Finin2min 🧾 Sales to Merchant Exporters at Concessional GST

0.05% / 0.1% Route Explained — Finin2min Playbook

Law • GST • Exports • Compliance • Risk Management
Practical | Supplier-first | Audit-ready | FY 2025–26

1️⃣ What This Scheme Is — and What It Is NOT

Under GST, a domestic supply does not become zero-rated merely because the buyer exports.

Zero-rating applies only to:

• Exports by the supplier, or
• Supplies to SEZ (Section 16, IGST Act)

To support merchant exporters, the Government introduced a conditional concessional procurement route:

📌 This is a partial exemption, not zero-rating
📌 Entire benefit hinges on export performance + documentation

2️⃣ Scope Restriction — GOODS ONLY (Critical & Often Missed)

✔ What is covered

• Only “taxable goods”
• Goods must not be exempt or NIL-rated
• Supplier must verify HSN eligibility

❌ What is NOT covered

• Services — completely excluded
• Exempt / NIL-rated goods
• Non-taxable supplies

📌 Notifications 40/2017 & 41/2017 are explicitly limited to goods
📌 Any attempt to apply concessional rate to services = invalid

3️⃣ Legal Nature of the Notifications

Both notifications:

• Exempt GST only to the extent it exceeds 0.05% / 0.1%
• Are conditional exemptions
• Fail automatically if export conditions are breached

🚫 If export fails → exemption fails → supplier liability revives

4️⃣ Eligibility Gate Checks (Before Issuing Invoice)

Supplier

✔ Registered GST person
✔ Making taxable supply of goods

Merchant Exporter (Recipient)

✔ Registered GST person
✔ Registered with Export Promotion Council / Commodity Board (RCMC)
✔ Exports under LUT (Rule 96A)

📌 Supplier should retain:

• GST registration copy
• EPC/RCMC
• LUT copy (best practice)

5️⃣ Mandatory Conditions (i)–(ix) — Consolidated & Explained

6️⃣ Warehouse Rule — More Than Just GST Registration

Where aggregation is involved:

• Warehouse must be registered
• Preferably customs-bonded / notified
• Non-compliant warehouse = exemption void

📌 This is derived from the movement conditions of the notification and reinforced in departmental audits.

7️⃣ LUT / Bond — Exporter Obligation, Supplier Impact

Merchant exporter must:

• Export under LUT (Rule 96A)
• Bond only if LUT not permitted

📌 LUT is not mentioned in 40/41
📌 But without valid LUT, export itself becomes questionable → supplier risk

8️⃣ The 90-Day Export Rule — Any Extension?

General Rule

• No automatic extension
• 90 days = strict statutory condition

Exceptional Past Relief

• COVID-era relaxations allowed Commissioner-level condonation
• No standing relaxation exists today

📌 Any extension must be:

• Specific
• Written
• Jurisdiction-approved

9️⃣ What If Conditions Fail? (Supplier Fallout)

If export not completed in 90 days or any condition fails:

Supplier must:

1. Issue debit note for differential GST
2. Report in GSTR-1
3. Pay tax + interest via GSTR-3B
4. Recover tax contractually from exporter

🔟 Interest Computation (Often Misapplied)

• Interest payable under Section 50, CGST Act
• Computed from date of original invoice
• Rate as notified (monthly, not daily)

📌 Interest exposure can be significant — not just tax differential

1️⃣1️⃣ GSTR & Shipping Bill Reconciliation Reality

• Shipping bill data may auto-link with GST systems
• But supplier must still manually track:
  • Shipping bill copy
  • Invoice linkage
  • EGM / export report filing

🚫 Auto-population ≠ compliance completion

1️⃣2️⃣ PCGS OPTION — Alternative Route (Post-2023, Valid)

Principal Commissioner-based General Approval Scheme

(As per CBIC Circular No. 199/11/2023-GST)

✔ Available for frequent / regular merchant exporter supplies
✔ Allows standing approval for concessional procurement
✔ Reduces per-transaction compliance burden

📌 Still requires:

• Export within 90 days
• Shipping bill linkage
• Documentation discipline

📌 This is an administrative facilitation, not a dilution of conditions

1️⃣3️⃣ ITC Accumulation & Refund (Supplier Impact)

Concessional output GST + normal input GST ⇒ ITC pile-up

Supplier may:

• Evaluate refund of accumulated ITC (where legally permitted)
• Strategically limit concessional supplies

1️⃣4️⃣ When NOT to Use This Scheme

Avoid concessional route where:

• Export timelines uncertain
• Exporter weak on documentation
• Warehouse routing unclear
• Supplier unwilling to monitor post-export compliance

📌 Normal GST + exporter refund is always permitted

🧠 Finin2min Final Takeaway

Notifications 40/2017 & 41/2017 are powerful — but unforgiving.

✔ Applicable only to taxable goods
✔ Export + documentation discipline is non-negotiable
✔ Supplier bears downstream risk

Use this route only with strong SOPs, indemnities, and tracking.

⚠️ Disclaimer

This article is based on CGST Act, IGST Act, CBIC Notifications, and Circulars as applicable up to FY 2025–26. Interpretations may vary by jurisdiction.

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