What Is Merchant Export?
Merchant export refers to the process where traders or firms purchase goods from Indian suppliers specifically to export those goods, without any substantial processing or manufacturing. These exporters act as intermediaries, connecting domestic manufacturers to overseas markets. In India, these exports enjoy special status under GST law, offering procedural ease and favourable tax treatment.
Merchant Export Under GST: A Simple Guide for Merchant Exporters
Exporting opens new frontiers for Indian businesses, and under the Goods and Services Tax (GST) regime, merchant export has become a strategic avenue for traders looking to supply Indian products globally. Whether new to exporting or already experienced, understanding merchant export under GST is essential for smooth compliance and maximizing benefits.
Under Indian GST law, merchant exporters are allowed to purchase taxable goods from local vendors at a concessional GST rate of 0.1% for the purpose of export. The merchant exporter must then export the goods physically within the prescribed timeline of 90 days, submit tax invoice number and fill export report with the correct authorities.
Key Requirements for Merchant Exporters
- GST Registration: To operate legally as a merchant exporter, registration under GST is mandatory. Exporters also need to be members of the relevant export promotion council to avail themselves of government schemes and support.
- Import Export Code (IEC): Obtaining an IEC from the Directorate General of Foreign Trade (DGFT) is compulsory for export activities.
- Purchase & Documentation: Orders must be placed with domestic suppliers, and proper records of these orders need to be maintained. Goods are to be procured only for export purposes.
Concessional GST Rate for Merchant Export
A significant benefit under GST is the concessional rate of 0.1% levied on the supply of goods to registered merchant exporters. Here’s how it works:
- The supplier issues a tax invoice at the concessional GST rate (0.1%), mentioning the exporter’s GSTIN and clearly stating the goods are meant for export.
- The merchant exporter must export these goods within 90 days from the date of tax invoice.
- If the export isn’t completed within the stipulated period, the concessional rate becomes void, and the supplier is liable to pay the standard GST difference.
Steps in the Merchant Export Process
Register with GST and Obtain IEC: Begin by securing GST registration and an import-export code.
Place Export Order with Supplier: Share the export order and agreement with the chosen domestic supplier.
Procure Goods at Concessional GST Rate: Ensure supplier issues a correct tax invoice at 0.1% GST, referencing your export order.
Export within 90 Days: Dispatch the goods and submit shipping bill and export documents within the allowed period.
Maintain Documentation: Keep copies of GST invoices, shipping bills, and export-related papers for compliance and audits.
Claiming Refunds and Deemed Exports
- Merchant exporters can claim back GST paid on inputs, either through a refund route or by providing a bond/LUT (Letter of Undertaking) to export without paying integrated GST.
- Some transactions where goods do not physically leave India but are supplied against export orders may be classified under “deemed exports,” making them eligible for specific GST benefits.
Essential Terms
- Bill-to-Bill Export: Every export consignment must be covered by a unique tax invoice reflecting all regulatory details.
- Export Promotion Council: Bodies responsible for the promotion and support of specific export sectors. Membership ensures access to crucial schemes and trade information.
- Deemed Exports: Certain domestic transactions treated as exports under GST law for benefit eligibility, even though goods do not physically cross India’s borders.
Frequently Asked Questions
How is merchant exporter different from manufacturer exporter?
A merchant exporter sources goods from manufacturers for export without owning manufacturing facilities, focusing solely on trade. Manufacturing exporters, on the other hand, produce and export goods they manufacture themselves.
Can merchant exporters help manufacturing units?
Absolutely. Merchant exporters create larger and more consistent market opportunities for manufacturing units by consolidating orders and connecting them with global buyers, allowing manufacturers to concentrate on production while the exporter manages exports and compliance.