Circular No. 5/5/2017 - CGST, (F. No. 349/82/2017-GST), Clarification on issues related to furnishing of Bond/Letter of Undertaking for Exports–Reg.

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Circular No. 5/5/2017 - GST
F. No. 349/82/2017-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
GST Policy Wing
New Delhi, Dated the 11th August, 2017
The Principal Chief Commissioners/Chief Commissioners/Principal Commissioners/
Commissioners of Central Tax (All)
The Principal Director Generals/ Director Generals (All)
Subject: Clarification on issues related to furnishing of Bond/Letter of Undertaking for
Please refer to Notification No. 16/2017 – GST dated 7th July, 2017 and Circular No.
2/2/2017 – GST dated 5th July, 2017 and Circular No. 4/4/2017 – GST dated 7th July, 2017. A large
number of communications have been received from the field formations and exporters citing
variation in the interpretation of above referred notification and circulars.
2. Therefore, in exercise of powers conferred under section 168 (1) of the Central Goods and
Services Tax Act, 2017, for the purpose of uniformity in the implementation of the Act, following
issues are being clarified hereunder:
a. Eligibility to export under LUT: Notification No. 16/2017 – Central Tax dated 7th July,
2017 specifies conditions to be fulfilled for export under Letter of Undertaking (LUT) in place of
bond. In the extant Central Excise provisions, LUTs were limited to manufacturer exporters only.
The intent of the said notification is to liberalize the facility of LUT and extend it to all kind of
suppliers. It is hereby clarified that any registered person who has received a minimum foreign
inward remittance of 10% of export turnover in the preceding financial year is eligible for availing
the facility of LUT provided that the amount received as foreign inward remittance is not less than
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Rs. one crore. This means that only such exporters are eligible to LUT facilities who have received
a remittance of Rs. one crore or 10% of export turnover, whichever is a higher amount, in the
previous financial year. A few illustrations are as follows:
i. An exporter had a turnover of Rs. 15 crore in the previous financial year. He would
be eligible for LUT facility if remittance received against this export is Rs. 1.5 crore
or more (10% of export turnover is more than Rs. 1 crore)
ii. An exporter had a turnover of Rs. 5 crore in the previous financial year. He would
be eligible for LUT facility if remittance received against this export is Rs. 1.0 crore
or more (10% of export turnover is less than Rs. 1 crore)
iii. An exporter has an export turnover of Rs. 2 crore. He has received Rs. 80 lacs as
foreign inward remittances in FY 2016-17 which is 40% of the export turnover. He
will not be eligible for LUT facility as remittance received is less than Rs. 1 crore.
iv. An exporter has export turnover of Rs. 40crore. He has received Rs. 2 Crores as
foreign inward remittances in FY 2016-17 which is 5% of the export turnover. He
will not be eligible for LUT facility as remittance received is less than 10% of
export turnover, even though it is in excess of Rs. 1 crore.
v. An exporter has received Rs. 1 Crore 10 lacs as foreign inward remittances in FY
2016-17 which is 20% of the export turnover. In this scenario, he will be eligible
for LUT facility.
It may however be noted that a status holder as specified in paragraphs 3.20 and 3.21 of
the Foreign Trade Policy 2015-2020 is eligible for LUT facility regardless of whether he satisfies
the above conditions.
b. Form for LUT: Bonds are furnished on non-judicial stamp paper, while LUTs are
generally submitted on the letterhead containing signature and seal of the person or the person
authorized in this behalf as provided in said Notification.
c. Time for acceptance of LUT/Bond: As LUT/bond is a priori requirement for export,
including supplies to a SEZ developer or a SEZ unit, the LUT/bond should be processed on top
most priority and should be accepted within a period of three working days from the date of
submission of LUT/bond along with complete documents by the exporter.
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d. Purchases from manufacturer and form CT-1: It is learnt that there is lack of clarity
about treatment of CT-1 form which was earlier used for purchase of goods by a merchant exporter
from a manufacturer without payment of central excise duty. The scheme holds no relevance under
GST since transaction between a manufacturer and a merchant exporter is in the nature of supply
and the same has not been exempted under GST even on submission of LUT/bond. Therefore,
such supplies would be subject to GST. The zero rating of exports, including supplies to SEZ, is
allowed only with respect to supply by the actual exporter under LUT/bond or payment of IGST.
e. Transactions with EOUs: Zero rating is not applicable to supplies to EOUs and there
is no special dispensation for them. Therefore, supplies to EOUs are taxable under GST just like
any other taxable supplies. The EOUs, to the extent of exports, are eligible for zero rating like any
other exporter.
