GST Refund for Exporters: LUT, RFD-01 and the 60-Day Rule Explained

For an Indian exporter, GST refunds are important for maintaining healthy cash flow. However, refunds can sometimes get delayed because of incomplete applications, mismatched export and bank details, an expired LUT, or differences between invoice details reported in GST returns and banking records.

There are two main ways exporters can handle GST on zero-rated supplies.

Two Routes for Zero-Rated Supplies

Section 16 of the IGST Act provides two options for exporters to make zero-rated supplies.

Route A: Pay IGST and Claim a Refund

Under this option, the exporter charges IGST on the export invoice and pays the tax through the applicable GST return.

For export of goods, the shipping bill is generally treated as the refund application, subject to the required conditions and matching of the relevant details. For export of services, the exporter generally needs to apply for a refund through Form RFD-01.

Advantages: The exporter can claim a refund of the IGST paid on eligible exports.

Disadvantage: The exporter has to pay IGST first, which can temporarily block working capital.

Route B: Export Under LUT and Claim ITC Refund

Under this option, the exporter supplies goods or services without charging IGST by furnishing a Letter of Undertaking (LUT). The LUT is generally furnished in Form RFD-11 before making exports under this route.

The exporter does not charge IGST on the export invoice. Instead, eligible unutilised Input Tax Credit (ITC) accumulated on inputs and input services can be claimed as a refund under Section 54 through Form RFD-01, subject to the applicable conditions.

Advantages: The exporter does not have to pay IGST on export invoices, helping reduce the immediate impact on working capital.

Disadvantage: The exporter has to file a refund application and provide the required documents and supporting details for processing.

For exporters who regularly provide services to overseas customers, exporting under LUT is commonly used because it avoids paying IGST on each export invoice while allowing eligible accumulated ITC to be claimed as a refund.

Filing the LUT (Form RFD-11)

An exporter who wants to make zero-rated supplies without paying IGST can file a Letter of Undertaking (LUT). The LUT is generally filed online once for each financial year.

The basic process is:

1. Log in to the GST portal.
2. Go to Services > User Services > Furnish Letter of Undertaking.
3. Select the relevant financial year and enter the required details, including the names, addresses and occupations of two witnesses.
4. Sign the application using a Digital Signature Certificate (DSC), where applicable, or through the available electronic verification method.
5. Submit the LUT and save the acknowledgement for future reference.

The LUT is valid for the financial year for which it is furnished. A fresh LUT should be furnished for the next financial year if the exporter wants to continue making exports without payment of IGST.

If an exporter has not furnished a valid LUT, exports made without payment of IGST may not qualify under the LUT route until the required compliance is completed. The exporter may instead have to follow the applicable procedure for exports with payment of IGST.

Who Can Furnish an LUT?

A registered person making zero-rated supplies can generally furnish an LUT, subject to the conditions prescribed under GST law. Certain persons who have been prosecuted for specified tax evasion offences above the prescribed limit may not be eligible to use an LUT.

Form RFD-01: GST Refund Application

Form RFD-01 is used to apply for several types of GST refunds, including eligible refunds related to exports made without payment of tax.

The application is filed online along with the required statements and supporting documents. The exact documents and statements depend on the type of refund being claimed.

Step-by-Step Process for Filing RFD-01

1. Select the refund period

First, identify the period for which the refund is being claimed. The relevant period and time limit should be checked before filing the application.

2. Match export invoices with shipping bills

For export of goods, check that the invoice details reported in the GST returns match the corresponding shipping bills. Invoice number, date, value and other important details should be consistent.

3. Match service invoices with payment records

For export of services, the exporter should maintain documents showing receipt of payment in accordance with the applicable requirements. Bank-related documents and export invoices should contain matching details wherever required.

4. Calculate the eligible refund

For refunds of accumulated ITC relating to zero-rated supplies made without payment of tax, the refund is calculated using the prescribed formula under the GST rules. The calculation generally considers the turnover of zero-rated supplies, adjusted total turnover and eligible Net ITC.

5. File Form RFD-01

Log in to the GST portal and select the refund application option. Choose the appropriate refund category and period, enter the calculated amount and provide the required details.

6. Upload the required statements and documents

Submit the applicable statements and supporting documents along with the refund application. The statement required depends on the type of export and the nature of the refund claim.

7. Verify and submit the application

After checking all the information, submit the application using the applicable DSC or electronic verification method. An Application Reference Number (ARN) is generated after successful submission, which can be used to track the application.

The 15-Day and 60-Day Rules

GST refund applications are processed within specific timelines, provided the application is complete and all required conditions are met.

15-day acknowledgement: If the refund application is complete, the proper officer issues an acknowledgement in Form RFD-02. If important information or documents are missing, a deficiency memo in Form RFD-03 may be issued. The exporter may then need to correct the issues and file a fresh application.

60-day refund timeline: A refund is generally required to be processed within 60 days from the date of receipt of a complete application. If the refund is delayed beyond the prescribed period, interest may become payable as provided under GST law.

