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Merchant exports under GST: Everything you need to know

Merchant exports is the activity of exporting goods from India to the world. In this blog, learn about the procedure to be followed, conditions to obtain concessional rate and the refund process.

Did you know that merchant exports contribute to almost 35% of India’s exports in terms of value1? It’s no doubt that merchant exports play an essential role in increasing the country’s overall exports, particularly those from MSMEs and small manufacturers.

What are merchant exports?

The process of procuring goods locally and selling them internationally to customers is called merchant exports. This process plays an essential role in increasing the country's exports.

Who is a merchant exporter?

An entrepreneur involed in the process of merchant exports and trading activity is a merchant exporter. This can include any individual who procures and sells locally sourced goods across the world.

What is the role of a merchant exporter?

The role of a merchant exporter can be summed up as the following:

• A merchant exporter is primarily concerned with exporting goods after purchasing them from manufacturers.
• Merchant exporters do not usually own manufacturing facilities but buy goods from manufacturers and sell them internationally.
• Merchant exporters often have in-depth knowledge of export markets and export products. They usually have an extensive contact network across the world with access to targeted markets.’
• They generally have a strategy to acquire market information and keep a close eye on market developments.
• Merchant exporters have specialized resources and expertise in shipping, documentation, insurance departments and branches in port towns.

How to become a merchant exporter?

Step 1

Obtain PAN

Starting a new export business requires PAN. You and your partner(s), if any, must provide an identity and address verification to register your business. Every registered business must apply for a PAN card with the Income Tax department.

Step 2

Choose a business type & name

To start an export-import business, decide the type of ownership – sole proprietorship, partnership, etc, and a name for your company.

Step 3

Open a current account

After acquiring your business registration and PAN, open a current bank account with any commercial bank exclusively for your export business.

Step 4

Obtain an Import Export Code (IEC)

The next step is to obtain an Import Export Code (IEC) given by DGFT. This can be applied online on the official website.

Steps to obtain IEC for your business

Step 5

Obtain a Registration-cum-Membership-Certificate (RCMC)

An exporter can become a member of any of the Export Promotion Councils (EPCs), post which, an RCMC is granted by the EPC. To register as a manufacturer or exporter, the applicant must submit all the required documents as mandated by the EPC.

Step 6

Plan your international logistics and customs

Choose a shipping mode to export your goods from India. Based on your shipping method and product category, you might require to obtain a few documents including Importer of Record (IOR), Bill of Lading and shipping bill. You can get assistance from Amazon’s Exports Compliance Dashboard to view the necessary documents for your business and get support to obtain them.

What are the provisions for merchant exports under GST?

Some of the provisions and features of merchant exports under GST are²:
• Merchant exporters must register under GSTIN and Export Promotion Council or Commodity Commission approved by the Ministry of Commerce and Industry.
• An exporter must place an order with the manufacturer and provide a copy to the manufacturer’s relevant tax officer.
• Goods must be shipped directly from the manufacturer’s location to the port, airport or national customs where the goods are to be exported. Goods can also be shipped to the registered warehouse.
• Exporter must record product receipts on the tax invoice. These must be given to both the manufacturer and the relevant tax officer.
• Commercial exporters are obliged to export goods within 90 days of the invoice issuance date.
• If applicable, exporter must provide the supplier’s GSTIN and the manufacturer’s tax invoice number on the invoice or export document.
• After export, commercial exporter must submit a copy of the invoice or export document containing the manufacturer’s GSTIN and its tax invoice details, certifying the submission of the General Export Record (EGM) or Export Report.

Visit Export Compliance Dashboard to meet your documentation requirements

What is the eligibility criteria of concessional rate on GST under merchant exports?

The government has reduced the GST rate for purchases of goods from domestic suppliers to 0.1%, which can be received on meeting the following conditions:
• Invoice for the purchased item must specify a GST rate of 0.1%
• Goods must be exported within 90 days of the issuance of the invoice
• Invoice must include the GSTIN and supplier invoice number
• Such commercial exporters must be registered with Export Promotion Council or Commodity Commission
• A copy of the purchase order ordered at the preferential tax rate should be available to the appropriate tax officer of the registered supplier.

How to claim refunds under merchant exports?

Below are some scenarios to claim refunds under merchant exports:

Scenario 1: A supplier delivers goods to an exporter and charges GST at 0.1%. The exporter then ships the goods without paying taxes. Under Section 54 (3) of the CGST Act, exporters can request a refund of unused ITC at the end of the taxable period for zero-rated or reverse-taxed goods.

Scenario 2: Consider that there are two suppliers. The first supplier supplies goods to the second supplier at the standard GST tax rate. However, the second supplier deliver to a merchant exporter with a preferential rate of 0.1%. Under Section 54 (3), the second supplier can claim a refund from ITC under a reverse tax structure (the input tax rate is higher than the output tax rate).

Scenario 3: If an exporter pays the tax (IGST) as per the standard tax system, he/she can claim a refund of both unutilised ITC and IGST paid against zero-rated supply.

The process of filing documents and licenses have been online and paperless to assist exporters in hassle-free international shipping. Similarly, Indian exporters are opting for e-commerce exports via Amazon Global Selling to take their local products to the world easily.

Easy e-commerce exports with Amazon
Global Selling

As an e-commerce exports program, Amazon Global Selling enables Indian sellers and MSMEs to take their products from India to international marketplaces across 200+ countries and territories. From simple registration to attractive listing and hassle-free shipping, Amazon Global Selling offers international tools and solutions, enabling sellers to reach over 300 million customers.

Guide to export with Amazon

Frequently Asked Questions

What is the difference between merchant export and deemed export?

Goods export refers to the movement of goods from India to a location outside India. Deemed exports are transactions in which products do not leave India, although they are ultimately intended to be exported.

What is the GST rate for merchant exports?

Merchant exporters have to pay a 0.1% GST when purchasing items from domestic suppliers for export.

What is the difference between manufacturer exporter and merchant exporter?

A manufacturer exporter is someone who makes goods and exports them from India. However, a merchant exporter refers to a person who exports products manufactured by another business or entity.

Can we export without GST?

No, GST is mandatory.

What is a merchant exporter in DGFT?

In DGFT, a merchant exporter is someone who exports goods from India.

Published on July 11, 2022.

Sources:
1. https://taxguru.in/goods-and-service-tax/merchant-exports-complete-analysis.html
2. https://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular_Refund_138_8_2020.pdf;jsessionid=6AD65A36A0C4AB5B83DAFF07D64E82EB
3. https://www.dripcapital.com/resources/blog/merchant-exports
4. https://cbic-gst.gov.in/pdf/circularno-37-cgst.pdf

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*Map not to scale. The map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India.

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