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Start by identifying the registered supplier and the owner of the goods. A contract manufacturer or job worker does not automatically become the exporter or the person entitled to a GST refund. The party making the zero-rated export supply generally chooses either (1) export under a valid bond or Letter of Undertaking (LUT) without payment of IGST and claim eligible unutilized input tax credit (ITC), or (2) pay IGST on the export and claim a refund of that IGST. Separately, the principal can generally claim ITC on inputs and capital goods sent to a job worker, including goods sent directly to the job worker, provided the statutory movement, record-keeping and return or supply conditions are met.
This guide explains how to map the arrangement, preserve job-work evidence, select the refund route, calculate a claim, file Form GST RFD-01 and avoid the most common eligibility and limitation errors. Indian GST law and portal instructions can change; verify the current Act, rules, notifications and electronic filing requirements for the tax period before submitting a claim.
1. Identify who makes the export supply
The label “contract manufacturer” is not enough to determine who may use export zero-rating or claim a refund. Begin with the legal and documentary flow of the transaction.
Map the commercial and GST roles
- Principal: the registered business that owns or controls the inputs, gives processing instructions and may send goods to the job worker.
- Job worker: the person providing processing or treatment. The job worker may issue a processing-service invoice, but that does not by itself make the job worker the supplier of the exported goods.
- Supplier/exporter: the GST-registered person whose zero-rated supply is reported on the relevant tax invoice and export documents.
- Credit holder: the GSTIN in whose electronic credit ledger the ITC is recorded and from which a refund claim is made.
Reconcile contracts, purchase orders, ownership clauses, GST registrations, tax invoices, delivery challans, shipping bills or bills of export, export invoices and the bank or customs trail. The same company should not be described inconsistently as principal in one record and exporter in another without a documented legal basis.
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Why the distinction matters
Section 16 of the Integrated Goods and Services Tax Act treats export of goods or services as a zero-rated supply. The benefit belongs to the eligible supplier making that zero-rated supply, subject to the Act and rules. Section 19 of the Central Goods and Services Tax Act separately governs the principal’s ITC when inputs or capital goods are sent to a job worker. A principal can therefore have ITC on materials used by a job worker while a different registered entity is the exporter claiming a zero-rated refund. Whether that structure works in a particular case depends on the contracts, invoice chain and movement documents.
2. Understand ITC when goods are sent for job work
Direct dispatch is permitted
Under section 19, the principal may take ITC on inputs and capital goods sent to a job worker even when the goods go directly from the vendor to the job worker without first reaching the principal’s premises. The statutory wording states that “the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business.” Direct delivery should be supported by the purchase invoice, delivery challan or transport record, job-work instruction and proof of receipt.
Track the statutory return or onward-supply periods
Section 19 provides a base period of one year for inputs and three years for capital goods sent to a job worker. The period is measured under the statutory conditions governing the movement. If the required return to the principal or supply from the job worker does not occur within the applicable period, the law can deem the principal to have supplied the goods to the job worker on the date of dispatch. Before treating an item as overdue, check the current provision for any applicable extension, exception or amendment.
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Use a register that links every dispatch to its eventual return, consumption, sale or export. At minimum, capture:
- material description, quantity, serial or batch number and whether it is an input or capital good;
- principal’s GSTIN, job worker’s GSTIN and the delivery location;
- dispatch date, challan number, transporter and proof of receipt;
- date and quantity returned, consumed in processing, supplied onward or exported;
- open quantity and the one-year or three-year statutory due date;
- scrap or wastage treatment and the document supporting it; and
- links to the finished-goods invoice, shipping bill or bill of export and export evidence.
Reconcile this register to the general ledger, stock records and electronic credit ledger each tax period. A refund file that shows exported finished goods but cannot explain the inputs used, their ownership or their movement is vulnerable to a deficiency memo or rejection.
3. Choose the legally available refund route
Section 16 provides two broad routes for an eligible zero-rated supply. The choice affects cash flow, credit utilisation and the evidence you must reconcile.
| Issue | LUT or bond, without IGST | IGST-paid export |
|---|---|---|
| Tax at export | The zero-rated supply is made without payment of IGST under a bond or valid LUT, subject to the applicable conditions. | IGST is paid on the zero-rated supply. |
| Refund requested | Refund of eligible unutilized ITC attributable to zero-rated supplies. | Refund of the IGST paid on the eligible zero-rated supply. |
| Main reconciliation | Rule 89 turnover and Net ITC calculation, electronic credit-ledger balance, invoices and export evidence. | Tax invoice, IGST payment, export and return records, plus the current eligibility conditions for this route. |
| Critical current check | LUT or bond validity, eligible credit and exclusions under the current rules. | Current restrictions, notifications and conditions governing IGST refunds; do not rely on an old description of Rule 96(10) without checking later amendments. |
When the LUT route is used
The exporter does not pay IGST on the export invoice. Instead, it preserves the LUT or bond required for the relevant period and claims the eligible portion of unutilized ITC through the refund mechanism. This route is often selected where paying IGST would create a cash-flow burden, but the claim depends on correctly identifying Net ITC and zero-rated turnover under Rule 89.
