written by Khatabook | December 15, 2021

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Table of content

Guide to Merchant Exports under GST

A trader's activity of exporting or intending to export products is referred to as merchant export. A merchant exporter is someone who engages in commerce and exports or intends to export goods. A merchant exporter focuses on the export of goods rather than services. They buy products from the manufacturer and sell them outside of India. In the event of exports by a manufacturer via a merchant exporter, the manufacturer is obligated to pay tax. Hence, a merchant exporter is someone who engages in commerce and exports or intends to export. They don't have a production facility. They purchase goods from a manufacturer-exporter and then ship them to clients in other countries.

What is Merchant Export under GST?

A taxable supply is defined as "a supply of goods or services or both that is subject to tax under Section 2(108) of the CGST Act." Also, where a supplier is based in India, but the place of supply is outside India, it is treated as an inter-state supply under Section 7(5) of the IGST Act.

By examining the terms of both sections, it is clear that merchant exports are subject to GST because the merchant exporter is based in India and makes a delivery to a location outside of India. As a result, merchant exporters must register under the Goods and Services Tax or GST regime.

How does a merchant exporter under GST work?

Merchant exporters operate similarly to manufacturer exporters. However, do they manufacture goods? The answer is no. This eliminates the need for merchant exporters to build up manufacturing facilities. Instead, these exporters seek manufacturers of the items, which they then market to potential overseas clients.

Merchant exporters have an established network of various suppliers since they have excellent marketing techniques with the help of websites, social media campaigns and other internet facilities. Thus due to all these efforts, they easily attract buyers and bring in more and more business.

On receiving an order from a customer, the merchant exporter asks the supplier to supply the requisite number of products. The items are labelled with the merchant exporter's name rather than the original supplier's. The items can be exported straight from the manufacturer's premises, with or without the export consignments being sealed, or through their premises under a rebate claim or a bond.

Merchant Exporters in India

Multiple merchant exporters are operating in India and make immense contributions to the country's exports. The Indian Government has established a variety of benefits and incentives to encourage this type of export. A merchant exporter must first register with the GST portal (services.gst.gov.in). When the merchant exporter receives the sales order, they ask their supplier for the required number of products, which the exporter subsequently sends to the client. The items are labelled with the merchant exporter's name rather than the original supplier's.

Merchant Export Procedure

  • Various processes relating to merchant exports have already been simplified with the introduction of the Goods and Services Tax (GST). Before that:
    • The Letter of Undertaking or LUT, 
    • The CT-1 form (used for the purchase of goods without the payment of central excise duty by a merchant exporter from a manufacturer), and 
    • ARE-1 form (application for removal of excisable goods for export by Air, Sea, Post or Land) was required. 
  • Under the new GST regime, these conditions are no longer present. All products are now self-certified and sealed.
  • The shipping bill itself is considered a Refund application. Due to this, the procedure has become short and smooth.

Also Read: An Overview of the GST Annual Return

Export Rate for Merchant Exporter

A merchant exporter, like a manufacturer exporter, can export goods with or without paying Integrated Goods and Services Tax or IGST under GST. The exporter must register only the GST portal.

Under the GST framework, merchant exporters have two options for claiming a refund:

  1. They can export the goods on Letter of Undertaking (LUT) by not paying any output tax and claiming a refund of GST paid on Input purchases.
  2. Pay IGST as output tax on export of goods and claim a refund of net tax paid in cash (i.e. output tax minus input tax credit taken on purchases) if no bond or letter of undertaking is required. Once this option is opted by the exporter, they become ineligible for the 0.1% GST rate.

Although the CGST Act provides a concessional 0.1% GST rate to merchant exporters who purchase goods from local suppliers, there are multiple conditions to be fulfilled if an advantage has to be taken of the discounted rate. The following conditions have to be satisfied by a merchant exporter:

  • The products have to be exported within 90 days once the tax invoice has been raised.
  • Merchant exporters must register themselves with an Export Promotion Council or a Commodity Board.
  • Various details like the GST number, the tax invoice number should be there on the shipping bill.
  • GST rate should be in the tax invoice; the GST rate should be stated as 0.1%.
  • Merchant exporters must hand over a copy of the P.O., i.e. purchase order to the supplier's jurisdictional tax officer.
  • The export should be under a Letter of Undertaking or bond.
  • In case there are multiple suppliers, then quantities must be consolidated at a particular place from where they can be directly delivered to the Land Customs Station (LCS) or Inland Container Depot (ICD).
  • The shipping bill and proof of Export General Manifest (EGM) and export report should be handed over to the jurisdictional tax officer and the supplier.

Documents Processed by Merchant Exporter

Goods are sometimes purchased from several producers or held in a registered warehouse before being sent to a port or a dry port/ICD. In these circumstances, the merchant exporter has the authority to issue an acknowledgement of receipt of goods to the manufacturer and the jurisdictional tax officer.

Additionally, if the merchant exporter wishes to export excised items locally, B1 bonds (security bonds for despatch of goods or exports) for export might be executed. These bonds must be delivered to the appropriate Assistant/Deputy Commissioner of Central Excise.

