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For most registered pharmaceutical exporters, the current general route is to export under a bond or letter of undertaking (LUT) without charging IGST, then claim a refund of eligible unutilized input tax credit (ITC) through FORM GST RFD-01. Paying IGST and obtaining an electronic refund through the shipping bill is not a universal alternative. Section 16 of the IGST Act, as amended from 1 October 2023, limits that route to notified classes of persons or notified goods or services. Confirm the current notification, your product classification and export-duty status before selecting a method.
The exact answer depends on the medicine or formulation, HSN or tariff classification, export date, destination, whether the goods attract export duty, the exporter’s registration and ITC records, and any concessions used for imported or domestic inputs. This guide sets out the statutory process and the records needed; it is not a product-specific eligibility ruling.
Choose the correct refund route first
Exports of goods are zero-rated under section 16 of the Integrated Goods and Services Tax Act. Zero-rating allows an eligible exporter to use input tax credit, but the refund mechanism differs according to whether IGST was paid at export.
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| Decision point | LUT or bond, no IGST | IGST paid, Rule 96 mechanism |
|---|---|---|
| Availability | General statutory route for eligible zero-rated exports | Only for notified classes of persons or goods/services; verify the current notification |
| Tax at export | No IGST charged on the export invoice | IGST paid on the export supply |
| Refund filing | Electronic FORM GST RFD-01 claim for eligible unutilized ITC | Shipping bill is treated as the refund application, subject to Rule 96 conditions |
| Main evidence | ITC ledger and calculation, purchase invoices, returns, export invoices and shipping records | Shipping bill, export invoice data, export manifest/report, and a valid GST return with matching data |
| Export-duty restriction | No refund for exported goods subject to export duty | The same export-duty restriction applies |
| Typical delay risk | Incomplete application, incorrect formula or unsupported ITC | Data mismatch, missing manifest/report, return non-filing or risk-based withholding |
The older pharmaceutical-sector FAQ from the Central Board of Indirect Taxes and Customs (CBIC) describes both approaches, but it predates the 1 October 2023 amendment. Use the amended statute and current notifications—not the older FAQ alone—to decide whether an IGST-paid claim is available.
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Eligibility checks before exporting
Confirm GST registration and zero-rated status
The exporter must be registered under GST and the transaction must meet the legal definition of export of goods. Check that the goods leave India, that the foreign recipient and destination are correctly identified, and that the transaction is reported in the prescribed GST returns. Zero-rated status does not remove ordinary ITC conditions: the credit must be attributable to the business, supported by valid tax documents and otherwise allowable under the CGST Act and Rules.
Check the medicine’s tariff classification and export-duty treatment
Section 54 does not permit an unutilized-ITC refund when the exported goods are subject to export duty. Section 16 likewise excludes the relevant export refund routes for goods subject to export duty. Do not assume that every pharmaceutical product has the same treatment. Verify the formulation, strength, pack, HSN or tariff heading and the duty position applicable on the actual export date.
Screen for notified IGST-paid eligibility
If you intend to pay IGST and use the shipping-bill mechanism, establish that your person, goods or services fall within the class notified under the current version of section 16. If that cannot be established, use the LUT or bond route if its conditions are met. Keep the notification and your eligibility analysis with the shipment file.
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Check concessions and other benefits
Review whether imported or domestic inputs were obtained under a concession, exemption or other export-linked benefit. Such arrangements can affect the amount of credit available or the compatibility of a refund claim. Do not claim two incompatible recoveries for the same tax or credit—for example, an ITC refund and another drawback or remission covering the same amount.
Route A: export under LUT or bond and claim unutilized ITC
Step 1: Furnish the LUT or bond before export
Complete the prescribed LUT or bond process for the relevant export period before making supplies without payment of IGST. Retain the acknowledgement, undertaking, bond, security and any supporting documents required for your circumstances. If the undertaking expires or its conditions change, renew or update it before relying on it for later shipments.
Step 2: Prepare a compliant export invoice
Each export invoice should carry the prescribed endorsement:
“SUPPLY MEANT FOR EXPORT UNDER BOND OR LETTER OF UNDERTAKING WITHOUT PAYMENT OF IGST”
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Step 3: Complete customs export formalities
Retain the shipping bill or bill of export, let-export evidence, export manifest or export report information and the carrier’s proof of departure. For each invoice line, maintain a clear mapping to the relevant shipping bill and container, airway bill or bill of lading reference where applicable. The statutory relevant date for the two-year limitation is tied to the export event, so retain evidence of when the ship or aircraft left India, or when goods crossed the land frontier.