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The exporter pays IGST and seeks its refund under the applicable export-refund process. Confirm that the transaction, exporter, shipping documentation and any required return data satisfy the current rules. Eligibility restrictions have changed over time, so a historical circular or portal article should not be treated as the complete statement of current law.
Do not select a route by habit
Before invoicing, document the selected route, the GSTIN making the supply, the tax period, the LUT or bond reference where relevant, and the person responsible for the refund filing. Changing the route after invoices, returns or customs documents are issued can create mismatches that are harder to correct than a properly documented choice made at the start.
4. Calculate an LUT or bond refund
Apply the Rule 89 structure
For a claim of unutilized ITC relating to zero-rated supplies without payment of tax, Rule 89 uses a formula based on zero-rated turnover, Net ITC and adjusted total turnover:
Refund amount = (Turnover of zero-rated supplies × Net ITC) ÷ Adjusted total turnover
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Use the definitions and exclusions in the version of Rule 89 applicable to the claim period. “Net ITC” is not simply every credit visible in the ledger. Exclude blocked or otherwise ineligible amounts, including credit restricted by section 17(5), and remove any amount that the current rule does not permit in the calculation. Separate goods and services turnover correctly and preserve the working paper showing how each number was derived.
Reconcile the numerator and denominator
- Identify the relevant period and list each export invoice included in zero-rated turnover.
- Match export goods to shipping bills or bills of export and the corresponding export report or manifest.
- Reconcile domestic taxable, exempt and other turnover to the returns and books used for adjusted total turnover.
- Reconcile Net ITC to purchase registers, tax returns and the electronic credit ledger for the same period.
- Remove credits that are reversed, blocked, outside the period or otherwise not eligible under the current rules.
- Check that the requested amount does not exceed the available eligible credit and that the ledger can be debited for the amount claimed.
Illustrative calculation
The following is only a method example, not a statutory threshold or expected result. Assume a period has zero-rated turnover of ₹80 lakh, adjusted total turnover of ₹1 crore and eligible Net ITC of ₹12 lakh. The formula produces ₹9.6 lakh: (₹80 lakh × ₹12 lakh) ÷ ₹1 crore. The claimant must still prove that the turnover and credit meet the applicable definitions and that no statutory restriction reduces the claim.
5. Prepare and file Form GST RFD-01
Refund applications are generally filed electronically in Form GST RFD-01. For exported goods, the export manifest or export report must have been delivered before filing. Filing before that customs event is reflected can lead to a rejection or a request to resubmit.
- Close the tax period. File the applicable GST returns, post required reversals and ensure the electronic credit ledger reflects the credits actually being claimed.
- Confirm the export event. Match each export invoice with the shipping bill or bill of export, export date, customs location and evidence that the export manifest or report was delivered.
- Choose the refund category. Select the category corresponding to zero-rated supplies made without payment of tax or the IGST-paid export route. Do not use evidence requirements for service exports or SEZ supplies merely because they appear in general refund guidance.
- Compute the claim. Enter the relevant period, zero-rated turnover, adjusted total turnover and eligible Net ITC where the LUT or bond formula applies. Retain a signed calculation sheet with invoice-level support.
- Upload the required statements and documents. Include the invoice and shipping or export details and any statements prescribed for the selected category. Keep the complete job-work register and ownership trail available even if the portal accepts only a subset of documents.
- Check the electronic ledger debit. The rules provide for debit of the claimed amount from the electronic credit ledger for an unutilized-ITC claim. Confirm the debit and ARN after submission.
- Monitor notices and respond. Preserve the application, acknowledgements, deficiency memos, replies and any re-filed application as one claim file. A deficiency response should correct the identified mismatch rather than introduce a different turnover or route without explanation.
