IGST and Physical exports: Amendment to FTP
OCTOBER 25, 2017-TaxIndiaOnline
By S C Jain, Managing Partner, RSA Legal Solutions
AFTER the revamp of earlier indirect taxation regime and introduction of new Goods and Services Tax law, there has been the paradigm shift to the whole trade sector which has an impact on every sphere of business and government policies with regard to that. The new taxation system had made various policies of foreign trade non-lucrative compared to that in earlier regime. The working capital of exporters and importers were unnecessarily being blocked. To rescue the situation, the Central government has come up with a temporary modification in the infant law to regain the faith of industry by issuing some notifications applicable till 31 st March, 2018. During this period, the GST administrative body will work out some other mechanism in the form of e-wallet etc. as indicated in the 22 nd GST Council meeting to curb such funds blockage.
Recently, Central Government (though DGFT) has issued Notification No.33/2015-20 dated 13-10-2017 whereby certain pertinent changes have been made in the Foreign Trade Policy to address the grievances of exporters which had arisen as a consequence of implementation of the GST law. Corresponding changes have been made in the Customs law by way of issuance of Notification No.78/2017-Cus dated 13-10-2017 and Notification No. 79/2017-Cus dated 13-10-2017. Besides, Notification NO. 47/2017-Central Tax dated 18.10.2017, Notification NO. 48/2017-Central Tax dated 18.10.2017, Notification NO. 49/2017-Central Taxdated 18.10.2017 have been issued so that the refund of the GST paid on the goods supplied as ‘deemed export’ can be claimed. The salient features of the said amendments are as under:
– An EPCG Licence holder (EPCG holder) can now import capital goods without payment of Basic Customs Duty, Education Cess and IGST. However, a rider has been placed that the export obligation has to be completed only bymaking physical export of goods. The deemed export supplies like supplies to EOU or Advance Authorization Holder etc. will not be counted towards fulfilment of export obligation in case the exemption of IGST on capital goods at the time of import has been availed.
– Conversely, if an EPCG holder wants to fulfil the export obligation by effecting the ‘deemed export’ supplies as well, then he has to import the capital goods under the EPCG scheme on payment of IGST . Of course, he can avail the credit of the IGST paid under the GST Law.
– The exemption from IGST can be availed irrespective of the fact whether the EPCG authorization was issued prior to 1.7.2017 or after that.
– In case the capital goods are procured from domestic market (from within India) under an EPCG authorization then the same have to be procured on payment of applicable GST. The said supplies would be considered as ‘deemed export’ for the supplier who can take the benefit of the Advance Authorization/deemed duty drawback against such supplies.The supplier can also take the refund of the GST paid on supplies (Just like TED), under the GST law in terms of Notification No 47/2017-Central Tax to 49/2017-Central Tax all dated 18.10.2017. The said refund of GST can also be taken by the recipient of goods (EPCG holder).
– An Advance Authorization Holder can import inputs without payment of Customs Duty including IGST. However, in case the inputs have been imported without payment of IGST, the export obligation has to be completed by making physical exports. Advance Authorization Holder cannot fulfil the export obligation by making the deemed export supply like supplies to EOU, AA holder etc.
– Conversely, in case Advance Authorization Holder wants to fulfil the export obligation by making the ‘deemed export’ then he has to import inputs on payment of IGST. Of course, he can avail the credit of the IGST under the GST law.
– The exemption from IGST can be availed irrespective of the fact whether the Advance authorization was issued prior to 1.7.2017 or after that.
– Inputs imported under Advance Authorization have also been exempted from countervailing dutyunder Section 9 of the Customs Tariff Act. This was an anomaly in the previous notifications, pertaining to Advance Authorization,which has now been corrected.
– In case an Advance Authorization Holder procures the goods from a domestic manufacturer then such procurement can be done only on payment of applicable GST. Such supplies would be considered as ‘deemed export’. IGST paid by the supplier can be availed as the credit by the Advance Authorization Holderunder the GST law.
– Such supplier would also be eligible for Advance Authorization / duty drawback for making deemed export supplies. Supplier of goods can also take the refund of the GST (just like TED), under the GST law in terms of Notification No 47/2017-Central Tax to 49/2017-Central Tax all dated 18.10.2017. The said refund of GST can also be taken by the recipient of goods (AA holder).
– An EOU’s can import inputs or capital goods without payment of custom duty including IGST.
– In case an EOU procures inputs or capital goods from domestic sources then it has to procure only on payment of applicable GST. Of course, the EOU can take the credit of the GST paid on such supplies.
– Supplier of the goods to EOU would be eligible to ‘deemed export’ benefits like Advance Authorization/duty drawback.
– Such domestic supplier would also be eligible for Advance Authorization / duty drawback for making deemed export supplies. Supplier of goods can also take the refund of the GST (just like TED), under the GST law in terms of Notification No 47/2017-Central Tax to 49/2017-Central Tax all dated 18.10.2017. The said refund of GST can also be taken by the recipient of goods (EOU).
In nutshell, under the EPCG Authorisation, Advance Authorisation and EOU Schemes, to avail the benefit of these schemes and importing duty free raw material (even without payment of IGST), the persons concerned shall make physical export of the goods . In case of deemed export, payment of duty under GST law is mandatory and the credit of the same will be available. Alternatively, the refund of the GST can be availed either by the supplier of goods or by recipient of goods. Interestingly and surprisingly the exemption from IGST on imported goods or refund of GST on domestic supplies would be available only if the export obligation by the AA holder or EPCG holder has been fulfilled by making the physical export of goods. The said benefit would not be available in case, the export obligation is fulfilled or intended to be fulfilled by making the deemed export supplies by the AA holder or EPCG holder.
(The author is a practicing advocate and the views expressed are strictly personal.)