Enactment of Goods and Service Tax has set up the goal of simplifying the tax implications and processes by facilitating portal for GST return filing. Centralised processes and portals are developed to administer the matters by single authority for taxes on commodity and services. In same manner for transactions within state, goods and services are dealt outside Indian boundaries. Discussing about creating market place outside India by trading products in other countries, exporting plays major role, which activity is continuously promoted by the Government of India for betterment of country.
In this regards, exporting from India may be routed in two ways for the purpose of exports. Export by payment of taxes applicable and claiming refund at a later stage in manner provided. The alternate to this is export without paying tax by furnishing the letter of undertaking (LUT) to the concerned authority. Here, we are discussing about what the letter of undertaking is and upcoming changes in the system.
What is Letter of Undertaking?
Letter of Undertaking, commonly abbreviated as LUT. As discussed, there are two ways exports; where later is export without payment of taxes. In case the entity wants to choose second way, they are required to furnish an undertaking to the Government. The Letter of Undertaking (LUT) is prescribed to be furnished in form GST RFD 11 under Rule 96A, whereby the taxpayer (exporter) declares that he shall fulfil all the requirements prescribed under GST for this route on exports.
Unless the letter of undertaking is filed by the exporter, he shall make payment of GST applicable on goods or services being sent to importer. The eligibility criteria to furnish Letter of Undertaking are relaxed and to every person to export goods can choose this route, unlike to previous applicability where the condition of foreign inward and turnover was prescribed. Filing Letter of Undertaking will be mandatory to export goods or service or both without payment of Integrated Taxes (IGST). If the same has not been furnished, the export can only be made through payment of IGST on goods or service or both, as may be applicable.
How it is furnished?
The letter of undertaking is furnished in Form GST RFD – 11, by manual submission to appropriate authority. The said process is rationalised and made simpler by substituting same with online filing. Since, April, 1 2018 GST Network is providing facility to furnish the letter of undertaking through its online portal. This will provide transparency in the entire process of exports by an exporter to all the stakeholders involved.
After applicability of same, LUT will be furnished by the registered taxpayer after log in into the common GST portal by credentials.
Documents required for filing LUT:
To furnish the Letter of Undertaking online, first and foremost requirement is to register as taxpayer under GST by filing online application. On obtaining the credentials, the exporter will require following to file LUT under GST:
- Copy of GST registration Certificate
- Copy of Importer – Exporter Code Certificate for exporter of goods
- Letter of Undertaking on letter head of the taxpayer
- The undertaking shall be furnished on non-judicial stamp paper in the format prescribed under form GST RFD 11
- The request letter to accept form GST RFD 11 on letter head and signed by the authorised person being Director/ Partner or proprietor, as the case may be
- Letter of authorisation given to authorised signatory
- Information of the at least two witnesses along with address proof and PAN
- Copy of Identity proof and PAN of the signatory with the witnesses
- Undertaking on letter head that he has not been prosecuted for any offense under Central Goods and Services Tax (CGST) not exceeding 250 lakh rupees
By furnishing the Letter of undertaking, the exporter will undertake following:
- Exports of goods/ services will be completed within a period of three months from the date of issue of Export invoice or further period allowed by the Commissioner, if any.
- To abide by GST law in respect of exports
- To pay IGST along with Interest* if failed to Export
In case of failure to export goods or services within 3 months or extended time, the exporter will require to pay IGST applicable on the goods or services along with the interest at the rate of 18% per annum for the period from date of issue of export invoice up to date of Payment of IGST.
Validity of LUT under GST:
The Letter of Undertaking filed will be valid for whole financial year in which it is furnished. In case, the goods or services are not exported within given period and the person fails to pay the amount payable on failure, the facility of export under LUT will be deemed to have been withdrawn. During the period of withdrawal, the export can only be facilitated by payment of IGST applicable. Subsequently, if the payment is made by exporter, the facility will be restored.
Filing Letter of Undertaking for each Financial Year will be necessary as it is valid for the period of one year in which it is furnished. Hence, the exporters are required to furnish the Letter of Undertaking for the upcoming Financial Year 2018-19 through online portal of the network i.e. https://www.gst.gov.in/. The process of filing letter of undertaking is made online through common portal of the GSTN, which will simplify the process of export and provide transparency in whole process.