TaxTMI 
TaxTMI 
EXPORT, ADVANCE AUTHORISATION & LUT: OBJECTS AND REFUNDS
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....XPORT, ADVANCE AUTHORISATION & LUT: OBJECTS AND REFUNDS<br>By: - Sadanand Bulbule<br>Goods and Services Tax - GST<br>Dated:- 10-9-2026<br>1. Under the Goods and Services Tax framework, exports are designated as inter-State supplies under Section 7(5) and classified as "Zero-Rated Supplies" under Section 16 of the IGST Act, 2017. To prevent the export of domestic levies, the statute creates distinct standards for goods and services based on economic reality. Under Section 2(5), an "export of goods" simply entails taking tangible property out of India to a place outside India, established once the goods cross territorial waters under cover of a Shipping Bill and Export Manifest. In contrast, an "export of services" under Section 2(6) mandates the concurrent fulfillment of five cumulative legal criteria: the supplier must be in India, the recipient and place of supply (under Section 13) must be outside India, payment must be realized in convertible foreign exchange or RBI-permitted rupee arrangements, and the entities must not be mere establishments of a distinct person. 2. Zero-rating operates under the dual-track mechanism of Section 16 of the IGST Act, supported by full Input Ta....
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....x Credit entitlement under Section 16(2) regardless of the underlying taxability of domestic procurements. Exporters may elect either the default route of exporting without payment of integrated tax under a Letter of Undertaking (LUT) or Bond in FORM RFD-11 under Rule 96A(1) while claiming a refund of accumulated unutilized ITC under Section 54 of the CGST Act read with Rule 89, or export on payment of IGST under Section 16(4) to secure direct tax rebates. In physical export scenarios, the Shipping Bill operates as a deemed refund application under Rule 96, processing automated credits once export manifests are matched against valid GSTR-1 and GSTR-3B filings. However, substantive relief remains strictly contingent upon export proceeds realization within prescribed FEMA timelines under Rule 96B, failing which refunded amounts must be deposited back with statutory interest. 3. The statutory design draws a rigorous boundary between physical exports and "Deemed Exports" notified under Section 147 of the CGST Act read with Notification No. 48/2017-Central Tax. Deemed exports-encompassing supplies to Advance Authorisation holders, Export Promotion Capital Goods (EPCG) units, and Expo....
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....rt Oriented Units (EOUs)-do not physically cross territorial borders and therefore do not qualify as zero-rated supplies under Section 16. Applicable GST has to be discharged on the tax invoice at the time of supply, with refund mechanisms under Rule 89 available either to the recipient or to the supplier upon mutual statutory declaration. Consequently, while cross-border exports achieve frictionless zero-rating through automated customs linkages, domestic deemed exports require strict invoice-level accounting to preserve capital liquidity across India's foreign trade ecosystem. Advance Authorisation- Zero Rated Supply: 4.The mechanism of duty-free import for export production is a pillar of India's foreign trade framework. Rooted in post-independence export promotion schemes-such as the legacy Advance Licensing Scheme under the Imports and Exports (Control) Act, 1947, and successive Exim Policies-it was established to neutralize tariff barriers on raw materials, components, and consumables incorporated into export products. 5.In modern industrial India, this framework has evolved under the Foreign Trade Policy (FTP 2023) notified under Section 5 of the Foreign Tra....
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....de (Development and Regulation) Act, 1992 and it is administered by the Directorate General of Foreign Trade (DGFT) in close coordination with the Central Board of Indirect Taxes and Customs (CBIC). It enables working-capital efficiency for Indian exporters, positioning sectors such as engineering goods, chemicals, active pharmaceutical ingredients (APIs), automotive components, and textiles competitively in global markets. By facilitating pre-import duty relief, Advance Authorisation transforms India into a global manufacturing and value-addition hub without exporting domestic taxes. 6. In terms of Section 16 of the IGST Act, a "zero-rated supply" means the government does not want Indian exports or supplies to special business zones (SEZs) to carry any Indian taxes, so their products/services can compete fairly in the global market. It only covers two things: sending goods or services out of the country (exports) or supplying them to an SEZ business for its official work. To keep the transaction completely tax-free, the exporter can claim back the tax he paid on raw materials and expenses (a refund of unused tax credit). The standard way to do this is by shipping the goods wit....
