My foreign client never paid an invoice I issued under an LUT. Do I owe GST?

A product consultant finishes a three-month engagement for a startup in Berlin, invoices under an LUT, and the startup runs out of money. A web agency's US client disputes the final milestone and stops replying. In both cases the export invoice was issued without IGST on the strength of a promise in the Letter of Undertaking (LUT). That promise now matters.

What did I promise in the LUT?

In the LUT you bound yourself to pay the tax due, with interest, if the export conditions are not met. For services, rule 96A(1)(b) of the CGST Rules makes the tax payable within fifteen days after the later of one year from the invoice date or the period allowed under the Foreign Exchange Management Act, 1999 (FEMA) including any RBI-permitted extension, or a further period the Commissioner allows, if payment is not received in convertible foreign exchange or in rupees where the RBI permits.¹

Payment is also condition (iv) of the export definition in section 2(6) of the IGST Act.⁴ An unpaid invoice therefore does not stay a zero-rated export by default.

What happens if I do not pay the tax?

Rule 96A(3) provides for the export facility under bond or LUT to be withdrawn if the amount is not paid, and rule 96A(4) restores it once paid.¹ CBIC Circular No. 8/8/2017-GST, para 2(b), says the same.² Both texts are worded for goods, but CBIC Circular No. 125/44/2019-GST, para 45, says the same principle on extensions should be followed for services.³ In practice, a withdrawn LUT would mean charging IGST on new export invoices until you pay.

What can I do before the deadline?

Before the deadline you can still act:

1. Chase payment in writing and keep the correspondence.
2. Ask your bank about extending the realisation period. Rule 96A(1)(b) uses the FEMA period including any RBI-permitted extension, if that is later than one year.¹
3. Ask the Commissioner for a further period if you have a reason, such as a dispute in progress.¹
4. Close the FEMA side with your bank. See client never paid: closing the invoice and writing off export bills.

How do I plan for the GST cost?

Work out the IGST on the unpaid invoice now, so the payment does not surprise you. Interest runs under section 50 of the CGST Act, as rule 96A states.¹ The FEMA consequences of non-realisation are separate; see export proceeds not realised.

Treatment of a later receipt, credit notes and refunds depends on your facts, so confirm the steps with a chartered accountant (CA) before the deadline passes.