f. Forward inward remittance in Indian Rupee: Various representations have been
received with respect to receipts of proceeds of supplies in Indian Rupee especially with respect
to exports to Nepal, Bhutan and SEZ developer/SEZ unit. Attention is invited to Para A (v) Part-I
of RBI Master Circular no. 14/2015-16 dated July 1, 2015 (updated as on November 5, 2015),
which states “there is no restriction on invoicing of export contracts in Indian Rupees in terms of
the Rules, Regulations, Notifications and Directions framed under the Foreign Exchange
Management Act 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020),
all export contracts and invoices shall be denominated either in freely convertible currency or
Indian rupees but export proceeds shall be realized in freely convertible currency. However,
export proceeds against specific exports may also be realized in rupees, provided it is through a
freely convertible Vostro account of a non-resident bank situated in any country other than a
member country of Asian Clearing Union (ACU) or Nepal or Bhutan”.
Accordingly, it is clarified that acceptance of LUT instead of a bond for supplies of goods to Nepal
or Bhutan or SEZ developer or SEZ unit will be permissible irrespective of whether the payments
are made in Indian currency or convertible foreign exchange as long as they are in accordance with
applicable RBI guidelines. It may also be noted that supply of services to SEZ developer or SEZ
unit will also be permissible on the same lines. The supply of services, however, to Nepal or Bhutan
will be deemed to be export of services only if the payment for such services is received by the
supplier in convertible foreign exchange.
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g. Bank guarantee: Circular No. 4/4/2017 dated 7th July, 2017 provides that bank
guarantee should normally not exceed 15% of the bond amount. However, the Commissioner may
waive off the requirement to furnish bank guarantee taking into account the facts and
circumstances of each case. It is expected that this provision would be implemented liberally.
Some of the instances of liberal interpretation are as follows:
i. an exporter registered with recognized Export Promotion Council can be allowed to
submit bond without bank guarantee on submission of a self-attested copy of the proof of
registration with a recognized Export Promotion Council
ii. In the GST regime, registration is State-wise which means that the expression ‘registered
person’ used in the said notification may mean different registered persons (distinct persons in
terms of sub-section (1) of section 25 of the Act) if a person having one Permanent Account
Number is registered in more than one State. It may so happen that a registered person may not
satisfy the condition regarding foreign inward remittances in respect of one particular registration,
because of splitting and accountal of receipts and turnover across different registered person with
the same PAN. But the total amount of inward foreign remittances received by all the registered
persons, having one Permanent Account Number, maybe Rs. 1 crore or more and it also maybe
10% or more of total export turnover. In such cases, the registered person can be allowed to submit
bond without bank guarantee.
h. Jurisdictional officer: It has been clarified in Circular Nos. 2/2/2017 – GST dated 4th
July, 2017 and 4/4/2017 – GST dated 7th July, 2017 that Bond/LUT shall be accepted by the
jurisdictional Deputy/Assistant Commissioner having jurisdiction over the principal place of
business of the exporter. The exporter is at liberty to furnish the bond/LUT before Central Tax
Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to
respective authority is implemented. It is reiterated that the Central Tax officers shall facilitate all
exporters whether or not the exporter was registered with the Central Government in the earlier
i. Documents for LUT: Documents submitted as proof of fulfilling the conditions of LUT
shall be accepted unless there is any evidence to the contrary. Self-declaration shall be accepted
unless there is specific information otherwise. For example, a self-declaration by the exporter to
the effect that he has not been prosecuted should suffice for the purposes of notification No.
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16/2017 - Central tax dated 7th July, 2017. Verification, if any, may be done on post facto basis.
Similarly, Status holder exporters have been given the facility of LUT under the said notification
and a self-attested copy of the proof of Status should be sufficient.
j. Applicability of circulars on Bond/LUTs: It is learnt that some field officers have
inferred that the instructions given by the said circulars are effective in respect of exports made
only from the date of its issue despite the fact that it has been categorically clarified specifically in
the said circular (dated 7th July, 2017) that the instructions shall be applicable for exports on or
after 1st July, 2017. It is reiterated that the instructions issued vide said circular and this circular
are applicable to any export made on or after the 1st July 2017.
3. It is requested that suitable trade notices may be issued to publicize the contents of this
4. Difficulty, if any, in implementation of the above instructions may please be brought to the
notice of the Board. Hindi version would follow.
(Upender Gupta)
Commissioner (GST)