Step 4: Report the export consistently in GST returns
Report export invoices in the applicable return tables for the period and reconcile those entries with the customs data. Check invoice number and date, shipping-bill number and date, port code, taxable value, destination and GSTIN. Correct return errors through the permitted amendment process before filing the refund application where possible.
Step 5: Assemble the RFD-01 claim
On the common GST portal, use the current Services → Refunds → Application for Refund workflow and select the category for refund of unutilized ITC on zero-rated supplies without payment of tax. Portal labels and validations can change; follow the category-specific instructions displayed when you file.
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Upload or enter the prescribed statement of export invoices and shipping-bill or bill-of-export particulars, together with the evidence requested for the refund period. The application must identify the relevant tax period, export turnover, eligible Net ITC and adjusted total turnover. Sign and submit it using the authorised signatory’s permitted method, then save the ARN and filed form.
Step 6: Calculate the claim under the prescribed formula
Do not calculate the refund from gross GST appearing on purchase invoices. The rules use a formula based on export turnover, Net ITC and adjusted total turnover, less tax payable on zero-rated supplies where applicable. In simplified form, the maximum refund is calculated as:
(Turnover of zero-rated supply of goods and services × Net ITC) ÷ Adjusted Total Turnover − tax paid on zero-rated supplies.
Use the statutory definitions for each term and the figures for the relevant period. Exclude ineligible credits, reverse credits required by law, and turnover or taxes that the rules exclude. Keep a working paper showing the ledger balance, purchase-invoice population, reversals, export invoices, turnover reconciliation and the amount debited from the electronic credit ledger.
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When the claim is submitted, the amount claimed is debited from the electronic credit ledger as required by the refund rules. Monitor the acknowledgement, deficiency memo, notices and sanction order on the portal. If the officer issues a deficiency memo, correct the identified defect and file a fresh application within the procedure and time limits that apply; do not simply assume the original ARN will continue unchanged.
Route B: pay IGST and use the shipping-bill refund
When this route is legally available
Rule 96 treats the shipping bill as the application for refund of IGST paid on exported goods, but only when the export falls within the class permitted by the current section 16 framework and all rule conditions are met. Confirm the notification before charging IGST. The fact that a shipping-bill system exists does not itself prove that every pharmaceutical exporter can use it.
How the electronic process works
Pay the IGST shown on the export tax invoice and shipping bill. Customs and GST systems transmit the export and invoice data; the shipping bill becomes actionable only when the export manifest or report is filed and the corresponding GST return is validly filed. The amount, if payable, is credited to the bank account recorded in the exporter’s GST registration particulars.
Prevent common Rule 96 mismatches
- Use identical invoice numbers, dates, taxable values, quantities and HSN details in the tax invoice, shipping bill and GST return.
- Check that the shipping bill includes the correct GSTIN and that the customs data has been transmitted.
- Confirm that the carrier or customs station has filed the export manifest or report.
- File the required GST return before expecting system processing.
- Keep the registered bank-account details current and validated.
Rule 96 includes withholding conditions. CBIC’s risk-based verification instructions allow a refund to be held while exporter credentials or transaction data are checked. A held amount is not automatically a final rejection; read the notice or order and provide the requested records.
Documents and reconciliations to prepare
Create one electronic and one backed-up record set for each refund period containing:
- GST registration certificate and the LUT or bond acknowledgement for the export period.
- Export tax invoices with the correct LUT or bond endorsement, foreign recipient and destination details, and export-removal application information.
- Shipping bills or bills of export, export manifest or report details, let-export evidence and invoice-to-shipping-bill mapping.
- Filed GST returns and a reconciliation of export turnover to the customs and accounting records.
- Purchase invoices, eligible ITC registers, input-tax reversals, electronic credit ledger extracts and the refund-period calculation.
- Product descriptions, HSN or tariff classification, export-duty checks and records of any concession used for imported or domestic inputs.
- Bank-account details in the GST registration profile and the refund ARN, acknowledgements, notices and orders.
Deadlines and statutory processing periods
Two-year application limit
Section 54 generally requires a refund application within two years from the relevant date. For goods exported by sea or air, the cited provision uses the date the ship or aircraft leaves India; for land exports, it uses the date the goods pass the frontier. Establish the correct statutory category for the shipment and calculate the deadline from documentary evidence of that event.
