Any country's import-export business contributes immensely to its gross domestic product (GDP). They help boost the country's forex reserves from where they are exported. A country’s commerce transactions with other countries through home-grown goods and services are defined as exports. Merchant export involves commerce transactions of goods by a single merchant or an export trader. Merchant exports do not involve any export of services. Merchant exporters are not involved in the manufacturing of any products. Deemed exports involve goods that are produced in India but don’t exit India though ultimately, they are meant for export. They contribute to exports, e.g., in the case of supplies made to export-oriented units (EOU) or even supplies to software technology parks. They also include supplies for some very distinct projects in infrastructure. The payment for such exports is received in Indian rupees. Foreign exchange payments are also accepted for deemed exports, provided the products are manufactured in India.
Did you know? India exports the largest amount of refined petroleum to the United States of America.
Difference Between Export, Deemed Export, and Merchant Export
Exports involve the sale of merchandise and services manufactured in a country that sells them to buyers across other countries. All such commerce activities boost economic growth and add to the financial reserves. The country of origin of the manufactured goods is clearly distinct from the country or countries to which they are exported. Exports and imports together define international trade. All exports are entitled to some tax incentives as they increase the reserves of foreign exchange.
Deemed exports are based on the foundation of supply. The products are manufactured in India. The proceeds from the sales of such goods are received in Indian rupees. Payments are also accepted in convertible foreign currencies. Taxes are applicable at the time of supplying such goods. These types of exports attract tax refund on the fulfilment of some conditions. You have to remember that these exports do not involve any services.
Merchant exports involve merchandise that exporters acquire and export to other countries. Merchant exporters buy products from domestic manufacturers as well as from overseas manufacturers. They repackage these products and export them under their export brand. All the associated risks, if any, are borne by them. This category of exports also enhances the overall volume of exports of a country.
Eligibility Criteria for Qualifying Under Deemed Exports
Below are the conditions that apply to exports to qualify as deemed exports.
- The said exports include the supply of only products. There are no services included in these export categories.
- Products have to be manufactured in India.
- The said products cannot exit India.
- The supply of the merchandise in question has to be notified as deemed exports by the central government of India. This is possible under section 147 of the 2017 central goods and services tax act (CGST).
- Payments are possible in Indian rupees as well as convertible foreign currencies.
- This type of export cannot be made under a letter of undertaking or even a Bond.
- The registered supplier will honour all tax payments like GST at the time of supplying such exports.
- A tax refund can be claimed on such exports. This can be done by either the recipients or the suppliers.
Categories of Products Which Qualify as Deemed Exports
- Suppliers of such goods have to have the requisite registration as per the GST laws.
- The recipients should be advance authorisation holders. The advance authorisation, also termed an advance license, enables the import of duty-free inputs which are required for deemed exports.
- GST-registered suppliers furnish export-oriented units with such products. These suppliers also provide such supplies to biotechnology park units, software technology park units, and hardware technology park units.
- If recipients are holders of the export promotion capital goods, authorisation schemed (EPCG), the supplies qualify as deemed exports.
- All merchandise furnished by suppliers to projects that are multilateral agencies' recipients qualify as deemed exports.
- Products that serve the United Nations' requirements for their nuclear power projects qualify as deemed exports.
- Gold supplied by a public sector undertaking against advance authorisation or even supplied by a bank qualifies as a deemed export.
Fulfilment of Other Conditions to Qualify as Deemed Exports
- The electronics hardware technology park scheme (EHTP), export-oriented unit (EOU), biotechnology park, as well as software technology park units have to furnish the details of the products in advance to the suppliers as well as the GST officer of the recipients and the suppliers. They can do this by furnishing all the details in Form A.
- Form A has to include details of the products which are to be obtained. This has to have the prior approval of the development commissioner.
- Suppliers supply the requisite goods under cover of a tax invoice. They can issue this invoice either before or post the supply of the products. They have to issue the tax invoice within 30 days from the date of provision of the goods.
- Recipients have to endorse the said tax invoice as the same has to be forwarded to the concerned GST officer of both the recipients as well as the suppliers.
- All these processes must be provided and duly maintained in Form B.
Benefits of Deemed Exports Scheme
Given below are the various benefits associated with deemed exports.
- Manufacturers of deemed exports can avail of a special import license at a special rate. This rate is 6% of the freight on board value, i.e. the FOB value.
- Various units in industries like fertilisers, nuclear power projects, power, and petroleum are eligible for a refund on the duty which is charged on imports.
- Deemed exports enjoy a refund of the terminal excise duty as per the details in Schedule 4 of the 1944 central excise act.
- Advanced authorisation for a yearly requirement.
- In the case of an advance release order where the merchandise has been delivered, the supplier can obtain benefits of the special imprest license as well as the deemed export drawback scheme.
- If the recipients have a zero-duty EPCG license, the suppliers can benefit from all the said schemes except the special imprest license.
Deemed Export Under GST
All commerce transactions in the form of exports are free of GST but deemed exports do not come under the zero-rated category. Zero-rating implies that the entire supply chain is free of the tax burden. Since deemed exports are not zero-rated, the tax on their supply has to be borne either by the supplier or the recipient. Whoever files for a refund has to obtain an undertaking from the other that no input tax credit has been availed of. The 96 (9) CGST rule states that if a supplier has claimed a refund, the receiver of goods becomes ineligible to export on payment of integrated tax.
When a supplier tries to claim a refund on deemed exports, they have to furnish various documents, some of which are:
- An invoice statement that includes all the necessary details of the deemed export products which the supplier has made
- An acknowledgement by the concerned tax officer of the advanced authorisation stating that the deemed export merchandise has been received. If the export-oriented units or the concerned technology parks have received the products, then the copy of the tax invoice has to acknowledge receipt of the deemed products.
- Recipients have to furnish an undertaking that no claims for a tax rebate have been made.
- Recipients have to furnish an undertaking that they will make no claims for a tax rebate for the said products.
The contents of this article make a clear distinction between exports, deemed exports as well as merchant exports. All these categories of exports add to the national finance reserves, but they all have distinct characteristics which set each one apart from the other. Exports are not entitled to GST taxation but deemed exports have to pay a GST at the point of supply. Merchant exports attract only 0.1% GST to purchase merchandise from home-grown suppliers. You have to get familiar with all the terms and conditions of these different types of export categories if you plan to start an export business. Do you have issues with payment management and GST? Install the Khatabook App, a friend-in-need and one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!