The Letter of Undertaking (LUT) is a critical facility
under the Goods and Services Tax (GST) regime that provides a significant
benefit to exporters. By filing a GST LUT (Form GST RFD-11), eligible
businesses can make zero-rated supplies (exports outside India or
supplies to Special Economic Zone—SEZ—units) without having to pay
Integrated GST (IGST). This mechanism is essential for maintaining
liquidity and simplifying the export process.
However, despite the process being largely online and
simplified, many exporters commit easily avoidable errors that lead to
application rejection, delays, or compliance issues. Understanding and
preventing these mistakes is key to hassle-free export operations.
What is a Letter of Undertaking (LUT)?
Under Rule 96A of the CGST Rules, 2017, the LUT is a
formal declaration submitted by the exporter to the GST authorities. It serves
as a commitment that the exporter will fulfill all GST obligations related to
their export supplies within the stipulated time frame. For businesses that
meet the eligibility criteria, the LUT replaces the need to execute a physical bond
with a bank guarantee, thereby easing the compliance burden.
7 Critical Mistakes Exporters Must Avoid
Here are the most common mistakes made during the GST LUT
application and renewal process:
1. Filing After the Due Date (Late Renewal)
The single most frequent mistake is late filing. The LUT is
valid for one financial year only.
Ø The Rule: The LUT must be filed before the
commencement of exports in a financial year. Ideally, it should be renewed
before April 1st of the new financial year, or at least before the first
export transaction of that year.
Ø The Consequence: Late filing means the exporter must pay
IGST on all exports made without a valid LUT and subsequently claim a refund.
This process severely impacts cash flow and working capital due to the
time taken for refund processing.
Ø Action to Avoid: Set an annual reminder to renew the LUT
every March.
2. Ignoring Eligibility Criteria
Not all businesses are automatically eligible to file an LUT.
Ø Eligibility Check: An exporter cannot file an LUT if they
have been prosecuted for any offense under the CGST Act or any other
existing law where the tax evaded exceeds ₹250 Lakh. They must also ensure there
are no pending GST dues or outstanding liabilities.
Ø Action to Avoid: Always verify your and your company's
compliance history and ensure all past returns are filed, and liabilities are
cleared before attempting to file the LUT.
3. Providing Incomplete or Incorrect Details
Even minor clerical errors can lead to immediate rejection by
the online system or the jurisdictional officer.
Ø Common Errors: Mistakes in entering the GSTIN, PAN,
legal name, address, or bank details. Minor spelling errors, mismatched
PAN-GSTIN records, or an incorrect selection of the place of filing are often
flagged.
Ø Action to Avoid: Cross-verify every field against
your official GST registration certificate and permanent account number (PAN)
details before submission.
4. Failure to Use the Latest Format
The GST portal is continually updated, and forms or templates
may be revised.
Ø The Issue: Submitting an LUT using an expired
or outdated form can trigger system errors or lead to rejection by the
officer.
Ø Action to Avoid: Always use the latest template directly
from the official GST portal and ensure that your Digital Signature
Certificate (DSC) is valid and registered with the GST portal.
5. Non-Compliance with Signature Requirements
The LUT is a legal declaration and requires proper
authorization.
Ø The Requirement: The Letter of Undertaking must be
signed and submitted by an authorized person (e.g., Managing Director,
Company Secretary, Partner, or a person duly authorized by the Board) using a
valid DSC or EVC (Electronic Verification Code).
Ø Action to Avoid: Verify that the person digitally
signing the application is indeed authorized as per the GST registration
records.
6. Overlooking the Annual Renewal Obligation
The assumption that a previously filed LUT remains valid
indefinitely is a costly one.
Ø Validity: The LUT is valid only for the financial
year in which it is filed. It does not automatically renew.
Ø Action to Avoid: Treat LUT filing as an annual
compliance requirement, ensuring renewal occurs well before the first export
shipment of the new financial year.
7. Failing to Maintain Supporting Documents
While the LUT is filed online, the exporter's commitment is
validated through physical and digital records during audits.
Ø Required Records: Exporters must retain comprehensive
records of all transactions, including export invoices, shipping bills,
airway bills, customs documentation, and Bank Realisation Certificates (BRC)
as proof of export proceeds realization.
Ø Consequence of Missing Records: Lack of proper documentation during a
departmental audit can lead to penalties, withdrawal of LUT benefits, and a
demand for the IGST that was originally exempted.
Ø Action to Avoid: Implement a robust record-keeping
system to ensure all export-related paperwork is maintained accurately and
completely.
By proactively addressing these seven common pitfalls,
exporters can ensure seamless compliance, benefit from the IGST exemption, and
maintain optimal cash flow, ultimately supporting efficient global trade
operations.
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