Hamza Tax Law 2
Hamza Tax Law 2
B.A.LLB. (H.)
Tax Law II Assignment
Topic – Export and Import Under GST Act, 2017
1. INTRODUCTION
13. TAX TREATMENT OF EXPORT OF GOODS AND SERVICES TO NEPAL AND BHUTAN
14. TAXES ON IMPORT TO CONTINUE AFTER GST
15. CONCLUSION
16. REFERENCE
INTRODUCTION
Foreign trade is one of the indices of a country’s economic growth. India is one of the
fastest growing economies in the world. Our country’s trade is booming. India exported
goods worth $274.6 billion in 2016-17, 4.7% higher than $262.2 billion in FY16. Trade
deficit in 2016-17 was $105.7 billion.
With the government’s decision to roll out Goods and Services tax (GST) in 2017, a
wave of apprehension ran through the business sector. Arguably GST’s implementation
will change the way of doing business in India, and impact the trade (import-export of
goods) as well. But will this impact be negative or positive? Prior to understanding
GST’s effect on trade, let’s quickly delve into the basics of GST.
GST is a single tax levied on the supply of goods and services, right from the
manufacturer to the consumer. It will replace a host of the current central taxes and
duties, and state cesses. Under the GST regime, credits of input taxes paid at each stage
will be available in the subsequent stage of value addition.
GST in India will have three components: Central Goods and Service Tax (CGST), State
Goods and Service Tax (SGST) and Integrated Goods and Service Tax (IGST). Centre
would levy and collect CGST, and States would levy and collect SGST on all
transactions within a State. The IGST would be equivalent to CGST plus SGST. IGST
will ensure flow of input tax credit from one State to another.
No tax will be payable on export of goods or services as per the GST law. Credit of input
tax credit will be available and same will be available as refund to the exporters.
However, the scenario is different in case of imports. Under the GST regime:
Import of goods and services will be treated as inter-state supplies. IGST will be
levied on the import of goods and services into the country. Basic Customs Duty
(BCD) will be levied on the import of goods in addition to IGST.
With regard to import of services, the service receiver will be liable to pay tax on
the service if such services are provided by a person residing outside India. This
practice is similar to the current provision of reverse charge, wherein service receiver
is required to pay tax and file return.
GST will follow the Transaction Value based Valuation Principal from the current
customs law. IGST will be computed on the transaction value of the goods.
Tax paid during import will be available as a credit under “Import and Sale”
model. Also refund of Special Additional Duty (SAD) which is available now, after
doing specific compliance, no such restrictions will be part of GST.
The tax revenue in case of SGST will accrue to the State where the imported
goods and services are consumed, as GST is a destination-based tax.
The current customs import tariff that are loaded with multiple exemption
notifications, will be reviewed and possibly withdrawn, or converted into a refund
mechanism. This exercise could change the structure of export-linked duty exemption
schemes under the FTP where the duty exemptions may be relieved from payment of
BCD. However, IGST may not be exempted.
MEANING OF EXPORT & IMPORT OF GOODS
Section 2 (5) of IGST Act, 2017 defines – “Export of Goods”, with its grammatical
variations and cognate expressions, means taking out of India to a place outside India.
Section 2 (10) of IGST Act, 2017 defines – “import of goods” with its grammatical
variations and cognate expressions, means bringing goods into India from a place outside
India.
“Import of Services” as defined under Section 2 (11) of IGST Act, 2017 means the
supply of any service, when –
“Export of Services” as defined under Section 2 (6) of IGST Act, 2017 means the
supply of any service, when –
4. The payment for such service has been received by the supplier of service in
convertible foreign exchange; and
5. The supplier of service and the recipient of service are not merely establishments of a
distinct person in accordance with Explanation 1 in section 8;
6. Explanation 1— For the purposes of this Act, where a person has,—
As per provisions of the IGST law import of goods into India shall be deemed to be a
supply in the course of inter-State trade or commerce. It has also been provided that
Integrated Tax on goods imported into India shall be levied and collected in accordance
with the provisions of Section 3 of the Customs Tariff Act, 1975 at the point when duties
of Customs are levied on the said goods under the Customs Act, 1962, on a value as
determined under the Customs Tariff Act, 1975
The Taxation Laws (Amendment) Act, 2017 provides that IGST on imports will be levied
at value of imported article as determined under the Customs Act plus duty of customs
and any other sum chargeable in addition to customs duty (excluding GST and GST
Cess). This in effect makes levy of IGST at par with present levy of CVD which is on
basic value plus customs duty.
