Merchant Exports under GST — The 0.1% Rate and Its Conditions

Merchant Exports under GST 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 registered supplier may charge GST at just 0.1% on goods supplied to a registered merchant exporter, under notifications dated 23 October 2017, if every condition is satisfied — including registration with an Export Promotion Council, direct movement to the port or a registered warehouse, and export within 90 days of the supplier's tax invoice.

The Problem the Concession Solves

A merchant exporter buys goods from a domestic manufacturer and exports them without processing. Under normal rules the manufacturer charges full GST, the merchant exporter pays it, exports at zero rate, and then waits for a refund. Large sums sit blocked for the whole cycle.

The concessional rate fixes this by cutting the tax collected at the procurement stage to a nominal 0.1%, so very little cash is locked up in the first place. The trade-off is a set of conditions, all of which must hold.

Every Condition, Listed

The Rate Split

• Intra-state supply: 0.05% CGST + 0.05% SGST/UTGST
• Inter-state supply: 0.1% IGST

The concession applies to the supply of goods to the merchant exporter. It does not extend to services, and it does not apply where the merchant exporter processes or manufactures with the goods rather than exporting them as they are.

What Happens If the 90 Days Are Missed

The liability lands on the supplier, not the merchant exporter. If the goods are not exported within ninety days of the tax invoice, the supplier must pay the differential between the concessional 0.1% and the tax that would otherwise have been payable, together with interest.

This is the commercial heart of the arrangement. The supplier gives up cash-flow certainty and takes on a tax exposure that depends entirely on someone else's shipping schedule. Prudent suppliers therefore:

• Write an indemnity into the supply contract for tax, interest and penalty on non-export.
• Track the 90-day clock per invoice, not per customer.
• Hold a portion of the payment or a security until proof of export is delivered.
• Refuse the concessional rate to merchant exporters without a demonstrable export record.

Refund of Accumulated Credit for the Supplier

Charging 0.1% output tax while paying full input tax on raw materials leaves the supplier with a growing credit balance. That is an inverted duty structure, and refund of unutilised input tax credit can be claimed under Section 54 of the CGST Act read with Rule 89, using the prescribed formula.

Two practical cautions. First, the refund is of credit on inputs; input services and capital goods do not enter the formula. Second, keep the supplies to merchant exporters clearly identifiable in the records, because the refund computation depends on segregating that turnover.

The Merchant Exporter's Own Position

Having bought at 0.1%, the merchant exporter exports as a zero-rated supply under Section 16 of the IGST Act. Historically, Rule 96(10) of the CGST Rules barred an exporter who had procured goods at the concessional rate from claiming refund of IGST paid on exports, pushing them to the LUT route. Rule 96(10) was omitted with effect from 8 October 2024, which removed that bar prospectively.

Because this changed relatively recently, check the position applicable to the period of your transaction rather than applying today's rule to older shipments — and take advice where a refund for an earlier period is still open.

Worked Example

A Ludhiana manufacturer supplies knitwear worth ₹50,00,000 to a Delhi merchant exporter who will ship it to Germany.

• Normal rate on the goods: say 12% IGST = ₹6,00,000 blocked until refund.
• Concessional rate: 0.1% IGST = ₹5,000.
• Cash freed at the procurement stage: ₹5,95,000.
• The manufacturer's own input credit — on yarn, dyes, job work — accumulates and is claimed as an inverted-duty refund.
• If the goods are not exported by the 90th day from the invoice date, the manufacturer must pay ₹5,95,000 plus interest.

Documentation Checklist

1. Purchase order from the merchant exporter, with a copy to the supplier's jurisdictional officer
2. Merchant exporter's GST registration and RCMC from the EPC or Commodity Board
3. Tax invoice at the concessional rate, clearly referencing the notification
4. Transport documents evidencing direct movement to the port or registered warehouse
5. Warehouse acknowledgement and endorsement where aggregation is used
6. Shipping bill or bill of export showing the supplier's GSTIN and invoice number
7. Proof of EGM filing and copy of the shipping bill delivered back to the supplier

Practical Tips

• Do not apply the concessional rate on a verbal assurance. Get the RCMC and the purchase order on file first.
• Diarise day 60 as an internal alert, not day 90 — by day 90 the exposure has already crystallised.
• Keep the notification reference on the invoice; assessing officers look for it.
• If the merchant exporter intends to process the goods, the concession does not apply. Confirm the intended use in writing.

Related Services & Guides

• GST for Exporters — Zero-Rated Supplies
• High Seas Sales under GST
• List of Export Promotion Councils in India
• More Guides