Letter of Undertaking (LUT) is not Filed for previous year

Scenario Overview: Imagine you’re a business owner who has successfully exported services and received payment within the stipulated timeframe. However, you suddenly realize that you didn’t file a Letter of Undertaking (LUT) for the financial year (FY) 2019-20. While you’re applying for an LUT for FY 2020-21, this oversight comes to light. Now, you’re faced with a dilemma—do you need to pay Integrated Goods and Services Tax (IGST) and then claim a refund, or is there an alternative solution?

Understanding LUT and Its Importance: An LUT is a document that allows exporters to make exports without paying IGST, under the promise that they’ll fulfill all the conditions stipulated by the government. Filing an LUT is a procedural requirement under the Central Goods and Services Tax (CGST) Rules, specifically under Rule 96A. Not having an LUT can lead to complications, especially if you’re trying to claim refunds on IGST paid on exports.

The Core Issue: Since you didn’t file an LUT for FY 2019-20 but have completed all exports and received payment on time, the core concern is whether this procedural lapse will have significant repercussions. One option is to pay IGST and then claim a refund, but this approach could attract interest payments, adding to your financial burden.

Alternative Solutions and Legal Precedents:

1. Procedural Lapse, Not a Revenue Loss: According to experienced professionals, not filing an LUT for FY 2019-20 is a procedural lapse rather than a substantive failure. Since the exports have been completed and payments received, there has been no revenue loss to the government. Several experts argue that paying IGST just to claim a refund later doesn’t make logical sense.
2. Government Circulars and Case Law: The government has acknowledged that in cases where an LUT wasn’t filed on time, but the exports were still completed as per the relevant laws, the delay could be condoned. Circular No. 37/11/2018-GST dated 15th March 2018, emphasizes that the substantive benefits of zero-rating should not be denied due to procedural lapses like the delayed filing of an LUT. The circular allows for LUTs to be accepted on an ex post facto basis, depending on the case’s specifics.
3. Judicial Precedents: Several case laws support the argument that substantial benefits should not be denied due to procedural lapses. For instance, in the case of Drish Shoes Ltd., the Commissioner (Appeals) held that once the export is established with all necessary documentation, the absence of a Bond/LUT becomes irrelevant. This decision has been referenced in multiple cases and has been accepted by the department as a valid interpretation.
4. No Need for Retrospective LUT Filing: If your exports have been completed, and all payments have been received, there’s no need to worry about filing an LUT retrospectively. The focus should be on ensuring that all necessary documentation supporting the exports is in order.
5. Responding to Client Inquiries: If a client requests an LUT for FY 2019-20 and you don’t have one, it’s essential to communicate the situation clearly. Explain that the absence of an LUT for that year is a procedural issue that does not affect the validity of the export or the receipt of payments. You can refer to the relevant circulars and case laws to assure them that no tax liability or penalty arises from this procedural lapse.

Conclusion: While the lack of an LUT for FY 2019-20 might initially seem like a significant issue, the reality is that it’s a manageable procedural lapse. As long as the exports have been conducted according to the law, and payments have been received, there is no need to pay IGST or worry about penalties. Instead, focus on ensuring compliance in the future and use the available legal provisions to address any concerns.

What to Do If a Letter of Undertaking (LUT) Was Not Filed for the Previous Year

If you realize that you did not file a Letter of Undertaking (LUT) for the previous financial year but have already made export supplies during that period, don’t panic. Here’s a step-by-step guide on how to handle the situation:

1. Understand the Implication of Not Filing LUT

• LUT Overview: An LUT allows exporters to make exports without paying Integrated Goods and Services Tax (IGST), under the condition that they meet certain obligations set by the government.
• Missing LUT: If you haven’t filed an LUT for the previous year but still made export supplies, it’s considered a procedural lapse, not necessarily a substantial violation, as long as you have received export proceeds.

2. Evaluate the Options

• Option 1: Pay IGST and Claim Refund: One option is to pay the IGST on the exports retrospectively and then apply for a refund. However, this might attract interest, adding to your financial burden.
• Option 2: Address the Procedural Lapse Without IGST Payment: The more practical approach is to acknowledge that not filing the LUT is a procedural lapse. Since the exports have been completed, and payments have been received, the government has not suffered any revenue loss. Therefore, paying IGST solely to claim a refund may not be necessary.

3. Refer to Government Circulars and Legal Precedents

• Circular No. 37/11/2018-GST: This circular, dated 15th March 2018, clarifies that if an exporter fails to furnish an LUT but completes the export and receives payment, the delay in furnishing the LUT can be condoned. The exporter may still receive the benefits of zero-rated supply if the delay is considered a procedural lapse.
• Relevant Case Laws: Judicial decisions, such as the case of Drish Shoes Ltd., have established that the absence of an LUT does not negate the fact of export if the export has been substantiated with appropriate documentation. This precedent supports the view that procedural lapses should not result in the denial of substantial benefits.

4. Prepare Necessary Documentation

• Ensure all documentation related to the export transactions is in order, including invoices, shipping bills, and proof of receipt of export proceeds. These will be crucial in case of any queries or audits by tax authorities.

5. Communicate with Stakeholders

• Clients: If your client requests the LUT for the previous year, explain the situation and provide them with the relevant circulars and case law to support your position. Assure them that the procedural lapse does not impact the validity of the export or the fulfillment of tax obligations.
• Tax Authorities: If approached by tax authorities, you can refer to the aforementioned circulars and case law. Explain that the non-filing of the LUT was an oversight but that all exports were completed legally, and no revenue loss occurred.

6. Plan for Future Compliance

• Moving forward, ensure that you file your LUT on time at the beginning of each financial year to avoid such issues. Setting up reminders or automating the process can help prevent this oversight.

7. Consider Professional Advice

• If you’re unsure about handling this situation, consult with a tax professional or Chartered Accountant (CA) who can provide guidance tailored to your specific circumstances.

Conclusion

Not filing an LUT for the previous year is a procedural lapse that can be managed effectively. By understanding your options, referring to relevant government circulars and case law, and maintaining clear communication with stakeholders, you can navigate this issue without needing to pay IGST and claim a refund. Focus on ensuring compliance in future transactions to avoid similar issues.