As per the definition of ‘supply’ under CGST law, import of services for a consideration
whether or not in the course or furtherance of business is deemed to be supply and as per
the IGST law, supply of services in the course of import into the territory of India, shall
be deemed as supply of services in the course of inter- State trade or commerce.
Accordingly, Integrated Tax would be levied on import of services. Although the
provisions are yet to be notified, the Integrated Tax on import of services would be
payable by the recipient under reverse charge.
Further, there would be no change in applicability of countervailing duty levied under
section 9BB of the Customs Tariff Act, 1975 (and different from the additional duty of
Customs levied under section 3, ibid., also known as CVD), anti-dumping or safeguard
duties, where ever imposed by the Government.
As per the provisions of IGST law, export of goods and/or services are to be treated as
“zero rated supplies” and a registered taxable person exporting goods or services shall be
eligible to claim refund under one of the following two options:
Export under bond or letter of undertaking without payment of Integrated Tax and
claim refund of unutilized input tax credit.
Export on payment of Integrated Tax and claim refund of the tax so paid on goods
and services exported. The aforesaid refunds will be subject to rules, safeguards and
procedures as may be prescribed.
Exports are being zero rated, and therefore input taxes paid would be allowed as refund.
However, to determine whether the services qualify as export, it would be important to
analyse the conditions prescribed for “export of service”.
The definition of “export of service” is similar to the present law, and therefore no new
conditions are prescribed. However, place of supply rules would need to be evaluated on
a case-to-case basis to determine the tax applicability on such services.
The default rule for place of supply for export of service shall be the location of the
service recipient, where the address on record of the recipient exists with the exporter.
Hence, it will be critical for exporters to ensure that the address of service recipient on
record can be established before the authorities on request.
The typical IT/ ITES services that may fall under the default rule include software
development, BPO operations, software consultancy, etc. Apart from these, certain
services like software support/ maintenance and intermediary services will also move to
the default rule, as there are no exceptions carved out for these, unlike under the present
law.
There are exceptions to the above default rule, wherein training services could be based
on the performance location of training, but at the same time, online training is not
specified, and therefore could fall under default rule.
Thus, a detailed analysis of the nature of services and its place of supply would need to
be carried out to determine whether the services would be treated as exports and zero
rated.
However, with respect to software supplied electronically, the same may not be covered
under “goods” as the definition of goods does not include intangible property. Hence, it
would be covered under “service”. This is likely to put to rest the vexed issue of dual
taxation of software supplied electronically under the present laws.
In the context of cloud computing, the draft law provides that transfer of right in goods
without transfer of title, including leasing transaction, shall be treated as a service. Hence,
cloud services shall be treated as supply of “service” and therefore, the debate of dual
taxes of VAT and service tax will not arise under GST.
CONTINUATION OF EXEMPTIONS FOR STP/ SEZ UNITS
No exemptions have been specified in the draft law for STP and SEZ units. Upfront
exemption from customs duty/ excise duty for STP units and SEZ units (including service
tax and CST exemption for SEZs) may not continue as GST will be payable on imports
or procurements as per the draft law.
The GST paid on such procurements will be eligible as refund and therefore, will impact
the working capital requirements of such units.
The efficacy of the STP scheme therefore seems doubtful upon transition to the GST
regime, as the benefit may be restricted only to BCD paid on import of non-IT products.
Upfront exemption of service tax for SEZ units (by way of Form A1/ A2) is also likely to
be converted to refund.
In case of zero rated supplies made without payment of tax, refund of input tax
credit will be available as per proviso (i) to section 54(2) of CGST Act.
No refund of unitized input tax credit shall be allowed in cases other than exports
including zero rated supplies or in cases where the credit has accumulated on account
of rate tax on inputs being higher than the rate of tax on output supplies, other than nil
rated or fully exempt supplies – first proviso to section 54(3) of CGST Act.
No refund of unutilized input tax credit shall be allowed in cases where the goods
exported out of India are subjected to export duty – second proviso to section 54(3) of
CGST Act.
No refund of input tax credit shall be allowed if the supplier of goods or services
avails duty drawback of CGST / SGST / UTGST or claims refund of IGST paid on
such supplies – third proviso to section 54 (3) of CGST Act.
DEEMED EXPORTS
India gets foreign aid from World Bank, Asia Development bank etc. for various
prestigious projects in India for which global tenders are invited and India gets aid in
foreign currency.
