Export & Customs

GST Refund on Exports: IGST Route vs LUT Route, Rule 96(10) and Why Refunds Get Stuck

Exports are zero-rated under GST, which means the exporter should end up carrying no GST at all. In practice the tax is paid somewhere along the chain and has to be recovered, and the speed of that recovery decides how much working capital an export business ties up. There are two ways to get the money back. Choosing the wrong one, or filing the right one with a mismatch, is the most common reason exporters wait months for refunds they are plainly entitled to.

An exporter can either pay IGST on the export invoice and get it back automatically through the shipping bill (Rule 96), or export under a Letter of Undertaking without paying IGST and claim a refund of the input tax credit that builds up (Rule 89, Form RFD-01). The IGST route is faster for goods if the GSTR-1, GSTR-3B and shipping bill match exactly. The LUT route avoids paying tax upfront and is the only route for services exporters in practice. Either way, the claim must be made within two years of the relevant date.

The two refund routes compared

Section 16 of the IGST Act, 2017 treats exports of goods and services, and supplies to SEZ units, as zero-rated supplies. Section 16(3) gives the exporter two options, and the choice can be made shipment by shipment, although most businesses settle on one.

Since 1 October 2023 the IGST-paid route has been open to all goods and services except the notified negative list (Section 16(4), IGST Act read with Notification 01/2023-Integrated Tax). A shipping bill that contains even one restricted item cannot use the IGST route.

Route 1: IGST paid on export, refunded through the shipping bill

This is the route most goods exporters use, because when it works there is nothing to file. Rule 96 deems the shipping bill to be the refund application once two things happen: the carrier files the export general manifest (EGM), and the exporter files a valid GSTR-3B for the month. The customs system then matches the shipping bill against the exporter's GSTR-1 Table 6A and credits the refund.

1. Raise the export invoice with IGSTCharge IGST on the export invoice. The invoice number, date and taxable value must be the ones quoted to the customs broker for the shipping bill.
2. File the shipping billThe broker files it on ICEGATE with the invoice details and the IGST amount. The bank account must already be registered and validated against the AD code at that port.
3. EGM is filed by the carrierThe shipping line or airline files the export general manifest after departure. For ICD and CFS exports a gateway EGM is also needed.
4. Report the export in GSTR-1 Table 6AReport each export invoice with the shipping bill number, date and port code. Pay the IGST in GSTR-3B. The IGST in 3B must not be less than the IGST shown in Table 6A.
5. System matching and creditGSTN transmits the data to ICEGATE, which validates it against the shipping bill. Matched records are sent for scroll generation and the refund reaches the bank account through PFMS.

Route 2: export under LUT, refund of unutilised ITC

Under this route the exporter files a Letter of Undertaking in Form RFD-11 on the GST portal before exporting, for each financial year, and invoices the export without IGST. The ITC on inputs, input services and, for goods, the business's purchases then accumulates, and is claimed in Form RFD-01 for a tax period or a group of periods.

The LUT conditions

• File it before the first export of the year. The LUT is valid for the financial year. An export invoiced without IGST before the LUT is filed is a taxable supply on which IGST is due with interest.
• Export goods within three months of the invoice date, or within the extended period the Commissioner allows.
• Receive payment for services within one year of the invoice date, or within the extended period allowed under FEMA.
• On default, the IGST is payable with interest at 18% within 15 days, and the LUT facility can be withdrawn until it is paid.

The refund formula under Rule 89(4)

Net ITC is the credit on inputs and input services for the period; credit on capital goods is excluded. Zero-rated turnover for goods is the lower of the FOB value in the shipping bill and the value in the invoice (Explanation inserted by Notification 14/2022-Central Tax). Adjusted total turnover is the turnover in the state, excluding exempt supplies other than zero-rated supplies, for the same period.

One contested point: Rule 89(4)(C) also caps the zero-rated turnover of goods at 1.5 times the value of like goods supplied domestically. The Karnataka High Court struck those words down in Tonbo Imaging (2023), but they have not been formally removed from the rule and are still raised in deficiency memos elsewhere. Where the export price is well above the domestic price for the same product, plan for the objection.

