Library / Goods and Services Tax: The Professional's Master Guide

14. Imports, Exports, SEZ and Deemed Exports

GST taxes goods and services where they are consumed. Imports are taxed like domestic supplies, and exports leave India free of tax through zero-rating. Refund procedure is covered in the chapter on refunds.

14.1 Import of goods

Import of goods means bringing goods into India from a place outside India (section 2(10) of the IGST Act). IGST on imported goods is levied under section 3(7) of the Customs Tariff Act, 1975, not under the IGST Act, and is collected with customs duty on the bill of entry. It is charged on the assessable value plus basic customs duty (BCD) plus the Social Welfare Surcharge (SWS, 10% of BCD) and any other customs duties. Compensation cess, once also collected on imports, no longer applies after its abolition was completed on 1 February 2026.

Illustration 81: Customs duty and IGST on imported machinery

Joshi Engineering Pvt. Ltd. imports a machine at CIF USD 20,000. The customs exchange rate is Rs. 86.50; BCD 10%; IGST 18%.

Assessable value (USD 20,000 x Rs. 86.50)	Rs. 17,30,000
BCD at 10%	Rs. 1,73,000
SWS at 10% of BCD	Rs. 17,300
Value for IGST	Rs. 19,20,300
IGST at 18%	Rs. 3,45,654
Total duty paid (BCD + SWS + IGST)	Rs. 5,35,954

Only the IGST of Rs. 3,45,654 is available as credit; BCD and SWS are costs and form part of the machine's cost in the books. The bill of entry is the document for credit (rule 36(1)(d)), and ICEGATE data flows into GSTR-2B, where the credit is claimed in Table 4(A)(1) of GSTR-3B. The importer's GSTIN must appear on the bill of entry.

High-sea sales and bonded warehouses

In a high-sea sale, the original importer sells goods by transferring the documents of title before they are cleared. Under Schedule III, para 8(b) of the CGST Act (from 1 February 2019), such a sale is neither a supply of goods nor of services, so no GST is charged on it. The last buyer files the bill of entry and pays IGST at customs on a value that includes the high-sea sale premium. Similarly, a sale of warehoused goods before clearance for home consumption is covered by para 8(a); the Finance Act, 2025 amended it retrospectively from 1 July 2017 to include goods warehoused in an SEZ or FTWZ. The buyer pays IGST on the ex-bond bill of entry.

14.2 Import of services

Import of services is supply of a service where the supplier is outside India, the recipient is in India and the place of supply is in India (section 2(11)). Imports from a related person abroad are supplies even without consideration (Schedule I, para 4). The recipient pays IGST under reverse charge (section 5(3) of the IGST Act). Services imported by an individual, the Government or a local authority for a purpose other than business are exempt, except OIDAR services, which are taxed as explained in Chapter 4.

Illustration 82: Personal and business imports

Anjali, a salaried employee, pays a London solicitor GBP 2,000 for advice on her late father's UK flat. The service is for a non-business purpose: exempt.

Mehta Exports pays the same solicitor Rs. 2,20,000 for advice on a UK distribution contract. It pays IGST of Rs. 39,600 under reverse charge in cash and takes credit of Rs. 39,600 in the same month.

Judicial view: Ocean freight on CIF imports

Union of India v. Mohit Minerals (P) Ltd. (Supreme Court, 2022): IGST under reverse charge on ocean freight paid by the Indian importer on CIF imports was struck down. The freight is part of a composite supply of goods on which the importer already pays IGST at customs on the CIF value; taxing it again as a separate service was bad in law. The Court also held that GST Council recommendations are persuasive, not binding. The reverse charge entry for such freight was later removed from 1 October 2023.

14.3 Export of goods and services

Export of goods means taking goods out of India to a place outside India (section 2(5) of the IGST Act). Export of services, under section 2(6), needs all five conditions:

the supplier is located in India;
the recipient is located outside India;
the place of supply is outside India;
payment is received in convertible foreign exchange, or in Indian rupees wherever permitted by the RBI (such as through a Special Rupee Vostro Account); and
the supplier and recipient are not merely establishments of a distinct person under Explanation 1 to section 8.

The last condition means that services by an Indian branch to its own foreign head office are not exports. CBIC Circular 161/17/2021-GST clarified that a foreign subsidiary or sister company is a separate legal person, so services to it can qualify as exports.

