GST and export documentation in India: zero rating, LUT and the paper trail

Why GST sits outside the export price

India taxes most goods and services at the point of consumption. An export leaves that jurisdiction, so the supply is treated as zero-rated rather than exempt. The distinction sounds academic but it decides whether the supplier can recover the tax paid on inputs. An exempt supply breaks the credit chain. A zero-rated supply keeps it intact.

For a buyer, the practical consequence is simple. The price of an exported part should not include Indian GST. If a quotation shows a GST line on an export order, either the shipment is not being treated as an export or the supplier has chosen the route where tax is paid and later reclaimed. Both need an explanation before the purchase order is signed.

Two routes: letter of undertaking or pay and refund

An exporter has two ways to handle the tax on an export. The first is to file a letter of undertaking, usually called a LUT, and export without paying IGST. The second is to pay IGST on the invoice and then claim a refund. Both are legitimate. They differ in cash flow, paperwork and the amount of attention the claim needs.

The LUT route is the default for a regular exporter. It removes the tax from the transaction, so there is nothing to refund and no working capital locked in a claim. A supplier that exports every month will usually prefer it. The LUT has to be renewed for each financial year, and the supplier must keep the conditions attached to it.

The pay and refund route is sometimes used by a supplier that cannot file a LUT, or that wants the export invoice to show tax for the buyer's own accounting. The refund then depends on the shipping bill, the return and the matching of documents. A refund that is queried can take months, and the supplier carries that cost in the meantime.

The document set that travels with the goods

Export documentation is not a single form. It is a set of records that support each other. Customs reads the shipping bill, the bank reads the invoice and the transport document, and the tax authority reads the return and the shipping bill together. When one document disagrees with another, the shipment may still move but the claim will wait.

• Commercial invoice, showing the buyer, the goods, the quantity, the value and the Incoterm
• Packing list, with carton counts, weights and dimensions
• Shipping bill, filed with customs and carrying the export code and the declared value
• Bill of lading or airway bill, depending on the mode
• Letter of undertaking, where the supplier is exporting without payment of IGST
• Certificate of origin, where the destination claims a preference
• Inspection or test certificate, where the drawing or the buyer asks for one

What the export invoice has to show

The commercial invoice is the document every other record refers back to. It needs the supplier's GST identification number, the buyer's name and address, the invoice number and date, a clear description of the goods, the quantity, the unit price, the total value, the currency and the Incoterm with the named place.

The description should match the shipping bill closely enough that a customs officer and a buyer's auditor reach the same conclusion. A description that names the part, the material and the process answers the question before it is asked.

Where the supplier pays IGST, the invoice also carries the tax amount and the tax rate. A buyer's accounts team will look for that statement before it releases payment.

GST is not customs duty

Buyers new to India sometimes treat GST and import duty as the same conversation. They are separate. GST is an Indian domestic tax on the supply, and on an export it is zero-rated. Customs duty is charged by the destination country when the goods arrive, under its own tariff and its own valuation rules.

The supplier's quotation should state which taxes are included and which are not. A price that includes Indian GST on an export is wrong on its face. A price that excludes destination duty is normal, because the importer pays that at the border. Mixing the two lines makes a landed cost model unreliable.

The same separation applies to the schemes that remit duty on imported inputs. Those schemes deal with customs duty paid in India on material that later leaves in a finished part. They do not deal with GST on the sale, and they do not deal with the duty the buyer pays on arrival. Keep three columns: Indian input duty, Indian GST, destination duty.

Matching the records after shipment

The shipping bill is filed before the goods leave, and it carries a number and a date that the supplier needs later. The export invoice is reported in the GST return, usually in the table reserved for exports, with the shipping bill details. If the shipping bill is amended after the return is filed, the two records can fall out of step.

Payment adds another layer. The supplier's bank issues a realisation advice when the export proceeds arrive, and that advice becomes the evidence that the shipment was both made and paid for. Under the LUT route the tax position is already settled, but the realisation record still matters for exchange control and for the supplier's own audit.

A buyer can help by paying to the invoice reference and by not netting unrelated charges without a credit note. Every undocumented deduction becomes a query on the supplier's side, and a supplier under a refund query is a supplier under cash pressure.

The errors that delay a shipment or a refund

Most delays come from small mismatches, not missing documents. A packing list that counts pallets while the invoice counts cartons can hold a consignment. An invoice in one currency and a shipping bill in another creates a valuation question. A description that drifts between revisions creates doubt about what shipped.

• Invoice value that does not reconcile with the shipping bill
• Harmonised system code that does not match the goods described
• Incoterm that differs between the invoice and the shipping bill
• LUT that has lapsed or does not cover the period of export
• Shipping bill date that falls outside the return period
• Quantity shipped that differs from the invoice without an amendment

What a buyer should ask before the first order

Ask the supplier which route they use for exports and whether the LUT is current. Ask for a sample invoice and shipping bill, with the commercial details masked, and ask who files the shipping bill at the Indian end.

Then agree the document pack in the purchase order. Name the invoice currency, the Incoterm and the named place, the documents that must travel with each shipment, and the contact who can answer a customs query. A supplier that can produce this pack without a chase is a supplier that has exported before.