6. Build the evidence file before filing
A defensible file should allow an officer to trace the chain from purchase to job work to export and refund without relying on oral explanations.
| Evidence area | Records to retain |
|---|---|
| Commercial arrangement | Principal–job-worker agreement, purchase orders, ownership and risk clauses, processing instructions and rate terms. |
| Inputs and capital goods | Vendor invoices, delivery challans, e-way or transport records where applicable, direct-delivery proof, serial or batch records and job-work acknowledgements. |
| Processing and return | Job-work register, processing records, return challans, consumption statements, wastage or scrap records and the date each statutory period was satisfied. |
| Export | Tax invoice, packing list, shipping bill or bill of export, customs export report or manifest evidence, transport documents and proof of export. |
| ITC and refund | Purchase register, filed returns, credit-ledger extracts, reversal workings, Rule 89 calculation, LUT or bond documentation, RFD-01 ARN and correspondence with the tax authority. |
Use consistent invoice numbers, dates, quantities and GSTINs across these records. If a job worker ships goods directly to a foreign customer, retain the written instruction and the documents showing who made the export supply and who owned the goods at each stage.
7. Meet the limitation period and check conflicting benefits
Two years is a starting point, not a universal date
Section 54 provides a general two-year period for a refund application from the relevant date. The relevant date varies by refund category, so do not count two years automatically from the invoice date or the date money was received. Determine the applicable statutory trigger for the specific zero-rated claim and retain the calculation of that deadline.
Check export-duty and other exclusions
The unutilized-ITC route excludes goods exported subject to export duty under the applicable provision. Section 54 also contains restrictions on claiming refunds in specified circumstances. Review the product’s export-duty position, the selected refund route and any applicable notification before including an invoice.
Check drawback and other elections
Confirm whether a drawback or another export benefit has been claimed and whether the selected combination is permitted. A refund file should state the benefit election and the basis for treating it as compatible with the GST claim. If the rules prohibit the combination, remove the conflicting benefit before filing rather than waiting for a notice.
8. Common failure modes and practical fixes
The wrong entity files the refund
Symptom: the job worker files because it performed the processing, while the shipping bill and export invoice identify the principal. Fix: map the supplier and exporter on every document, then align the claimant GSTIN with the person making the zero-rated supply and holding the relevant ITC.
Direct dispatch is treated as a purchase by the job worker
Symptom: the principal cannot prove that vendor goods delivered to the job worker remained the principal’s inputs. Fix: retain the vendor invoice, direct-delivery instruction, challan, receipt acknowledgement and job-work register entry tied to the finished export.
Job-work periods are not monitored
Symptom: inputs or capital goods remain open beyond one year or three years with no documented return or onward supply. Fix: run an ageing report monthly, investigate exceptions and assess the deemed-supply consequence under the current section 19 conditions.
Net ITC is overstated
Symptom: the formula includes blocked credit, reversed credit or credit from another period. Fix: reconcile the ledger to returns and the purchase register, remove section 17(5) and other ineligible amounts, and retain the adjustment schedule.
The customs event is missing
Symptom: RFD-01 is filed before the export manifest or report is delivered. Fix: wait for the required export-system event, then verify invoice and shipping-bill data before filing.
A historical circular is treated as current law
Symptom: the claimant relies on an old explanation of Rule 96(10) or another restriction without checking amendments. Fix: verify the current Act, rules, notifications and portal instructions for the claim period and document the version relied upon.
9. A repeatable monthly control process
- At purchase, mark each input or capital good as principal-owned, assign a job-work reference and record the statutory due date.
- At dispatch, retain the challan, transporter evidence and direct-delivery proof where applicable.
- At processing, record quantities received, consumed, returned, exported and scrapped.
- Before invoicing the export, confirm the supplier GSTIN, export route, LUT or bond status and invoice tax treatment.
- After customs clearance, verify the shipping bill, export report or manifest and resolve data mismatches.
- At period end, reconcile turnover, Net ITC, ledger balance, export documents and job-work ageing.
- Before RFD-01 submission, obtain a second-person review of the relevant date, route, formula, exclusions and conflicting benefits.
10. When professional review is essential
Obtain transaction-specific advice before filing when the principal and job worker are in different States, the job worker exports in its own name, goods move directly from a vendor to a foreign customer, multiple GSTINs share the same inputs, capital goods have remained with the job worker for several years, the export is subject to duty, or drawback and other benefits are involved. The statutory framework does not resolve every contract and invoice arrangement. A reviewer will need the contracts, registrations, invoice flows, ownership and movement records, shipping documents, LUT status, tax periods, credit-ledger entries and benefit elections to determine the claimant and amount.
Quick Recap
Practical decision checklist
- Have you identified the legal supplier and exporter rather than relying on the words “contract manufacturer”?
- Does the claimant GSTIN hold the ITC and make the zero-rated supply?
- Are direct dispatches, job-work returns and the one-year or three-year periods documented?
- Is the LUT or bond route or IGST-paid route selected and supported by current law?
- Does the Rule 89 calculation use only eligible Net ITC and correctly defined turnover?
- Has the export manifest or report been delivered before filing RFD-01?
- Is the claim within two years of the correct relevant date?
- Have export duty, drawback and other refund restrictions been checked?
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