Illustration 83: Which services qualify as exports

Nexus Software Pvt. Ltd., Pune, bills Rs. 10,00,000 for each of five contracts:

Contract 1: software development for a US client, paid in USD. All five conditions met: export.

Contract 2: development for its own US parent company, paid in USD. Separate legal entity (Circular 161/17/2021-GST): export.

Contract 3: services by the Indian branch of a UK company to its UK head office. Establishments of one person: not an export. IGST of Rs. 1,80,000 is payable, as the place of supply is outside India (section 7(5)(a)).

Contract 4: services to a US client, but paid in rupees by the client's Indian distributor. Condition (iv) fails: not an export.

Contract 5: repair of the US client's equipment located in Pune. Place of supply is India (section 13(3)(a)): not an export; CGST Rs. 90,000 + SGST Rs. 90,000.

14.4 Zero-rated supplies (Section 16 of the IGST Act)

Section 16 treats exports and supplies to an SEZ developer or unit for authorised operations as zero-rated. ITC on inputs used for them is allowed even though the output bears no tax. There are two routes (section 16(3)):

Feature	LUT route	IGST payment route
Tax on export	None; supply under Letter of Undertaking (RFD-11, each year)	IGST paid, using ITC or cash
Refund of	Unutilised ITC (rule 89(4) formula)	IGST paid
Refund process	RFD-01 on the portal	Goods: shipping bill is the refund claim (rule 96), processed through ICEGATE. Services: RFD-01
Restrictions	Must export or realise payment in time (rule 96A)	Government can limit the route by notification (section 16(4)); from 1 October 2023 pan masala, tobacco products and certain mint oils cannot be exported on payment of IGST

Rule 96(10) barred the IGST route for exporters who imported inputs duty-free under advance authorisation, EPCG or EOU schemes. It was omitted from 8 October 2024. Whether the omission helps refunds for earlier periods is being litigated; check the latest rulings before advising on past claims.

Illustration 84: LUT or IGST payment for a goods exporter

Vardhan Exports ships goods of FOB Rs. 50,00,000 in June 2026. ITC on inputs is Rs. 6,00,000; it has no domestic sales.

LUT route: no IGST. Unutilised ITC of Rs. 6,00,000 is claimed in RFD-01.

IGST route: IGST = 18% of Rs. 50,00,000 = Rs. 9,00,000, paid by ITC of Rs. 6,00,000 and cash of Rs. 3,00,000. The shipping bill is the refund claim and Rs. 9,00,000 comes back through ICEGATE, usually faster.

Under rule 96A, an exporter under LUT must export the goods within three months of the invoice, or receive payment for services within one year of the invoice, or such longer period as the Commissioner allows. Otherwise, tax must be paid with interest within 15 days after that period. The tax is refunded when the goods are exported or the payment arrives.

Illustration 85: Late realisation of export proceeds

Kavya Infotech issues an export invoice under LUT on 15 September 2025 for USD 12,000 (Rs. 10,56,000 at Rs. 88). No payment is received by 15 September 2026.

Step 1: IGST = 18% of Rs. 10,56,000 = Rs. 1,90,080, payable by 30 September 2026.

Step 2: Interest at 18% from 21 October 2025 (the day after the due date of the September 2025 return) to 30 September 2026 = 345 days. Interest = Rs. 1,90,080 x 18% x 345/365 = Rs. 32,340. The LUT wording is often read as running interest from the invoice date (15 September 2025), which adds 35 days; the view taken here follows section 50, which runs interest from the due date of the return. Check the stand of the jurisdictional office.

Step 3: When the USD 12,000 is received, Kavya can claim refund of the IGST.

14.5 Supplies to and from an SEZ

A supply to an SEZ developer or unit is zero-rated only if it is for authorised operations approved under the SEZ Act. The DTA supplier supplies under LUT or with IGST, and its refund claim needs the specified officer's endorsement that the goods were admitted in full for authorised operations, or, for services, a similar endorsement (second proviso to rule 89(1)). Goods cleared from an SEZ into the DTA are treated as imports: the DTA buyer files a bill of entry and pays BCD and IGST at customs.

Illustration 86: Components to an SEZ unit

Precision Components, Chennai, supplies parts worth Rs. 20,00,000 to an SEZ unit at Sriperumbudur for authorised operations. Under LUT it charges no tax and claims refund of related ITC after endorsement. On the IGST route it would charge Rs. 3,60,000 and claim that as a refund.

