All You Need to Know About Merchant Export Under GST

The Government makes all the provisions to provide possible benefits to the exporters. In this line, “Merchant Export” is a concept that allows the exporter to procure goods from the manufacturer or traders at a nominal GST rate. Concept of Merchant Export promotes ease of doing business in India and also enhances India’s global competitiveness.

This article discusses all aspects of the Merchant Export.

1. What is Merchant Export under GST?

• Concept of Merchant export was introduced vide Notification No. 40/2017-Central Tax (Rate)  dated 23rd October, 2017.

• Merchant exports refer to a concept that allows exporters to procure goods at a nominal GST rate, preventing unnecessary blockage of working capital.

• Exporters are entitled to claim a refund of GST paid at the time of procurement of goods, which are further exported, causing unnecessary blockage of working capital.

• Accordingly, merchant exporters are allowed to procure goods from domestic suppliers at a reduced GST rate of 0.1% (0.1% IGST or 0.05% CGST + 0.05% SGST) for export purposes. 

• However, the benefit of the reduced GST rate shall be allowed subject to the fulfillment of conditions specified in the notification.

2. Conditions for supply of goods to the Merchant Exporter at a reduced GST rate

As per Notification No. 40/2017-Central Tax (Rate), the GST shall be charged at a concessional rate of 0.1% subject to the following conditions

• GST Registration: Both the supplier and the merchant exporter must be registered under GST, and supply shall be made under a Tax Invoice.

• Export Within 90 Days: The merchant exporter must export such goods within 90 days from the date of the tax invoice issued by the supplier. The registered supplier shall not be eligible for the concessional rate of GST if such goods are not exported within 90 days from the date of issue of the tax invoice.  ;

• Information of the supplier on the Shipping Bill/ Bill of Export: The Shipping Bill or Bill of Export shall contain the GSTIN of the registered supplier and the tax invoice number issued by the registered supplier in respect of such goods.

• The Registered recipient, i.e, Merchant Exporter, must be registered with the Export Promotion Council or Commodity Board recognised by the Department of Commerce;

• The merchant exporter should place an order to the registered supplier, and a copy of such order shall be provided to the jurisdictional tax officer of such supplier.

• Movement of Goods directly to the Port: The Goods shall be moved from the place of such supplier:
  
  • directly to the Port, Inland Container Depot, Airport or Land Customs Station from where the said goods are to be exported; or 
  • directly to a registered warehouse from where the said goods shall be moved for further export

• Where goods are received in a registered warehouse, the merchant exporter shall endorse receipt of goods on the tax invoice and shall also obtain acknowledgement of receipt of goods from the warehouse operator. Such 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. 

• After export of goods, the merchant exporter shall provide a copy of the shipping bill or bill of export along with the export general manifest or export report to the registered supplier as well as the jurisdictional tax officer of such supplier. 

Read Also: Delhi GST Made Personal Hearing Through Virtual Mode Mandatory in All Proceedings

3. ITC to Merchant Exporter and Export by Merchant Exporter:

• Para 13 of Circular No. 37/11/2018-GST  dated 15th March, 2018, the CBIC has clarified that merchant exporters are entitled to claim Input tax Credit of concessional tax paid at the rate of 0.05% or 0.1%.

• It has been clarified that merchant exporters can export the goods only under LUT / bond. Merchant exporters are not allowed to export goods on payment of IGST. In this connection, notification No. 3/2018-Central Tax, dated 23.01.2018, may be referred to. 

4. Refund to the Registered Supplier:

• The supplier who supplies goods at the concessional rate of GST is eligible to claim a refund on account of inverted tax structure as per the provisions of Section 54(3)(ii) of the CGST Act.  

5. Refund to Merchant Exporter:

• Point No. 4 of Circular No. 125/44/2019 - GST  dated 18th November, 2019, provides the process of claiming a refund of ITC on supplies received from a supplier who has charged GST at a concessional rate of 0.1%.

• CBIC has clarified that a refund of such accumulated ITC shall be granted under Rule 89(4B) of the CGST Rules.

• Such a refund application shall be filed under the category “any other” instead of under the category “refund of unutilized ITC on account of exports without payment of tax” in FORM GST RFD-01.

• Such a refund application shall be accompanied by all supporting documents required for substantiating the refund claim under the category “refund of unutilized ITC on account of exports without payment of tax”. 

• After scrutinizing the application for completeness and eligibility, the proper officer shall determine the amount of refund payable and shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. 

• Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-06 and the payment order in FORM GST RFD-05. 

6. Documentation:

To claim the benefit of the concessional rate of GST, the following documents are required:

1. Tax invoice from the supplier at the concessional rate.
2. Purchase order or agreement with the overseas buyer.
3. Shipping Bill or Bill of Export filed with the customs authorities.
4. Export General Manifest (EGM) as proof of export.
5. Bank Realization Certificate (BRC) or Foreign Inward Remittance Certificate (FIRC) to confirm receipt of foreign exchange.
6. A valid export order or contract with the overseas buyer.

The registered supplier is required to produce all the documents to the concerned GST officer as and when required. Failure to meet any of the above-specified conditions may result in the recovery of the differential tax (standard GST rate minus concessional rate) along with interest from the supplier.

7. Benefits of Merchant Exports Under GST

• Cost Competitiveness: The concessional GST rate reduces the cost of goods procured for export, making Indian products more competitive in global markets.

• Ease of Compliance: Clear guidelines and electronic refund processes simplify compliance for both suppliers and merchant exporters.

• Boost to Small Businesses: Small traders and intermediaries who lack manufacturing capabilities can participate in global trade as merchant exporters.

• Working Capital Efficiency: Minimal tax incidence and refund mechanisms reduce the locking of funds in taxes.

• Promotion of Exports: The scheme aligns with India’s goal of promoting exports by reducing tax-related barriers.

8. Reporting of Supplies to Merchant Exporter in GST Return

• Reporting by Registered Supplier: Supplier of goods at concessional GST rate shall report such supplier under “B2B Supplies” while filing GSTR-1. The same shall not be disclosed as export.

• Reporting by Merchant Exporter: The Merchant Exporter shall disclose the export of goods under “Export without payment of GST” in GSTR-1.

Conclusion

Merchant exports under GST offer a valuable opportunity for intermediaries to participate in India’s export ecosystem without the need for manufacturing infrastructure. By leveraging the concessional GST rate and zero-rated export provisions, merchant exporters can reduce costs and contribute to India’s trade growth.

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