Provisional refund: In eligible cases involving zero-rated supplies, a provisional refund of 90% of the claimed amount may be granted under the applicable provisions. The remaining amount is processed after verification and finalisation of the refund claim.

Documents Required for GST Refund

For a refund of accumulated ITC relating to zero-rated supplies made without payment of tax, the exporter should generally maintain the following documents:

• Export invoices issued to the overseas customer.
• For goods exports, relevant shipping documents such as the shipping bill and bill of lading or airway bill, as applicable.
• For export of services, documents relating to the export contract or agreement and evidence of receipt of payment, wherever required.
• The applicable refund statement, including Statement 3 where applicable.
• A declaration confirming that a refund of IGST has not already been claimed for the same supplies, wherever applicable.
• A certificate or supporting document required under the applicable GST rules for claims where such certification is prescribed.

Documents for Inverted Duty Refund

Where a refund is claimed because of an inverted duty structure, the exporter or taxpayer may need to provide:

• Statement 1A, as applicable.
• Details of relevant inward and outward supplies showing the tax rate structure.
• Required declarations regarding the eligible input tax credit and any applicable reversal.

Common Issues Checked During Refund Verification

The tax authorities may verify the information submitted with the refund application. Common areas of checking include:

• Differences between export invoices reported in GSTR-1 and the corresponding shipping bills.
• Differences between bank payment records and the export invoices, particularly in cases involving export of services.
• Input tax credit claimed in the returns that does not match the relevant eligible credit records.
• Inclusion of ineligible ITC, such as capital goods ITC, where the refund formula does not allow it.
• Incorrect turnover figures or errors in the refund calculation.
• Missing invoices, statements, declarations or other supporting documents.

Keeping GST returns, export invoices, shipping documents, bank records and ITC details properly reconciled before filing the refund application can help reduce queries and delays.

Inverted Duty Structure Refund

Under Section 54(3)(ii) of the CGST Act, a taxpayer may be eligible for a refund of unutilised Input Tax Credit (ITC) when the tax rate on inputs is higher than the tax rate on the final products.

For example, a manufacturer may purchase raw materials that attract a higher GST rate but sell finished goods that are taxed at a lower rate. In this situation, the taxpayer may continue to accumulate ITC because the credit on purchases is higher than the GST payable on sales. The GST law provides a refund mechanism for eligible accumulated credit.

Important Restrictions

There are certain restrictions on refunds under an inverted duty structure:

• Refund eligibility is generally based on eligible input tax credit on inputs. ITC related to input services is not included in the refund calculation under the applicable inverted duty provisions.
• ITC on capital goods is not eligible for refund under the inverted duty mechanism.
• The maximum refund is calculated according to the formula prescribed under Rule 89(5). The calculation considers the turnover of inverted-rated supplies, eligible Net ITC, adjusted total turnover and the tax payable on inverted-rated supplies.

Common GST Refund Errors

Refund applications can face delays or queries when important details do not match or required compliances have not been completed. Some common issues include:

• LUT not furnished for the financial year: If an exporter wants to make exports without payment of IGST, the required LUT should be furnished before using the LUT route.
• Mismatch between shipping bill and GST return: Differences in the shipping bill number, invoice number, date or value reported in GSTR-1 can affect the processing of an export refund.
• Foreign payment details do not match: For export of services, payment-related documents should support the export invoices and meet the applicable conditions.
• Capital goods ITC included in the refund calculation: Capital goods ITC is not included where the applicable refund formula excludes it.
• Incorrect refund period: The refund application must follow the applicable period and time-limit requirements.
• Missing certificates or supporting documents: Where a certificate or other document is prescribed for a particular refund claim, it should be submitted in the required manner.
• Claiming the same supplies twice: The same export supplies should not be used to claim a refund under two different refund routes.

Action Plan for Export-Oriented Businesses

A proper refund process can help businesses avoid unnecessary delays. The following steps can be useful:

1. Furnish the LUT on time: If you plan to export without payment of IGST, complete the LUT process at the beginning of the financial year and before making supplies under the LUT route.
2. Maintain a refund register: Keep a record of every export invoice along with the related shipping bill or payment reference and the refund period in which it will be claimed.
3. Reconcile export details regularly: Compare GSTR-1 data with shipping bills and other export records every month. Correcting mismatches early is easier than resolving them after filing the refund application.
4. File refund applications regularly: Where appropriate, consider filing refund claims at regular intervals instead of allowing eligible ITC to accumulate for a long period.
5. Monitor the refund timeline: Keep track of the date on which a complete refund application is received. If the refund is delayed beyond the applicable statutory period, check whether interest is payable under Section 56.
6. Keep supporting documents ready: Maintain invoices, export documents, ITC records, bank documents, reconciliations and any certificates required for the particular refund claim.

Businesses that are planning to start a new venture should also complete their incorporation and related statutory requirements properly. You can learn more about company registration services in Pune and the basic requirements involved in setting up a company.

Maintaining proper registration, tax and financial records from the beginning can make ongoing statutory compliance easier to manage.