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....hout paying tax up front under a simple undertaking, provided the actual export payment arrives from abroad on time. Only a few specifically permitted businesses are allowed to pay the tax first and get it refunded later. However, if the goods are hit with an export duty, the government blocks all refunds entirely. 7. Deemed Export, Merchant Exporter and Overseas Exhibitions: In terms of Section 147 of CGST Act read with Notification No. 48/2017-Central Tax],supplies to Advance Authorisation holders, Export Promotion Capital Goods (EPCG) units, and Export Oriented Units (EOUs) do not physically cross international borders. Consequently, they do not qualify as zero-rated supplies under Section 16 of the IGST Act. Applicable GST must be charged on the invoice at the time of supply, with refunds under Rule 89 claimable either by the supplier or the recipient based on mutual statutory declaration. 8. In Shah Paperplast Industries Ltd. & Anr., Nilesh Chandravadan Shah Director. Versus Union of India & Ors., Central Board of Indirect Taxes And Customs, Additional Commissioner CGST And Central Excise Appeals, Assistant Commissioner Central GST And Excise - 2025 (11) TMI 1326....
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.... - GUJARAT HIGH COURT, the Division Bench of the Hon'ble Gujarat High Court firmly clarified that a 100% Export Oriented Unit (EOU) physically shipping finished goods abroad is a genuine physical exporter making zero-rated supplies under Section 16(1) of the IGST Act, not a "deemed exporter." Rejecting the department's attempt to deny refunds under Rule 89(4A) and retrospectively apply CBIC Circular No. 172/04/2022-GST, the Division Bench held that because the unit procured its raw materials as regular domestic purchases with full GST paid-without anyone treating those inward supplies as deemed exports under CBIC Circular No. 14/14/2017-the business cannot be arbitrarily moved into restrictive deemed export refund rules. Consequently, the Court held that the EOU is legitimately entitled to a full refund of its accumulated, unutilized Input Tax Credit under Section 54(3) read with the standard formula of Rule 89(4), reiterating that the authority cannot confuse genuine cross-border exports with deemed exports merely because the manufacturing unit happens to be an EOU. 9.Merchant Exporter: A. Concessional 0.1% is allowed for procurement of goods for Merchant Exporters v....
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....ide Notification No. 40/2017-CT (Rate) & 41/2017-IT (Rate) 23/10/2017. The object is to lessen the cascading effect in the hands of merchant exporters who lack manufacturing infrastructure can procure goods from domestic manufacturers at a concessional GST rate of 0.1% (0.05% CGST + 0.05% SGST, or 0.1% IGST), preserving operational liquidity provided the goods are exported within 90 days of the invoice date. The end goal is based on the foundational fact that, such transactions are only for the purpose of export by the registered recipient-the exporter. Therefore this scheme precisely defines only two persons to be in the loop, namely, the registered supplier and the registered recipient-exporter or a registered warehouse. If the conditions of the notifications (supra) are not complied, then concessional 0.1% tax stands prohibited. The law is settled on this count by the Hon'ble Supreme Court in the case of M/s Time Technoplast Ltd. Versus Union Of India & Ors. - 2026 (8) TMI 586 - SC Order upholding the division bench judgement of the Hon'ble Karnataka in the petitioner's own case [M/s. Time Technoplast Ltd. Versus The Union of India, Ministry of Finance, Departme....