Documents filed with RFD-01

• Statement 3 (goods exported under LUT) or Statement 3A, listing invoices with shipping bill number, date, port code and FOB value
• For services, invoice-wise details with the BRC, FIRC or e-BRC (Circular 125/44/2019-GST)
• Statement of ITC availed in the period, with GSTR-2B reconciliation
• The declaration under the provisos to Section 54(3) that no drawback of central tax, and no IGST refund, has been claimed on the same exports

Rule 96(10): Advance Authorisation and EPCG importers

For most of GST's life, Rule 96(10) barred the IGST-paid refund route for an exporter who had imported inputs without IGST under Advance Authorisation, EPCG or the EOU scheme, or received inputs from a supplier who had used certain concessional notifications. Those exporters were expected to export under LUT and claim ITC instead. Many did not, and the department issued notices to recover IGST refunds already paid, often for several years.

• Omitted from 8 October 2024. Notification 20/2024-Central Tax omitted Rule 96(10), together with Rules 89(4A) and 89(4B), without a saving clause.
• Supreme Court, 6 August 2026. In Goodluck India Ltd v. Union of India the Court held that an omission without a saving clause applies to proceedings pending on the date of omission, so pending demands and refund denials under Rule 96(10) cannot survive.
• CBIC Circular 264/10/2026-GST (26 October 2026) accepts the ruling and directs officers to decide pending show cause notices, demands and refund claims accordingly. Matters that had already attained finality are not reopened.

What to do now. If you hold an Advance Authorisation or EPCG and have a pending show cause notice, an appeal, or a rejected IGST refund on this ground, the circular gives you a direct basis to have it dropped or re-sanctioned. Concluded matters where you did not appeal are not covered, which is a good reason never to let a refund rejection lapse without appeal. Our guide to Advance Authorisation explains the scheme side.

Why IGST refunds get stuck: ICEGATE response codes

The refund status of every shipping bill is visible on ICEGATE. When the matching fails, the system shows a response code. These are the ones we see most often and what fixes them.

Three problems sit outside the codes. The IGST paid in GSTR-3B is lower than the IGST reported in Table 6A, so the system holds the difference. The bank account is not validated against the AD code on ICEGATE, so the scroll is generated but the credit fails. Or the exporter has been flagged as risky, in which case the refund is held for verification. Each needs a different conversation, and we usually start by downloading the shipping-bill-wise status and reconciling it against the returns for the whole period at once.

Refunds for exporters of services

A supply is an export of services under Section 2(6) of the IGST Act only if all five conditions are met: the supplier is in India, the recipient is outside India, the place of supply is outside India, payment is received in convertible foreign exchange or in rupees where the RBI permits, and the two parties are not merely establishments of the same person. Services exporters almost always use the LUT route, because there is no shipping bill to carry an IGST refund.

Two points matter in 2026. First, the refund claim needs evidence of realisation for every invoice, which is now the e-BRC for most exporters. Second, the Finance Act, 2026 omitted Section 13(8)(b) of the IGST Act, which had fixed the place of supply of intermediary services in India. Intermediaries serving foreign principals now fall under the general rule in Section 13(2), the recipient's location, and can qualify as exporters of services from 30 March 2026. Whether that helps earlier periods is contested.

Time limits, provisional refund and interest

• Two years. Section 54(1) requires the refund to be claimed within two years of the relevant date: for goods, the date the ship or aircraft leaves India; for services, the date of receipt of payment, or the invoice date where payment was received in advance.
• 90% provisional refund. Section 54(6) and Rule 91 allow 90% of a zero-rated refund claim to be sanctioned provisionally. From 1 October 2025 this is decided on the system's risk score rather than the officer's discretion. Exporters who have not completed Aadhaar authentication are excluded.
• Final order within 60 days of a complete application. Interest at 6% runs from the 61st day under Section 56, and at 9% where the refund follows an appellate order.
• Low-value exports. From 1 November 2026 the ₹1,000 minimum refund threshold in Section 54(14) no longer applies to goods exported on payment of tax, which helps courier and e-commerce exporters.
• Realisation. If the export proceeds are not realised within the period allowed under FEMA, Rule 96B requires the refund to be paid back with interest within 30 days, with relief once the money arrives. The RBI changed the realisation period twice in 2026, so check the period in force under the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 for each shipment.

Exports also qualify for customs-side incentives that sit alongside the GST refund: RoDTEP, duty drawback, and duty-free imports under Advance Authorisation or MOOWR. Claiming one can change your eligibility for another, so look at them together. Our complete guide to export incentive schemes covers each, and our export incentives service covers how we run them. For ongoing return filing see our GST filing services.

Written by CA Karan Shah

Founder of KC Shah & Associates, Chartered Accountants, Andheri East, Mumbai (ICAI Membership No. 190724). Advises manufacturers and exporters on MOOWR, Advance Authorisation, RoDTEP and drawback, and GST export refunds, alongside GST compliance and outsourced accounting in Tally and Zoho Books.