Merchant Exports at 0.1%: A Domestic Supply With Export Conditions

Merchant Exports at 0 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A manufacturer supplies goods to an export house, which exports them. The supply from manufacturer to export house is domestic. Charging the full rate on it would lock up the export house's working capital until its own export refund arrives.

The 0.1% concession solves that, with conditions.

Notification No. 40/2017-Central Tax (Rate) and Notification No. 41/2017-Integrated Tax (Rate), both dated 23.10.2017, allow a registered supplier to supply goods to a registered recipient for export at 0.05% CGST + 0.05% SGST, or 0.1% IGST, subject to conditions. The most important of them: the recipient must export the goods within ninety days from the date of the tax invoice, and must mention the supplier's GSTIN and the tax invoice number in the shipping bill or bill of export.

The conditions

(i) The supplier supplies the goods to the registered recipient on a tax invoice.

(ii) The registered recipient exports the goods within a period of ninety days from the date of issue of the tax invoice by the registered supplier.

(iii) The registered recipient mentions the GSTIN of the supplier and the tax invoice number issued by the supplier in respect of such goods in the shipping bill or bill of export.

(iv) The registered recipient is registered with an Export Promotion Council or a Commodity Board recognised by the Department of Commerce.

(v) The registered recipient places an order on the registered supplier for procuring goods at the concessional rate and a copy of the order is provided to the jurisdictional tax officer of the registered supplier.

(vi) The registered recipient moves the goods from the place of the registered supplier — directly to the port, inland container depot, airport or land customs station from where the goods are to be exported; or directly to a registered warehouse from where they shall be moved to the port, ICD, airport or land customs station.

(vii) Where goods are moved to a registered warehouse, the recipient shall endorse receipt of goods on the tax invoice and obtain acknowledgment of receipt from the warehouse operator, and the endorsed invoice and acknowledgment shall be provided to the supplier and the supplier's jurisdictional officer.

Plus: where goods from multiple suppliers are aggregated in a warehouse, the recipient must provide the acknowledgment of receipt to each supplier and their officers.

What happens if the ninety days are missed

The supplier shall not be eligible for the concessional rate where the recipient fails to export within ninety days.

The consequence falls on the supplier, whose rate was concessional, even though the failure is the recipient's. The supplier becomes liable for the differential tax with interest.

That is the commercial risk in a merchant export arrangement, and it is managed contractually:

• an undertaking from the recipient to export within ninety days;
• an indemnity for the differential tax and interest;
• a right to withhold or recover the differential;
• tracking of the shipping bill against each invoice, since the supplier needs evidence that the export happened.

The supplier should not treat the transaction as closed on delivery.

The supplier's own refund position

This is the point often missed.

A supplier making merchant export supplies charges 0.1% on the output while paying 5% or 18% on its inputs. That is an inverted duty structure in substance, and it produces exactly the accumulation the inverted-duty refund exists to release.

Section 54(3) clause (ii) — refund of unutilised credit where the rate on inputs is higher than the rate on output supplies. A merchant export supplier qualifies, and claims under Rule 89(5).

Note the limits of that route: Net ITC is inputs only, so credit on input services is not recovered. Rule 89(5): the inverted duty formula →

Circular No. 125/44/2019-GST and subsequent clarifications confirmed that a supplier making supplies at the concessional merchant export rate is entitled to claim refund of accumulated credit under the inverted duty route.

What it is not

Not zero-rated. The supply is domestic and taxable, at a concessional rate. No LUT, no export endorsement. Rule 96A: the LUT →

Not a deemed export. Section 147 and Notification No. 48/2017-CT list four categories, and this is not among them. Deemed export refunds →

Not optional for the recipient. The recipient must satisfy every condition — Export Promotion Council registration, the purchase order copy to the supplier's officer, the direct movement, the shipping bill reference.

Not available for services. The notifications cover goods only.

The recipient's position

The export house exporting the goods claims its own refund in the ordinary way:

• with payment of IGST under Rule 96, on the shipping bill; or
• under a LUT with refund of unutilised credit under Rule 89(4).

Its input credit is only 0.1%, so the LUT route yields little. The with-payment route is generally used, since IGST is charged on the full export value and refunded.

But Rule 96(10) restricts the with-payment route for a person who has received supplies on which the supplier has availed the benefit of Notification No. 40/2017-CT(R) or 41/2017-IT(R). So the merchant exporter that buys at 0.1% may be barred from the with-payment route and confined to the LUT route — where its credit is minimal.

That interaction is the single most contested feature of the scheme, and it should be modelled before the procurement route is chosen.

Key takeaways

• 0.05% + 0.05% or 0.1% IGST, under Notifications 40/2017-CT(R) and 41/2017-IT(R).
• Seven conditions, including export within ninety days and the supplier's GSTIN and invoice number in the shipping bill.
• Failure to export in ninety days makes the supplier liable for the differential with interest.
• The supplier is in an inverted duty structure and claims under Rule 89(5).
• It is not zero-rated and not a deemed export.
• Rule 96(10) may bar the merchant exporter from the with-payment refund route.

Read next

• Merchant Exports Under GST at 0.1%
• Rule 89(5): The Inverted Duty Formula
• Rule 96: The Shipping Bill as a Refund Application
• Deemed Export Refunds: Who Claims

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and Notifications 40/2017-CT(R) and 41/2017-IT(R). The scope of Rule 96(10) has been litigated — verify the current text and position.