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....nt of Revenue, New Delhi, The Principal Chief Commissioner of Central Tax Bengaluru, The Commissioner of Central Tax Belagavi, The Commissioner of Commercial Taxes, Bangalore - 2026 (3) TMI 899 - KARNATAKA HIGH COURT], ruling that the petitioner is not entitled to the concessional rate of tax under Notification No. 41/2017-I.T. (Rate) dated 23.10.2017. B. Under the pre-GST framework, the principle of not exporting domestic taxes was embedded in Section 5(3) of the Central Sales Tax (CST) Act,1956 with effect from 01/04/1976. The penultimate sale (the last purchase immediately preceding the actual export) made by an export merchant was treated as an export sale by legal fiction. Upon furnishing Form H, the domestic supplier was fully exempt from charging CST/State VAT on supplies made to the merchant exporter, provided the goods were procured pursuant to a pre-existing export order. To prevent upfront blockage of working capital for merchant exporters and keep Indian exports price-competitive globally. In the early months of GST (July-October 2017), merchant exporters faced severe liquidity stress as domestic procurements attracted full GST rates (5%, 12%, 18%, or 28%), requ....
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....iring them to claim refunds via the Inverted Duty Structure or zero-rated routes later. C. To preserve the historical intent of Section 5(3) of the CST Act, the Government reintroduced equivalent relief through Notification No. 40/2017-Central Tax (Rate) and Notification No. 41/2017-Integrated Tax (Rate) dated 23rd October 2017. Thus domestic supplies to a registered merchant exporter are taxed at a nominal rate of 0.1% (0.05% CGST + 0.05% SGST, or 0.1% IGST).While not a complete outright exemption like the legacy Form H, the 0.1% rate is functionally near-zero. It avoids complete tax exemption (which breaks the digital audit trail under GST) while drastically reducing working capital lock-in to negligible levels. The only distinction that makes the GST approach clever is fixing it at 0.1% instead of a full 0% (outright exemption)-it preserved the ITC mechanism and tax relief spirit of Form H while keeping the modern GST digital invoice-matching trail completely intact. It's a very sound, legally grounded observation. 10. Overseas Exhibition/Approval: The CBIC Circular No. 108/27/2019-GST clarifies that dispatching goods outside India for exhibition or on a consignment....
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.... basis for export promotion does not constitute a "supply" or "zero-rated supply" at the time of removal due to the absence of consideration. Such movements represent a "sale on approval basis" under Section 31(7) of the CGST Act read with Rule 55 of the CGST Rules. Goods move under a Delivery Challan and require record maintenance in the prescribed Annexure format, no tax invoice, Bond, or LUT is required at removal. However the supply crystallizes either on the date of actual sale abroad or is deemed to occur upon the expiry of six months from the date of removal if goods are neither sold nor returned. A tax invoice must be issued when the supply crystallizes. Because supply occurs after physical removal, automated refunds under Rule 96 cannot be processed. Exporters can claim refunds of accumulated unutilized ITC under Section 54(3) read with Rule 89(4). 11. Summary of Foreign Trade Policy -2023: A. Chapter 4 of the Foreign Trade Policy-2023 outlines Duty Exemption and Remission Schemes designed to enable the duty-free import or cost neutralization of inputs used in export production. The primary exemption mechanisms comprise the Advance Authorisation (AA) and Duty Free Im....
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....port Authorisation (DFIA) schemes. Advance Authorisation permits upfront duty-free import of physically incorporated inputs, consumables, and fuels based on Standard Input Output Norms (SION), self-declaration, or self-ratification (for eligible AEO/status holders), generally requiring a minimum 15% value addition and adherence to an "Actual User" condition that prevents input transfer. In contrast, DFIA is issued on a post-export basis solely for products covered under notified SION, exempts only Basic Customs Duty (BCD), mandates a minimum 20% value addition, and allows the resulting authorization to become freely transferable once export obligations are fulfilled. B. The policy also establishes sector-specific frameworks, most notably for Gems and Jewellery, alongside specialized duty remission programs. Gems and jewellery exporters can access precious metals and inputs duty-free through nominated agencies, Replenishment Authorisations, and the Diamond Imprest Authorisation (DIA)-which allows eligible Two Star and above status holders to import natural cut and polished diamonds subject to pre-import conditions, actual user restrictions, and a 10% value addition requirement. A....
