Exports under GST
1. How are exports covered under GST?
The export of goods or services is considered as a zero-rated supply. GST is not being
levied on export of any kind of goods or services. Zero rated supply means export of
goods or services or both, or supply of goods or services or both to a Special Economic
Zone developer or a Special Economic Zone unit (Section 16(1) of IGST Act, 2017). Export
of goods as defined with its grammatical variations and cognate expressions, mean
taking goods out of India to a place outside India (Section 2(5) of IGST Act, 2017).Export of
services as defined in Section 2(6) of IGST Act, 2017 means the supply of any service
when:
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in
convertible foreign exchange; and
(v) 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.
There is no condition to receive the payment of goods in convertible foreign exchange in
case of export of goods unlike in case of export of services.However, in case of services,
where the payment is received in Indian rupees, the same shall not qualify to be export
of services.
Attention is invited to para A (v) Part-I of RBI Master Circular No. 14/2015-16 dated
01stJuly, 2015 (updated as on 05th November, 2015), which states that “there is no
restriction on invoicing of export contracts in Indian Rupees in terms of the Rules,
Regulations, Notifications and Directions framed under the Foreign Exchange
Management Act, 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-
2020), all export contracts and invoices shall be denominated either in freely convertible
currency or Indian rupees but export proceeds shall be realized in freely convertible
currency. However, export proceeds against specific exports may also be realized in
rupees, provided it is through a freely convertible Vostro account of a non-resident bank
situated in any country other than a member country of Asian Clearing Union (ACU) or
Nepal or Bhutan”.
Accordingly, the acceptance of LUT for supplies of goods to Nepal or Bhutan or SEZ
developer or SEZ unit is permissible irrespective of whether the payments are made in
Indian currency or convertible foreign exchange as long as they are in accordance with
the applicable RBI guidelines. It may also be noted that the supply of services to SEZ
developer or SEZ unit under LUT will also be permissible on the same lines. The supply of
services, however, to Nepal or Bhutan will be deemed to be export of services only if the
payment for such services is received by the supplier in convertible foreign exchange
(Circular no. 8/8/2017- GST dated 04 October 2017).
2. What are Deemed Exports?
Deemed exports are the supplies of goods that do not leave India and payment for such
supplies is received either in Indian rupees or convertible foreign exchange, provided
goods are manufactured in India. Section 147 of CGST Act, 2017 empowers the Central
Govt. on the recommendations of the Council to notify deemed exports. All supplies
notified as supply for deemed export will be subject to levy of taxes, i.e. such supplies
can be made only by payment of tax.
However, the refund of tax paid on the supply regarded as deemed export is admissible
to either the supplier or the recipient. The deemed exporters can either:
• To levy GST on supply and collect it from the recipient. In this case, the recipient shall
apply for a refund.
• To levy GST on supply and to not collect it from the recipient. In this case, the supplier
shall apply for a refund through GST RFD 01. In this case, a declaration is also required
from the recipient to the effect that he does not avail any input tax credit of the same.
Categories of Supply of Goods notified as deemed exports (vide notification no. 48/2017 -
Central Tax dated 18 October 2017):
a. Supply of goods by a registered person against Advance Authorisation.
b. Supply of capital goods by a registered person against Export Promotion Capital
Goods Authorisation.
c. Supply of goods by a registered person to Export Oriented Unit.
d. Supply of gold by a bank or Public sector Undertaking specified in the notification No.
50/2017-Customs dated the 30th June 2017 (as amended) against Advance Authorisation.
3. How exports are made?
Exports are made under bond or under letter of undertaking.
In case of exports under bond, a general security bond is issued on an application made
along with bank guarantee provided for a certain amount. The purpose of the bank
guarantee is to provide security to the government in case of any non-compliances or
frauds. The bond issued under GST is not separate for each consignment, but a running
bond is issued so that terms and conditions are the same for each consignment.
In case of exports under letter of undertaking, a guarantee is furnished by a taxpayer
that it is engaged in the export of goods and/or services or both and it satisfies all the
conditions about the export of goods and services without payment of GST. It is like
permission taken from the government for exporting the goods without payment of tax.
Earlier, the application for the same was generally made physically on the letterhead of
the company, but under the GST regime, an online application is to be submitted on the
GST portal.
In case of exports underpayment of IGST, the taxpayer make exports of goods or
services on payment of IGST.
4. Who are eligible for using bonds or letter of undertaking for exports?
Any registered person who has received a remittance of Rs. 1 crore or 10% of the export
turnover whichever is higher in the previous financial year and who has not been
prosecuted for tax evasion for an amount of more than Rs. 2.5 Crores is eligible to avail
the benefit of LUTs (Notification no. 16/2017 - Central Tax dated 7 July 2017). However,
the condition of inward remittance of higher of 10% or Rs. 1 crore has been relaxed vide
notification no.37/2017- Central Tax dated 04 October, 2017. Now, exporters who have
not been prosecuted/ prosecuted for tax evasion uptoRs. 2.50 crores can avail the
benefit of LUT while those who have been prosecuted for an amount of more than Rs.
