Code (IEC) from the Directorate General of Foreign Trade (DGFT). This code is necessary for international trade and can be obtained through the DGFT’s online portal.
• Get a Registration-cum-Membership-Certificate (RCMC): Join an Export Promotion Council (EPC) relevant to your industry. After membership, you’ll receive an RCMC from the EPC, certifying your exporter status.
• Plan Your Logistics and Customs: Decide the shipping method for exporting your products. Depending on your shipping choice and the nature of your goods, you might need additional documents like an Importer of Record (IOR), Bill of Lading, and shipping bill.

Merchant Exporter Export Rates: Key Facts

Merchant exporters have flexibility in handling GST for exports, with these options available for claiming refunds:

• No GST Payment Option: Exporters can use a Letter of Undertaking (LUT) to export goods without paying IGST. They can then claim a refund for the GST paid on their input purchases.
• IGST Payment Option: Alternatively, exporters can pay IGST on exports and later claim a refund of the net tax paid (output tax minus input tax credit). Choosing this option means the exporter won’t qualify for the concessional 0.1% GST rate.
• 0.1% GST Rate: Merchant exporters can benefit from a reduced 0.1% GST rate on purchases from local suppliers, but this rate comes with specific conditions that must be met.

Merchant Export Provisions Under GST

As per the tax framework, merchant exports under GST involve transactions where an Indian seller supplies goods to an international buyer. Section 2(108) of the CGST Act defines these transactions as taxable supplies. Section 7(5) of the IGST Act considers these exports inter-state supplies since the goods are leaving India, even though the supplier is based within the country.

Merchant exporters must register under GST and follow its guidelines. This registration ensures they meet their tax responsibilities for these transactions. Despite the goods being shipped out of India, GST still applies due to the involvement of an Indian supplier.

The GST system has simplified the process for merchant exports, removing previous requirements like the C.T. 1 bond and the ARE-1 form. Now, goods for export are self-certified and self-sealed, simplifying the procedure. To get a refund on Integrated Goods and Services Tax (IGST), exporters use the shipping bill filed with customs as their application. This update makes the refund process smoother compared to that in the past, where exporters had to submit additional documents like the EGM and GSTR-3B.

Eligibility for Concessional GST Rates on Merchant Exports

Exporters must meet specific conditions to benefit from the concessional GST rate of 0.1% on merchant exports. Here are the eligibility requirements:

• The tax invoice must clearly state the GST rate of 0.1%.
• Goods must be exported within 90 days of receiving the tax invoice. Failure to export within 90 days means the registered supplier loses the concessional rate benefit.
• Include the supplier’s GSTIN and tax invoice number on the shipping bill.
• These exporters should be registered with an Export Promotion Council or Commodity Board.
• Provide a copy of the order placed at the concessional rate to the jurisdictional tax officer of the registered supplier.
• Goods must move directly to the location for transfer to the port/ICD/Airport/LCS, even if purchased from multiple suppliers.
• On export, submit a copy of the shipping bill/bill of export, proof of EGM, and export report to the registered supplier and its jurisdictional tax officer.
• Export goods under LUT/bond, not with IGST payment.

Understanding Refunds for Merchant Exports under GST

Merchant exporters often face different scenarios when claiming refunds under GST. Here’s a look at some common situations and how refunds are handled:

Exporting Without Paying Tax

Merchant exporters can claim a refund on the unutilised Input Tax Credit (ITC) when they export goods without paying GST. This happens if the goods are zero-rated or if there’s an inverted tax structure where input tax rates are higher than output rates. As per Section 54(3) of the CGST Act, this refund can be claimed at the end of the tax period.

Inverted Duty Structure Refund

In cases where a supplier provides goods to a merchant exporter at a concessional rate but procures them at a standard GST rate, the refund process involves an inverted duty structure. The second supplier, who sells at a lower rate, can claim a refund of ITC because the input tax is higher than on outputs. This aligns with the provision in Section 54(3).

Exporting with IGST Payment

If a merchant exporter chooses to pay Integrated GST (IGST) on their exports, they cannot claim the concessional rate on inputs. Instead, they follow the standard tax regime, using ITC for output tax and paying any remaining liability in cash. However, they can still claim refunds for both unutilised ITC and the IGST paid on zero-rated supplies.

ShiprocketX: Streamlining Merchant Exports for Global Reach

ShiprocketX is transforming how Indian exporters approach international trade by offering an easy solution for global shipping. It simplifies reaching customers worldwide by partnering with major couriers like DHL, FedEx, and Aramex. The platform provides competitive pricing and no minimum order limits, making it accessible for businesses of any size.

It can be integrated with popular marketplaces such as Amazon, which eases order management. At the same time, features like end-to-end tracking and machine-learning-based courier suggestions ensure efficient and timely deliveries. 

Conclusion

Merchant exports hold a special place under GST, allowing businesses to tap into international markets while benefiting from government incentives. The GST system helps exporters reduce their working capital needs by offering concessional rates. Partners like ShiprocketX further open opportunities for Indian sellers to reach a global audience. Through compliance with regulations and strategic planning, merchant exporters can continue to grow and contribute significantly to India’s export economy.