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....dditional flexibilities include diamond certification/grading re-imports, private bonded warehouses, and Special Notified Zones (SNZ) for rough diamond trading. C. For post-export duty remission, the chapter governs the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme alongside Duty Drawback and RoSCTL. RoDTEP neutralizes unrefunded central, state, and local indirect taxes and distribution levies incurred during export manufacturing. It operates within fixed budgetary allocations by issuing digital, transferable electronic duty credit scrips (e-scrips) administered via CBIC's ICEGATE portal, which can only be set off against Basic Customs Duty. The scheme expressly excludes certain transactions-such as trans-shipments, deemed exports, section 65 warehouse production, and non-EDI exports-while enforcing strict audit, risk-management, and foreign exchange realization safeguards. Rule 96(10): Deletion- Closure of Controversy 12.Taking clue from the judgement of the Hon'ble Supreme Court in UNION OF INDIA & ORS. Versus COSMO FILMS LIMITED - 2023 (5) TMI 42 - Supreme Court, the 54th GST Council recognized that Rule 96(10) (below) generated cascadi....
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....ng litigation without serving any substantive fiscal purpose and recommended its deletion. Consequently, the Central Government omitted Rule 96(10) vide Notification No. 20/2024-Central Tax dated 08.10.2024. Despite the omission, the Revenue contended that the deletion was prospective and that pending recovery notices, show cause proceedings, and refund denials initiated prior to October 8, 2024, must survive. However in its most significant judgement rendered in M/s Goodluck India Limited & Anr. Versus Union of India & Ors. - 2026 (8) TMI 719 - Supreme Court, the Hon'ble Supreme Court dismissed the Revenue's misinterpretation and settled the issue. (10) The persons claiming refund of integrated tax paid on exports of goods or services should not have (a) received supplies on which the benefit of the Government of India, Ministry of Finance notification No. 48/2017-Central Tax, dated the 18th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1305 (E), dated the 18th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme or....
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.... notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1320 (E), dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1321 (E), dated the 23rd October, 2017 has been availed; or (b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1272(E), dated the 13th October, 2017 or notification No. 79/2017-Customs, dated the 13th October, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1299 (E), dated the 13th October, 2017 except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme. Explanation.- For the purpose of this sub-rule, the benefit of the notifications mentioned therein shall not be considered to have been availed only where the regist....
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....ered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications. 13. Affirming the finality of the above law, the Ministry of Finance, Department of Revenue, GST Policy Wing issued an Office Memorandum under F. No. CBIC-20010/21/2026-GST dated 24.08.2026, confirming that the judgment in Goodluck India Limited (supra) has been accepted with the approval of Member (GST), CBIC. Consequently, in the absence of a statutory saving clause, the omission of Rule 96(10) takes retrospective effect and extinguishes all pending disputes and recovery actions. 14. As a result of final closure of all such cases by the Hon'ble Supreme Court, the aggrieved persons who have preferred appeals on this question are entitled for refund of pre-deposit along with interest as per law. The Division Bench of Hon'ble Bombay High Court in its lead decision dated 01/09/2026 in the case of Leben Laboratories Pvt. Ltd. Versus Union of India & Ors. - 2026 (9) TMI 211 - BOMBAY HIGH COURT has ordered to refund Rs. 43 lakh interest to the petitioner based on the ratio of the judgement(....