Goods worth Rs. 2,00,000 supplied to the same unit for a use not covered by its authorised operations are not zero-rated: IGST of Rs. 36,000 is payable and not refundable, though the supply remains inter-State.

14.6 Deemed exports, merchant exports, EOUs and advance authorisation

Deemed exports are notified supplies where the goods do not leave India but the supply is treated as an export (section 147 of the CGST Act). Notification 48/2017-Central Tax lists them: supplies against advance authorisation; capital goods against an EPCG authorisation; supplies to an EOU, EHTP, STP or BTP unit; and gold supplied by a bank or public sector undertaking against advance authorisation. Deemed exports are not zero-rated. The supplier charges tax, and a refund can be claimed either by the recipient or by the supplier (rule 89(1)), with a declaration from the other side that it has not taken or will not take the benefit.

Illustration 87: Supply to an advance authorisation holder

Om Polymers supplies granules worth Rs. 30,00,000 at 18% to an exporter holding an advance authorisation, and charges GST of Rs. 5,40,000.

Option A: the exporter pays Rs. 5,40,000, does not take ITC, and claims refund of Rs. 5,40,000; Om Polymers gives an undertaking not to claim it.

Option B: Om Polymers claims the refund, backed by the exporter's declaration that it has not availed ITC.

Merchant exporters can buy goods for export at 0.1% (0.05% CGST + 0.05% SGST, or 0.1% IGST) under Notification 40/2017-Central Tax (Rate) and the matching IGST notification. Conditions include export within 90 days of the supplier's invoice, registration of the merchant exporter with an Export Promotion Council or Commodity Board, direct movement of goods to the port or a registered warehouse, and quoting the supplier's GSTIN and invoice in the shipping bill. If any condition fails, the concession is lost and tax at the normal rate becomes payable.

Illustration 88: Merchant export at 0.1%

Global Handlooms, a merchant exporter, buys man-made fabric (5%) worth Rs. 40,00,000 from a Surat mill.

Tax at 0.1% = CGST Rs. 2,000 + SGST Rs. 2,000 = Rs. 4,000, instead of Rs. 2,00,000 at 5%. Global Handlooms exports under LUT and claims refund of the Rs. 4,000 as unutilised ITC.

EOUs and advance authorisation holders import inputs without customs duties, subject to export obligations and the conditions of the customs notifications. The IGST exemption on imports under advance authorisation carried a "pre-import" condition from 13 October 2017 to 9 January 2019.

Judicial view: Pre-import condition for advance authorisation

Union of India v. Cosmo Films Ltd. (Supreme Court, 2023): upheld the pre-import condition for IGST exemption on imports under advance authorisation for the period from 13 October 2017 to 9 January 2019. The Court allowed affected exporters to pay the IGST with interest and claim refund or credit through reassessment, and CBIC issued a customs circular in June 2023 on the procedure.

Chapter summary

• IGST on imported goods is levied under the Customs Tariff Act on assessable value plus BCD and SWS; only the IGST is available as credit through the bill of entry in GSTR-2B.

• High-sea sales and sales of warehoused goods before clearance are outside GST; IGST is paid once at customs by the final buyer.

• Import of services is taxed under reverse charge; non-business imports by individuals are exempt except OIDAR; IGST on ocean freight for CIF imports is not payable after Mohit Minerals.

• Export of services needs all five conditions of section 2(6); services to a foreign subsidiary can be exports, services to one's own foreign head office cannot.

• Zero-rated supplies go under LUT with refund of ITC or with IGST and its refund; rule 96A requires export within three months (goods) or payment within one year (services).

• SEZ supplies are zero-rated only for authorised operations; goods from an SEZ to the DTA are imports.

• Deemed exports carry tax refundable to the supplier or recipient; merchant exports carry 0.1% tax subject to strict conditions.

PART D: INPUT TAX CREDIT

Sections 16 to 21 of the CGST Act and rules 36 to 45 and 86A to 88D of the CGST Rules

Input tax credit is what makes GST a tax on value addition rather than a tax on turnover. It is also where most disputes, notices and reversals arise. This Part explains when credit can be taken, which credits are blocked, how common credit is split, how credit moves in special situations, and how the portal now controls credit through GSTR-2B and the Invoice Management System.