Sixty-day order period
Section 54(7) says the proper officer should issue an order within 60 days from receipt of an application complete in all respects. This is an order period, not a promise that money will reach the bank within 60 days. Deficiencies, eligibility review, risk-based withholding, data mismatches or related proceedings can delay payment.
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Invoice and shipping-bill data do not match
Differences in invoice numbering, dates, values, GSTIN, port codes or HSN details can stop electronic matching. Compare the filed return, tax invoice and customs record line by line; correct the source record through the permitted channel and retain the amendment trail.
The export manifest or return is missing
An IGST-paid claim cannot move through Rule 96 without the required export manifest or report and a valid return. Ask the carrier or customs station to confirm manifest filing and verify that the return status is filed, not merely saved or submitted.
Ineligible or overstated ITC
The LUT route is limited to eligible Net ITC. Blocked credits, credits not appearing in the electronic credit ledger, credits attributable to exempt activity and credits requiring reversal cannot be included. Reperform the ledger-to-purchase-register reconciliation and retain supplier-invoice support.
Export duty applies to the product
A duty notification or tariff treatment can remove the refund entitlement even when the shipment is otherwise a zero-rated export. Recheck the exact formulation and tariff heading on the export date instead of relying on a general statement that medicines are duty-free.
Risk-based withholding or a verification notice
Respond to the notice by the stated deadline with registration, bank, production, purchase, shipping and payment records requested. Ask for the written order or status reason. Do not treat a temporary hold as proof that the underlying export is ineligible.
Double-benefit concerns
A refund can be restricted when the exporter has claimed another benefit covering the same tax or credit. Map each shipment to the drawback, exemption, remission or concession used and remove any incompatible claim before filing.
Pharmaceutical-specific points to verify
Transaction value and pricing records
CBIC’s pharmaceutical-sector guidance describes drugs and formulations as assessed on transaction value at each level of supply. Keep the commercial invoice, purchase order, contract, price adjustments, credit notes and related-party documentation so the declared export value can be explained if questioned.
Product identity matters more than the word “pharmaceutical”
Tablets, injectables, active pharmaceutical ingredients, diagnostic products and formulations can fall under different tariff headings and regulatory or duty treatments. The title of the product alone cannot establish export-duty status or eligibility for an IGST-paid notification.
Imported inputs and concessions
Record the source of active ingredients, excipients, packaging and other inputs, the taxes paid, and any exemption or export-linked concession. Tie those records to the ITC calculation so an officer can see which credits are included and why.
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Exporter with ordinary eligible ITC and no confirmed IGST notification
Use the LUT or bond route, export without IGST, preserve shipping and return evidence, and file RFD-01 for the eligible unutilized ITC. This follows the general statutory route without assuming that the IGST-paid option is open.
Exporter whose product and exporter class are expressly notified
Compare the cash-flow effect of paying IGST with the documentation and matching requirements of Rule 96 against the LUT route. Keep the notification, product classification and eligibility analysis in the shipment file before selecting the IGST-paid method.
Product with possible export duty
Pause the refund decision and obtain a classification and duty determination for the actual export date. If export duty applies, the relevant export refund routes are barred even if the goods otherwise qualify as zero-rated.
Operational checklist before filing
- Confirm GST registration, exporter identity and the legal definition of export.
- Verify HSN or tariff classification, export-duty status and any concession affecting inputs.
- Document why the selected route is available under the current section 16 framework.
- For LUT exports, confirm the LUT or bond and invoice endorsement are in place.
- Reconcile invoice, shipping-bill, manifest and GST-return data.
- Compute Net ITC, export turnover and adjusted total turnover under the refund rules.
- Check the two-year limitation date for every shipment in the claim.
- File the correct electronic refund application, save the ARN and monitor notices.
- Keep the ledger debit, acknowledgements, correspondence and supporting records together.
Practical takeaway
Start with the LUT or bond route unless a current notification clearly permits your exporter and product to use the IGST-paid shipping-bill route. The strongest claim is built before export: classify the product, check export duty, choose one compatible benefit, use exact invoice and customs data, and maintain an auditable ITC calculation. Because portal validations and notifications can change, verify the live GST portal instructions and the law applicable on the shipment date before filing.
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