APRIL 15, 2020

By Vijay Kumar

I thought an undertaker was one whose business is to prepare the dead for burial and to take the charge and management of funerals. But tax laws have taught me that an undertaker is also one who undertakes (to do something).

As per Rule 96A of the CGST Rules, Any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner…..

This LUT (Letter of Undertaking) is a highly legal sounding document addressed to the President of India:

I/We.................................. of..........................…………… (address of the registered person) having Goods & Services Tax Identification Number No…………………………………………, hereinafter called "the undertaker (s) including my/our respective heirs, executors/administrators, legal representatives/successors and assigns by these presents, hereby jointly and severally undertake on this.................. day of................... to the President

(a) to export the goods or services supplied without payment of integrated tax within time specified in sub-rule (1) of rule 96A;

(b) to observes all the provisions of the Goods and Services Tax Act and rules made thereunder, in respect of export of goods or services;

(c) pay the integrated tax, thereon in the event of failure to export the goods or services, along with an amount equal to eighteen percent interest per annum on the amount of tax not paid, from the date of invoice till the date of payment.

I/We declare that this undertaking is given under the orders of the proper officer for the performance of enacts in which the public are interested.

Do we need an undertaking to observe all the provisions of the Goods and Services Tax Act and rules and to pay the integrated tax, in the event of failure to export the goods or services, along with an amount equal to eighteen percent interest per annum on the amount of tax not paid, from the date of invoice till the date of payment. (And who is the proper officer who has given the orders? What is his authority to order the taxpayer? The undertaking is given as per the rule and not under the orders of any officer - proper or otherwise.)

Is it not covered under the Act?

Section 16 of the IGST Act deals with "zero rated supply"

ZERO RATED SUPPLY

16. (1) "zero rated supply" means any of the following supplies of goods or services or both, namely:-

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

(3) A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:-

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.

Rule 96A deals with exports:

96A. Export of goods or services under bond or Letter of Undertaking.-

(1) Any registered person availing the option to supply goods or services for export without payment of integrated tax shall furnish, prior to export, a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional Commissioner, binding himself to pay the tax due along with the interest specified under sub-section (1) of section 50 within a period of -

(a) fifteen days after the expiry of three months, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the goods are not exported out of India; or

(b) fifteen days after the expiry of one year, or such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange or in Indian rupees, wherever permitted by the Reserve Bank of India.

(2) The details of the export invoices contained in FORM GSTR-1 furnished on the common portal shall be electronically transmitted to the system designated by Customs and a confirmation that the goods covered by the said invoices have been exported out of India shall be electronically transmitted to the common portal from the said system.

Provided that where the date for furnishing the details of outward supplies in FORM GSTR-1 for a tax period has been extended in exercise of the powers conferred under section 37 of the Act, the supplier shall furnish the information relating to exports as specified in Table 6A of FORM GSTR-1 after the return in FORM GSTR-3B has been furnished and the same shall be transmitted electronically by the common portal to the system designated by the Customs:

Provided further that the information in Table 6A furnished under the first proviso shall be auto-drafted in FORM GSTR-1 for the said tax period.

(3) Where the goods are not exported within the time specified in sub-rule (1) and the registered person fails to pay the amount mentioned in the said sub-rule, the export as allowed under bond or Letter of Undertaking shall be withdrawn forthwith and the said amount shall be recovered from the registered person in accordance with the provisions of section 79.

(4) The export as allowed under bond or Letter of Undertaking withdrawn in terms of sub-rule (3) shall be restored immediately when the registered person pays the amount due.

(5) The Board, by way of notification, may specify the conditions and safeguards under which a Letter of Undertaking may be furnished in place of a bond.

(6) The provisions of sub rule (1) shall apply, mutatis mutandis, in respect of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit without payment of integrated tax.

Now, why this LUT at all? If a taxpayer violates the conditions of the LUT, what is the remedy available to the government? Can't the government recover the tax without the LUT? Will the LUT help in any way? And what is the procedure to enforce the undertaking in the LUT? It seems they have to file a civil suit! [In a recent order, 2019-TIOL-2213-CESTAT-HYD, the CESTAT observed, "The usual method of enforcing any bond is by filing of civil suit.."] Is it practically feasible and physically possible?

When the LUT had to be physically filed before the tax officers, it was an expensive affair for the taxpayers. Thankfully, the physical contact is now eliminated with online filing and thus avoiding an inconvenient virus.

What will happen if exports are made without filing the LUT? Can tax be demanded even if it is proved that exports have taken place or can a penalty be imposed for not filing the LUT?

In Circular No. 37/11/2018-GST, dated 15th March, 2018, CBIC observed,

It has been brought to the notice of the Board that in some cases, such zero rated supplies have been made before filing the LUT and refund claims for unutilized input tax credit have been filed.

4.1. In this regard, it is emphasised that the substantive benefits of zero rating may not be denied where it has been established that exports in terms of the relevant provisions have been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case.

In Hydraulics India Services Pvt Ltd, 2011-TIOL-1752-CESTAT-BANG,

The show-cause notice had proposed to recover Central Excise duty with interest and also to impose penalty on the party under Section 11AC read with Rule 25. The demand of duty was raised in respect of certain goods cleared for export but without LUT and ARE-I. Other export documents viz., shipping bill, invoice, etc., had been duly made and filed and the goods exported. In adjudication of the show-cause notice, the original authority dropped the demand of duty after verification of the shipping bill and bank realization certificate produced by the party as proof of export of the goods. The exporter's omission with regard to LUT and ARE-I was reckoned as a procedural lapse and, in a lenient view, the adjudicating authority refrained from taking further action in the matter. The party was cautioned for the future and further proceedings were dropped. The department filed appeal to the Commissioner (Appeals). The appellate authority imposed a penalty of Rs.10,000/-. It took the view that the party was liable to pay penalty under the said Rule for contravention of the provisions of Notification No.42/2001-CE (NT) dated 26.6.2001 which had prescribed certain conditions for export of goods under bond without payment of duty.

The Tribunal observed,

It is not in dispute that the goods were exported after filing the basic exports documents viz., shipping bill etc. The omission with regard to LUT and ARE-1 was accepted by the original authority as a procedural lapse and this approach was not faulted by the Commissioner (Appeals). If that be the case, there can be no penalty on the appellant under any of the provisions of Rule 25.

Just two days ago, the CBIC issued a clarification: Circular No. 137/07/2020-GST, dated 13th April, 2020

What happens if he has not filed the LUT for the year 2019-20 and so has no reference number? And it seems the portal does not now accept LUT for 2019-20. Stuck? Why all the useless work? Why can't we just do away with this LUT?

But on the other hand, if the government wants to provide employment to some professionals with these forms, why can't you just comply?

While trying to endure the corona lockdown, maybe someone with a little authority can think of removing this kind of clutter in the GST law and procedure.

GST even after Covid

We will overcome this - I mean Covid-19, but we will still have to live with GST; let us all be prepared.

The New York Times reported on March 28, 1989,

It will take something more than a nuclear attack to wipe out taxpayers' obligations to the Internal Revenue Service.

An addition to the Internal Revenue Manual, which is supposed to guide the conduct of all I.R.S. employees, declares that if the bomb is dropped, "operations will be concentrated on collecting the taxes which will produce the greater revenue yield."

Until next week