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....supra). Letter of Undertaking [LUT]: 15. The statutory mechanism of a Letter of Undertaking (LUT) in FORM GST RFD-11 under Rule 96A operates as a sovereign trust instrument designed to preserve working capital while securing public revenue. Unlike a commercial Bank Guarantee-which encumbers liquidity through bank margins, collateral, and recurring commission charges-a LUT is an unencumbered legal covenant executed directly by the registered exporter. Through this undertaking, the Government extends a zero-tax concession upfront, removing financial friction at the point of dispatch so Indian goods and services enter international markets unburdened by domestic levies. A. In exchange for this duty-free dispatch, the exporter assumes a strict, legally binding indemnity. If the consignments of goods do not physically cross India's borders within three months (or any extension granted by the Commissioner) from the invoice date, the exporter must pay the integrated tax due alongside statutory interest under Section 50(1) within fifteen days of that period expiring. B. If the foreign remittance is not realized in convertible foreign exchange (or RBI-permitted Indian rupees....
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....) within one year or within the timeframe allowed under FEMA/RBI regulations, the exporter of services is required to self-assess and discharge the integrated tax with interest within fifteen days. The legislative intent of Rule 96A is to balance trade facilitation with fiscal security. It replaces the heavy financial deadweight of bank guarantees with self-declaratory accountability, ensuring that legitimate exporters enjoy complete liquidity during production and transit while preserving an enforceable statutory guarantee for the exchequer should the export transaction fail to materialize. The CBIC Circular No.197/09/2023-GST dated 17/07/2023 is helpful as regard to refunds in pursuance of Rule 96A besides providing comfortable relief for compliance of time frame situations. C. Further once the LUT furnished it is valid for each financial year, from 1st of April to 31 of March. So furnishing of LUT on or before 31st March is essential to safeguard uninterrupted exports and consequential refunds. However the delay in filing is curable, if sufficient cause is shown and the law is settled on this issue in M/s Nuvteq Solutions Private Limited Versus The Joint Commissioner Of Comme....
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....rcial Taxes (Appeals-5), Koramangala And The Assistant Commissioner Of Commercial Taxes Lgsto-35, Bangalore - 2026 (7) TMI 62 - KARNATAKA HIGH COURT. D. To implement the provisions of Section 16(4) of the IGST Act, the CBIC has issued Circular No. 24/2023-Customs dated 30/09/2023 followed by a Public Notice No.27/2023 dated 05/10/2023 of the Commissioner of Customs (Export), New Delhi notifying restrictions on export of certain goods (majority are sin goods) on payment of IGST and coverage under refund mechanism. Timely Refunds: 16. In M/s. Shiv Overseas Versus Union of India & Ors. - 2026 (9) TMI 460 - DELHI HIGH COURT, the Hon'ble Delhi High Court took a stringent stance against bureaucratic inertia, ruling that legitimate IGST export refunds cannot be languished or indefinitely choked under the guise of automated departmental alerts. Deprecating the department for keeping the exporter's statutory refunds pending for over three and a half years solely on account of unresolved risk alerts inserted against the Import Export Code (IEC) by the Directorate General of Analytics and Risk Management (DGARM)-even after field authorities certified that no investi....
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....gation remained pending-the Division Bench granted the competent authority a peremptory final opportunity of one week to take a definitive decision. Enforcing institutional accountability to protect exporter working capital, the High Court directed that should the authority fail to decide within the stipulated seven days, the salary of the Director General of Analytics and Risk Management shall be withheld until a final decision is taken, firmly establishing that systemic administrative alerts cannot serve as an open-ended pretext to withhold zero-rated export benefits. Therefore the authorities have to learn a strict warning out of this judgement to ensure that the refunds are released within the prescribed time frame under Section 54. Conclusion: 17. For Indian exporters, the core promise of the government has always been simple: "Export goods, do not export taxes." Under the Advance Authorisation scheme, manufacturers can import raw materials from abroad without paying customs duties or IGST upfront, turn them into finished products, and sell them across the globe. Exporters have their freedom of choice back. They can import raw materials duty-free and still claim direct, ....
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....automatic GST export refunds. The law exists to fuel Indian enterprise in global markets, not to tie businesses down in paperwork. As long as they genuinely use the imported materials for their export manufacturing and keep the books honest, they are completely legally protected. The law protects the diligent and not the intent. =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....