Merchant Exporter Benefits

  • A medium or small producer can make their products marketable in other countries without any financial or personnel resources.
  • Without any security, the merchant exporter offers pre-shipment financing for the manufacturer.
  • The merchant exporter is in charge of goods shipment, sales, and export revenue collecting from overseas customers.
  • The merchant exporter is in charge of arranging export orders from overseas customers and putting the producer at ease.
  • The merchant exporter can avail benefits of various products that do not have any manufacturing facilities.
  • The merchant exporter with the best export results is eligible for an Export Status House certificate.

Manufacturer and Exporter

A manufacturer exporter is a person or a company that creates items in whole or in part and then sells them to international buyers. A merchant exporter does not manufacture the items. Instead, they are purchased from a local supplier and then exported under their name.

Merchant Exporter Registration

The registration process under GST of merchant exporters is similar to that of a normal exporter registration. It can be explained in the below-mentioned steps-

  • The application can be made for registration with Valid PAN, Aadhaar, Mobile no. and Email ID. 
  • First, create a temporary application reference no. with Part A of REG 1.
  • After validating your credentials with OTP, go to the GST portal and complete the form.
  • Now start filing Part B of REG 1.
  • Under part B, details such as business name, ownership proof, address of the principal place of business, additional place of business, HSN code of goods and services, etc., have to be furnished, and valid documents have to be attached.
  • After filling the form, submit your application through OTP
  • After you receive the certificate, you can start making the taxable supplies.

Refunds that can be claimed by Merchant Exporter

A few examples of merchant exporters claiming refunds are provided below.

  1. When the supplier is not the manufacturer-  There are times when a merchant exporter purchases items from a non-manufacturer who has also purchased them from another supplier. Because they sell things to a merchant exporter, the first supplier charges the usual GST rates, while the second supplier charges the 0.1% concessional rate. In an inverted tax structure, the second supplier can demand a refund of the balance ITC under section 54(3) of the CGST Act.
  2. When goods are exported on which no tax has been paid by merchant exporterAccording to section 54(3) of the CGST Act, a merchant exporter who purchases goods from a supplier that charges 0.1% GST and exports them without paying any tax can claim a refund of the unused ITC at the conclusion of the tax period.
  3. When the goods are supplied at regular rates- When  a merchant exporter buys products at a standard price and subsequently exports them after paying IGST, they are not eligible for the 0.1% concessional tax rate. In this situation, the supplier will follow the regular tax  system and pay the output tax using ITC, while the remaining liabilities will be paid in cash. On the other hand, Merchant exporters can get a refund on unused ITC and IGST if they're paid on zero-rated items.

Also Read: Types of GST in India - What is CGST, SGST and IGST?

Conclusion

Merchant exporters play a critical role in growing the country's exports, particularly Micro, Small and Medium Enterprises or MSME and small manufacturer items. Merchant exports, like normal exports, create foreign cash for the country and are mostly engaged in the export of goods rather than services. Merchant exporters, who account for about 35% of total exports, are helping to enhance outbound Merchandise Shipments. They get orders from the foreign market and then acquire goods from Indian manufacturers, primarily from the Ministry of Micro, Small and Medium Enterprises or MSME/labour-intensive industries including agriculture, textiles, leather, handicraft, and machinery, and sell them abroad in their firm's name. A merchant exporter is excellent at negotiating competitive and better prices with buyers, sellers, and shipping lines than regular exporters. Because they buy mostly from MSMEs, they boost MSME output, which boosts job creation because MSMEs are typically in labour-intensive industries.

We hope this article has provided you with enough information about merchant exporter meaning, merchant exporter under GST, procedural aspects, and registration-related aspects and benefits of merchant export.

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FAQs

Q: Is there any difference in the registration process of a merchant exporter on the GST portal?

Ans:

No, there is no difference in the registration process of merchant exporters on the GST portal. They have to register as a normal taxpayer duly mentioning therein that they are a merchant exporter.

Q: Can a merchant exporter claim refund under GST?

Ans:

Yes, a merchant exporter can claim the refund under GST.

Q: What is the difference between Deemed Exporter and merchant exporter?

Ans:

Locally manufactured commodities that are not shipped out of the nation are categorised as deemed exports by the government. Because these items are classified as exports, the incentives provided to exporters are also available to producers and sellers.

Merchant exports are items procured locally by an exporter and then shipped to an international buyer under the exporter's name. Merchant exports, like manufacturer exports, are subsidised since they are critical to expanding the country's exports.

Q: What is the meaning of merchant exporter?

Ans:

A merchant exporter is a person or a firm who buys ready-made items from a supplier, finds a customer, and then sells the commodities to that buyer.

Q: Can a merchant exporter claim benefit of the Duty Drawback Scheme?

Ans:

 With the Duty Drawback Scheme, exporters can avail of a refund on customs paid on imported goods. For claiming this benefit, the exporter must: 

  • Provide tangible evidence that they have not taken advantage of the Modified Value Added Tax (MODVAT) benefits. 
  • Include the manufacturer's information in the shipping bill and the manufacturer's declaration in front of the appropriate officials.

Q: Can a merchant exporter claim Input Tax Credit (ITC)?

Ans:

 If the exported items fall within the category of zero-rated commodities, section 54(3) of the Central Goods and Services Tax (CGST) Act allows merchant exporters to seek a refund on the unused ITC. It also applies to items that are taxed using an inverted tax system. This claim must be submitted after the fiscal year.

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