Indian manufacturers and suppliers of services from India have to quote in competition
with foreign suppliers. Evaluation of bids is done without considering customes duty.
Since the supply of goods and services are for projects financed with free foreign
exchange, these supplies are treated as ‘deemed exports’.
Similarly, supplies to EOU units and services do not leave the country. Suppliers of
goods and services get payment in Indian rupees and not in foreign currency.
Deemed exports refer to those transactions in which goods supplied do not leave country,
and payment for such supplies is received in para 7.02 of Foreign Trade Policy 2015-
2020 shall be regarded as ‘deemed exports’, provided that goods are manufactured in
India.
As per Foreign Trade Policy 2015-2020, followings are treated as deemed exports:
Supplies against Advance Authorisation/ DFIA
Supplies to UN Agencies
Definition of import of service also excludes services imported from overseas branch.
However, the law has certain contradictions and therefore clarity to be obtained on this.
Exports are priority of any country, Goods and services are to be exported, taxes are not
to be exported. WTO stipulates free and fair global trade. Giving export incentives will
be against principle of fair trade and hence export incentives are not allowed under WTO.
However, goods and services can be free of domestic taxes.
Supplies to SEZ unit and SEZ Developer are treated at par with physical exports.
Provisions in CGST Act have been designed by make exports tax free. Export benefits
under GST – In relation to GST, following are the concessions / incentives for exports:
(2) Refund of GST paid on inputs. Exporting units need raw materials without payment
of taxes and duties, to enable them to compete with world market. Government has
devised following schemes for this purpose:
(a)Special Economic Zones at various places where inputs are allowed to be imported
without payment of duty and finished goods are exported, and
(b) Export Oriented Undertakings (EOU), and, (c) Duty Drawback Scheme, and (d)
Schemes of Advance Authorization, DEPB and DFIA.
Elaborate procedures have been prescribed for the above, to ensure that the benefits are
not misused.
Even after introduction of GST following duties may not be subsumed under GST regime
and they may continue to be levied as usual. These duties are:
Anti-Dumping Duty
Safeguard Duties
After the introduction of full and complete GST major import gaining sectors
include leather and leather products; furniture and fixtures; agricultural sectors; coal and
lignite; agricultural machinery; industrial machinery; other machinery; iron and
steel; railway transport equipment; printing and publishing; and tobacco products. The
moderate gainers include metal products; non-ferrous metals; and transport equipment
other than railways. Imports are expected to decline in textiles and readymade garments;
minerals other than coal, crude petroleum, gas and iron ore; and beverages.
CONCLUSION
With GST in place, the export industry in India would be able to have internationally
competitive prices due to the smooth process of claiming input tax credit and the
availability of input tax credit on services.
In relation to GST, following are the concessions / incentives for exports : (1)
Exemption from GST on final products or (2) Refund of GST paid on inputs.
Credit of input tax may be availed for making zero-rated supplies, even if such
supply is exempted supply – section 16(2) of IGST Act.
Refund of unutilized input tax credit shall not be allowed in cases where the goods
exported out of India are subjected to export duty.
Refund of input tax credit shall not be allowed if the supplier of goods or services
avails duty drawback of CGST / SGST / UTGST or claims refund of IGST paid on
such supplies [Thus, duty drawback of customs portion can be availed].
Benefits will be available to ‘ deemed exports’ also. Mostly, the benefit will be
through refund route and not direct exemption.
If goods are imported, IGST and GST Compensation Cess will be payable.
If goods are taken to warehouse and then cleared from warehouse, IGST and GST
Compensation Cess will payable at the time of removal of warehouse.
IGST Act or CGST Act make no provision in respect of high seas sale i.e. sale in
course of imports. In absence of such specific provision, it seems IGST will be payable
if sale takes place within Exclusive Economic Zone i.e. within 200 nautical miles
inside sea.
REFERENCE
BOOKS
GST Manual with GST Law Guide & GST Practice Referencer (Set of 2
Volumes) (9th Edition, September 2018), Taxmann
GST Laws Manual: Acts, Rules and Forms Paperback – May 2017, Rakesh
Garg (Author), Sandeep Garg (Author)
Bare Act on Goods and Services Tax Acts and Rules (GST), Universal Law
Publishing Co.
WEBSITES
https://indiankanoon.org/search/?formInput=gst&pagenum=5
http://gstcouncil.gov.in/sites/default/files/import-and-export.pdf
https://www.scribd.com/doc/34573677/import-export