With LUT, an exporter can export goods or services without paying the taxes. This prevents a blockage of working capital. So LUT is advisable. But this is only if it does not have a significant amount of capital inputs. In that case, without LUT is better
Refund of Capital Goods is not available under Rule 89 (4A), i.e., Zero Rate Supply with LUT and Refund of Input and Input Services is based on proportion to Zero Rated Sales and restricted to ITC Balance in E-Credit Ledger but in the case of without LUT, ITC of Eligible Inputs, Input Services and Capital Goods can be taken against Output Tax Liability and remaining amount have to be paid in Cash, in such case whole amount of Output Tax Liability is allowed as Refund without any proportion to Zero Rate Sales.
Hence, it is advisable for the Company to go for Without Bond/ LUT
Example
Particulars Amount With LUT Without LUT
Output Tax Liability (OTL)
Zero Rated Supply
Other
15 Lakh
5 Lakh
5 Lakh 20 Lakh
Less:
ITC on Inputs 10 Lakh 10 Lakh 10 Lakh
ITC on Input Services 5 Lakh 5 Lakh 5 Lakh
ITC on Capital Goods 3 Lakh 3 Lakh 3 Lakh
Net to be Payable Nil 2 Lakh
Refund can be claimed 9.75 Lakh (15L/20L) *13L 20 Lakh
ITC on CG unutilized
ITC on I & IS unutilized 3.00 Lakh
0.25 Lakh –
–
Working Capital Blocked 3.25 Lakh 2 Lakh
