Merchant exporters buy finished goods from domestic manufacturers and ship them abroad without significant processing. To prevent large working capital blockages, the Central Government provides a concessional rate mechanism for goods procured strictly for export. However, claiming input tax credit and securing your refund requires strict compliance with statutory notifications, exact GSTR-2B matching, and proper refund categorization on the GST portal.
Conditions of the 0.1 percent merchant exporter scheme
The concessional tax facility is notified under Notification No. 40/2017-Central Tax (Rate) for intra-State supplies (0.05% CGST) and Notification No. 41/2017-Integrated Tax (Rate) for inter-State supplies (0.1% IGST). As clarified in Paragraph 59 of CBIC Circular No. 125/44/2019-GST, the scheme is completely optional. If availed, both the supplier and the recipient must satisfy strict operational conditions:
- Registered parties: The supplier must issue a regular tax invoice indicating the concessional rate, quoting the GSTIN of the registered recipient and the port of export.
- 90-day export window: The merchant exporter must export the goods within ninety days from the date of issuance of the tax invoice by the supplier.
- Export documentation: The merchant exporter must indicate the GSTIN of the supplier and the tax invoice number on the shipping bill or bill of export.
- Export under LUT or bond: Under Paragraph 59 of Circular No. 125/44/2019-GST, the exporter cannot export on payment of IGST. The goods must be exported under Letter of Undertaking or bond as prescribed in Rule 96A of the CGST Rules.
Common mistake: Exporting concessional rate goods on payment of IGST violates Rule 96(10) of the CGST Rules. If you pay integrated tax on export of goods procured at 0.1%, Customs Systems will flag the refund, triggering recovery proceedings under Section 74A with mandatory interest.
GSTR-2B reconciliation for concessional invoices
The merchant exporter is fully entitled to take input tax credit of the 0.1% IGST or 0.05% CGST and SGST paid to the supplier. However, the credit remains subject to Section 16(2)(aa) of the CGST Act. You cannot claim ITC in Form GSTR-3B unless the domestic supplier has uploaded the invoice in their Form GSTR-1 and the invoice appears in your generated Form GSTR-2B.
Under Rule 36(4) of the CGST Rules, no provisional ITC is permitted. If the supplier fails to file GSTR-1 or enters an incorrect GSTIN, the credit will not appear in GSTR-2B, preventing you from availing the credit in Table 4(A)(5) of GSTR-3B.
Worked example: procurement, reconciliation, and refund
Consider M/s Apex Global Traders, a merchant exporter in Mumbai, procuring garment consignments from an Ahmedabad manufacturer for export to the United Kingdom under LUT.
| Invoice | Taxable value | IGST rate | In books | In GSTR-2B | Status |
|---|---|---|---|---|---|
| INV-2041 | ₹20,00,000 | 0.10% | ₹2,000 | ₹2,000 | Eligible for ITC & refund |
| INV-2042 | ₹30,00,000 | 0.10% | ₹3,000 | Nil | Missing in 2B; claim withheld |
| INV-2043 | ₹10,00,000 | 0.10% | ₹1,000 | ₹1,000 | Eligible for ITC & refund |
| Total | ₹60,00,000 | Applicable | ₹6,000 | ₹3,000 | ₹3,000 availed in GSTR-3B |
Calculations show:
- Total inward tax in books: ₹20,00,000 × 0.1% + ₹30,00,000 × 0.1% + ₹10,00,000 × 0.1% = ₹2,000 + ₹3,000 + ₹1,000 = ₹6,000.
- Credit appearing in GSTR-2B: ₹2,000 + ₹1,000 = ₹3,000. Under Section 16(2)(aa), only ₹3,000 can be availed in GSTR-3B for the tax period.
- For INV-2042, ₹3,000 must be withheld until the supplier files or rectifies the return.
How to claim refund of accumulated ITC under Rule 89(4B)
Because outward exports under LUT carry zero tax, the credit availed on concessional inward supplies accumulates in your electronic credit ledger. Section 54(3)(i) of the CGST Act permits refund of unutilised input tax credit on account of zero-rated supplies without payment of tax.
For supplies received under the 0.1% notifications, the refund mechanism is governed by Rule 89(4B) of the CGST Rules and clarified in Paragraph 44 of Circular No. 125/44/2019-GST:
- Application category: The refund must be filed electronically on the GST portal under the category Any other in Form GST RFD-01, rather than the standard zero-rated export category.
- Mandatory attachments: You must upload shipping bills, bills of export, supplier tax invoices showing the concessional rate, and proof of export within 90 days.
- Officer verification and debit: After scrutinizing the claim, the proper officer issues a written request to debit the admitted refund amount from the electronic credit ledger via Form GST DRC-03.
- Sanction order: Upon receipt of the DRC-03 debit proof, the officer issues the refund sanction order in Form GST RFD-06 and the payment order in Form GST RFD-05.
Frequently asked questions
Can a merchant exporter take ITC on purchases charged at 0.1 percent?
Yes. Paragraph 59 of CBIC Circular No. 125/44/2019-GST confirms that the merchant exporter is eligible to claim input tax credit of the concessional tax paid on inward supplies.
Can a merchant exporter export goods on payment of integrated tax?
No. Under Paragraph 59 of CBIC Circular No. 125/44/2019-GST, an exporter procuring goods under the concessional rate notifications must export exclusively under Letter of Undertaking or bond and cannot export on payment of IGST.
Which refund category in Form GST RFD-01 applies to accumulated ITC on concessional purchases?
Under Paragraph 44 of CBIC Circular No. 125/44/2019-GST, refund of input tax credit availed under Rule 89(4B) must be filed under the category Any other in Form GST RFD-01, accompanied by export documents and followed by debit through Form GST DRC-03.
Check your own GSTR-2B
Reconcile your purchase register against downloaded GSTR-2B JSON or Excel files to catch missing supplier invoices before filing your export refund claim. Your GSTR-2B and purchase register files are read in your browser and never uploaded to any server.
Last checked: 26 October 2026. Sources: Section 16, CGST Act, CBIC Circular No. 125/44/2019-GST, Rule 89, CGST Rules.