The client is a garment exporter based in Delhi who exports goods to the United States.
The exporter supplied goods without charging GST, treating the transaction as a zero-rated supply under GST law. However, the exporter failed to file the required Letter of Undertaking (LUT) within the prescribed time.
The tax department has now raised an objection stating that since the LUT was not furnished prior to export, the exporter was not eligible to export without payment of IGST. Accordingly, the department has directed the exporter either:
-
To pay IGST along with applicable interest; or
-
Face rejection of the refund claim.
Solution :
Section 16 – IGST Act, 2017
Courts have repeatedly held that procedural lapse cannot defeat substantive benefit which means if there is an omission in procedural work, the substantive benefits cannot be effected.
The exporter has two options:
(a) Export under LUT/Bond without payment of IGST
The exporter may furnish a Letter of Undertaking (LUT) or Bond and export goods or services without paying IGST.
In this case, the exporter can claim a refund of unutilised Input Tax Credit (ITC) accumulated on inputs and input services.
(b) Export on payment of IGST
Alternatively, the exporter may pay IGST at the time of export and subsequently claim a refund of the IGST paid.
In the above case, the best way is to either pay IGST + interest or furnish an explaination to the department for the lapse in the procedure.
