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:
| Nature of Supply | Notification | GST Rate |
|---|---|---|
| Intra-State | 40/2017-CT (Rate) | 0.05% CGST + 0.05% SGST/UTGST |
| Inter-State | 41/2017-IGST (Rate) | 0.1% IGST |
📌 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
| Condition | Legal Requirement | Practical Risk |
|---|---|---|
| (i) Tax Invoice | Must issue tax invoice | No bill of supply |
| (ii) Export in 90 days | From supplier invoice date | Absolute timeline |
| (iii) Shipping Bill Link | Supplier GSTIN + invoice no. | Most litigated |
| (iv) EPC/RCMC | Mandatory | Keep on record |
| (v) Procurement Order | PO + copy to supplier’s officer | Often missed |
| (vi) Movement Route | Direct port OR registered warehouse | No deviation |
| (vii) Aggregation | Multi-supplier → warehouse mandatory | Common failure |
| (viii) Warehouse Proof | Endorsed invoice + ack | Must share |
| (ix) Post-export Proof | SB + EGM proof to supplier & officer | Closes loop |
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:
- Issue debit note for differential GST
- Report in GSTR-1
- Pay tax + interest via GSTR-3B
- 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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