Export of Goods vs
Export of Services Under GST
Sec 2(5) vs Sec 2(6) · 5 Conditions · Place of Supply · Rule 96A · FEMA · S.50 Interest · S.79 Recovery
Exports get Zero-Rated treatment under GST — but the conditions are very different for Goods vs Services. A software company sending code to Canada and a factory shipping rice to Canada are both “exporters” — but the GST rules, time limits, payment conditions, and compliance requirements differ significantly. Get this wrong and your refund is denied, LUT is withdrawn, and tax + interest demand lands at your door.
Goods vs Services — Side by Side
Export of Goods
Section 2(5) · IGST Act, 2017
Export of Services
Section 2(6) · IGST Act, 2017 · 5 Conditions
P.O. from Canada → Goods move from Ahmedabad (Guj.) → Issued E-way Bill → Received Foreign Currency → Physical export from India ✅
POS = Gujarat (goods movement within taxable territory before export)
Place of Supply = Outside India ✅ · Payment $50,000 in USD received ✅ · Supplier & Recipient are distinct entities ✅
All 5 conditions met → Export of Services ✅
Handwritten Notes — Goods vs Services Export
Day 8 — Export of Goods (Sec 2(5)) vs Services (Sec 2(6)) · Rule 96A · FEMA · Recovery
Click image to zoom · Download full notes on WhatsApp Channel
5 Conditions for Export of Services
Supplier of Service Must Be Located in India
The person providing the service must be located or established in India. The supplier’s registration, office, or place of business should be in India.
Recipient of Service Must Be Located Outside India
The person receiving the service must be situated outside India. This is determined based on the recipient’s location, not where services are consumed or used.
Place of Supply Must Be Outside India
This is one of the most critical conditions. Even if the client is located outside India, the Place of Supply (POS) must also be outside India as per Sections 12 and 13 of the IGST Act. If POS falls within India, export benefits may be denied.
Payment Must Be Received in Convertible Foreign Exchange
The export service payment must be received in:
- ✓Convertible Foreign Exchange (USD, EUR, GBP, AED etc.)
- ✓Indian Rupees wherever permitted by RBI
Supplier & Recipient Must NOT Be Merely Establishments of a Distinct Person
Supplier and recipient cannot merely be different establishments of the same legal entity. This prevents abuse of export benefits within group companies or branch structures. Conditions ① and ② must not be satisfied merely by being distinct establishments of the same person.
Rule 96A — Time Limits for LUT Compliance
Export of Goods
Physical goods exported under LUT
Export of Services
Foreign currency payment receipt
FEMA — Foreign Exchange Compliance
What Happens if Conditions Are Not Fulfilled?
📦 In Case of Goods
- ⚠️Goods not exported within 3 months
- ⚠️Goods never left India despite LUT
- ⚠️Export documentation incomplete
- ⚠️Result: Export benefits denied
- ⚠️IGST becomes payable
- ⚠️Interest @ 18% u/s 50(1) from invoice date
- ⚠️LUT/Bond can be withdrawn
- ⚠️Recovery u/s 79 may be initiated
💻 In Case of Services
- ⚠️Payment not received within 1 year
- ⚠️Payment received in INR without RBI permission
- ⚠️Place of supply incorrectly determined
- ⚠️Result: Transaction not treated as export
- ⚠️IGST becomes payable on service value
- ⚠️Interest @ 18% u/s 50(1) from invoice date
- ⚠️LUT/Bond can be withdrawn
- ⚠️Recovery u/s 79 may be initiated
Interest & Recovery — Legal Consequences
🚨 Consequences of Violating Rule 96A
If No Export (Goods) or Payment Not Received (Services) → ALL of these consequences apply simultaneously
IGST Becomes Payable
The IGST that was saved under LUT now becomes due in full.
Interest @ 18% p.a.
Under Section 50(1) of CGST Act — from invoice date until payment date.
LUT / Bond Withdrawal
GST authority can withdraw the LUT — future exports must pay IGST upfront.
Recovery under S.79
Department initiates recovery proceedings under Section 79 of CGST Act.
Bank Account Attachment
Recovery can include attachment of bank accounts u/s 79.
Refund Adjustments
Dues can be adjusted against pending GST refunds under recovery mode.
Section 50(1) — Interest
CGST Act · Interest on delayed/unpaid tax
Interest runs from the date of the export invoice (not from the date of demand notice) until the actual date of tax payment. This can result in significant interest accumulation over months or years if undetected.
Section 79 — Recovery
CGST Act · Multiple recovery modes
Department may recover dues through any of these modes:
- Bank account attachment
- Adjustment against pending refunds
- Detention of goods / property
- Recovery from third parties
- Certificate proceedings (like arrears)
Compliance Checklist — Exporters Must Follow
✅ Practical Compliance Checklist for Exporters
Key Takeaways — Day 8
🎯 What You Must Remember
- ✓Export of Goods [Sec 2(5)]: Physical movement of goods out of India — invoice alone does NOT create an export
- ✓Export of Services [Sec 2(6)]: ALL 5 conditions must be satisfied simultaneously — failure of even 1 = NOT export of services
- ✓5 Conditions: Supplier in India · Recipient outside India · POS outside India · Payment in FOREX/RBI-permitted INR · Not merely distinct establishments
- ✓Condition 5 prevents abuse — Indian branch → foreign HO is NOT automatically export of services if both are same legal entity
- ✓Rule 96A — Goods: exported within 3 months from invoice date; Services: payment received within 1 year from invoice date
- ✓FEMA and GST must be monitored together — export proceeds realization timelines are interlinked
- ✓Breach of Rule 96A: IGST payable + Interest @ 18% p.a. u/s 50(1) from invoice date + LUT withdrawal possible
- ✓Recovery u/s 79 — bank attachment, adjustment against refunds, detention of property — multiple modes available to department
- ✓POS for export of goods = Gujarat (or state of origin) since goods move within taxable territory before crossing border
- ✓If no export occurs: Goods Not Sent → Pay Tax + Interest. If payment not received: Payment Not Rec. → Same consequences
Catch Up — Days 1 to 7
Day 1 Intro · Day 2 IGST vs LUT · Day 3 Invoice · Day 4 LUT · Day 5 Refund · Day 6 Returns · Day 7 Shipping Bill
Day 8 Video Summary
Instagram Reel — Day 8 · Export of Goods vs Services Under GST
Watch, Save & Share with fellow exporters and CA aspirants
The content shared on this channel is purely for educational purposes. As a Chartered Accountant, I strive to provide accurate and insightful information related to GST, Income Tax, Accounting, and Tax Planning. However, please note that the content should not be considered as professional advice or a substitute for personalized consultation. For specific matters, please consult a qualified professional.