GST on Third-Party Exports

GST on Third-Party Exports

GST on Third-Party Exports

A third party export is a transaction in which the assessee makes an export through another person. Third-party exports are eligible for concessional rates of GST. The concessional rates were introduced by the Central Board of Indirect Taxes and Customs (CBIC). As per the notifications provided by the CBIC, the concessional rates can be availed by assessees who fulfil the specified conditions. A primary condition is that the concessional rate will be allowed only if the export is completed within ninety days. The ninety days should be computed with reference to the date on which the GST invoice was raised.

An assessee who supplies goods and services may not have the infrastructure to undertake the export. Hence, the assessee may utilise the services of an intermediary for carrying out the export transaction. The intermediary is known as the third party exporter. The supplier of the exported goods and services is known as the manufacturer exporter.

In the documents relating to the export, the name of the manufacturer exporter and the third party exporter are mentioned. Hence, both the manufacturer exporter and the third party exporter are understood to be making the export jointly. However, the export procedure formalities are primarily encountered by the third party exporter. Thus, the manufacturer exporter is free to concentrate on essential business activities, including manufacture and sales promotion.

GST Rate for Third-Party Exports

The concessional GST rate which is available for third party exports is available in Notification No. 41/2017-IT(R) and Notification No. 40/2017-CT(R) dated 23rd October 2017. The applicable rates are the following:

  • For intra-State supply, GST should be applied at the rate of 0.05 per cent.
  • For inter-State supply, GST should be applied at the rate of 0.1 per cent.

Conditions for Concessional Rate

An assessee may wish to make use of the concessional rate of 0.05 per cent or 0.1 per cent. In such cases, the concession will be available to the assessee exclusively on the satisfaction of the following conditions:

  • The concessional rates of GST are available on the export of goods only. Exporters of services cannot make use of the concessional rates.
  • Both the third party exporter and the manufacturer exporter should have a valid GST Registration.
  • The third-party exporter and the manufacturer exporter should not have made a consecutive default in filing GST returns. The condition should be satisfied for the preceding six months.
  • The supply of goods from the manufacturer exporter to the third party exporter should take place through a GST invoice.
  • The export of goods should be completed within ninety days from the date of raising of the GST invoice.
  • The GST registration particulars of both the third party explorer and the manufacturer explorer should be available in the shipping bill.
  • The third-party exporter should be registered with an Export Promotion Council (EPC). Registration should have been made with an EPC which has been approved by the Department of Commerce.
  • A copy of the purchase order raised by the third party exporter on the manufacturer exporter should be available for inspection. A copy of the purchase order should be provided to the jurisdictional tax officer.
  • The third-party exporter should move the goods from the premises of the manufacturer exporter to any of the following places:
    • The port, airport, land customs station or inland container depot from which the export is scheduled to take place
    • A registered warehouse as a temporary transit point before the goods are moved to a port, land customs station, inland container depot or airport from which the export is scheduled to take place
  • A third party explorer may aggregate supplies from several manufacturer exporters. The combined goods may be exported in a single or multiple shipments. In such cases, all the goods should be obtained exclusively at a registered warehouse, port, airport, land customs station or inland container.
  • The third-party exporter should endorse the receipt of goods on the GST invoice. The third-party explorer should also obtain an acknowledgement for receiving the goods in the registered warehouse. The acknowledgement should be procured from the warehouse operator.
  • The endorsed GST invoice and the acknowledgement provided by the warehouse operator should be issued to the manufacturer exporter and the jurisdictional tax officer.
  • The proof that the export was carried out should be provided to the manufacturer exporter and the jurisdictional tax officer. A certified copy of the shipping bill or bill of export will be allowed as proof.

Advantages of Third-Party Exports

  • Assessees who are obtaining foreign exchange receipts should register with the Reserve Bank of India (RBI). In a third-party export transaction, the third party exporter should obtain permission for receiving foreign exchange. However, the manufacturer exporter need not register. The advantage of this arrangement is that registration formalities are not necessary for the manufacturer explorer.
  • Under a third party export, the foreign inward remittance from the customer is received by the third party explorer. The inward remittance is received in foreign currency. However, the settlement between the third party exporter and the manufacturer exporter is made in rupees. Hence, the manufacturer explorer need not undertake the procedure for conversion of foreign exchange.
  • By making use of the services of the third party exporter, the manufacturer exporter can concentrate on the core business. Also, the manufacturer exporter can make use of the expertise of the third party explorer. The third-party explorer helps the manufacturer exporter to procure orders from customers. Thus, the third party exporter also plays the role of an agent.

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