2.50 crores can apply for making exports using bonds.
The validity of LUT is for one financial year. For every new financial year, a fresh LUT
should be applied. If any discrepancies found in the application for LUT are not corrected
within the prescribed time, then the LUT will be cancelled.
The LUT’s are required to be submitted online on the GST common portal. However, a
bond has to be submitted as a hard copy to the department.
5. Whether tax paid on zero-rated outward supplies can be refunded?
An exporter dealing in zero-rated goods under GST can claim a refund for zero-rated
outward supplies as per the following options:
A: If Bond / LUT has been furnished:
The taxpayer is not required to make payment of taxes at the time of exports in case the
bond / LUT has been furnished before exporting the goods/services. Therefore, he will
not be required to claim any refund in respect of outward supply (export) of goods or
services.
B: If a Bond / LUT has not been furnished:
If the taxpayer has made the payment of GST on the export of goods, then the shipping
bill filed by the exporter at the time of export would itself constitute the refund claim
subject to two conditions:
a) The person in charge of the conveyance carrying the export goods (Example: shipping
agency) has filed an export general manifest.
b) The applicant has filed a valid return in form GSTR 3B and GSTR 1 accurately specifying
all the details relating to the export of goods/services.
C: IGST is paid on export:
IGST paid on the supply of zero-rated supply of goods or services can be claimed as
refund. The same is provided in section 16(3)(b) of IGST Act, 2017.
6. Whether ITC can be availed in making zero-rated supplies? Whether unutilized
ITC can be claimed as a refund by the person making zero-rated supply?
ITC on inputs or capital goods are allowed to be availed for making zero-rated supply
(notwithstanding that it is an exempt supply). Section 16(2) of IGST Act, 2017 provides for
the same.
Unutilized ITC is eligible to be claimed as a refund by the person making zero-rated
supply provided the supply of goods or services or both is made under bond or letter of
the undertaking without payment of IGST (Section 16(3)(a) of IGST Act, 2017). It may be
noted that the refund of the accumulated unutilized input tax credit would not be
available where goods exported out of India are subjected to export duty (Proviso to
Section 54(3) of CGST Act, 2017).
The exporter needs to file an application for refund on the common portal either directly
or through the facilitation center notified by the GST commissioner. An export manifest
or report has to be filed under the Customs Act prior to filing an application for refund.
In respect of the refund of the accumulated unutilized input tax credit on account of
exports, an online application in form RFD - 01 A is required to be filed on the common portal providing the details about:
• Turnover of zero-rated supply of goods and services
• Adjusted total turnover
• Net Input tax credit
The portal automatically calculates the maximum refund amount to be claimed on
entering the details mentioned above, and after entering the details of bank accounts,
we can apply for a refund.
• Manufacturer of fabrics are eligible for refund of unutilized ITC of GST paid on inputs
(but not capital goods) in respect of fabrics manufactured and exported by him (Circular
no. 18/18/2017- GST dated 16 November 2017).
• Under GST, the duty drawback would only be available for the customs duty paid on
imported inputs or central excise paid on certain petroleum or tobacco products used as
inputs or fuel for captive power generation.
• No refund of ITC shall be allowed if the supplier of goods or services or both avails of a
drawback in respect of CGST or claims refund of IGST paid on such supplies (Proviso to
Section 54(3) of CGST Act, 2017).
• Refund of unutilized input tax credit of central tax / State tax / Union territory tax /
integrated tax shall be available to a supplier availing of drawback only with respect to
basic customs duty. It is further clarified that refund of eligible credit on account of State
tax shall be available even if the supplier of goods or services or both has availed of
drawback in respect of central tax (Circular no. 37/11/2018-GST dated 15 March, 2018).
7. How much refund is granted to the taxpayer?
After the processing of the application of refund claim, 90% of the amount claimed as
refund is credited to bank account within 7 days of the date of claim. The remaining 10%
refund will be credited on due verification of documents furnished by the applicant.
========================================================================
High Sea Sales- Procedure & Implications under GST & Customs
What is high sea sale?
High Sea Sales [HSS] is a common trade practice within four corners of law whereby the original
importer of goods sells the subject goods to a third person before the goods are entered for
customs clearance.
HSS in general understanding is a sale where importer sells the goods to another buyer after
the goods are loaded on a carrier such as ship, aircraft in exporter’s country while the goods
are yet on high seas or in the air or sale of the goods after their dispatch from the port/ airport
of export and before their arrival at the destination port/ airport.
For example, A located in Mumbai procures goods from vendor B of USA. The goods are
exported from USA and when the goods are in transit, A enters into a contract with C of Nagpur,
and sells these goods to C, before the goods crosses the customs frontier of India. The sale of
goods by A of Mumbai to C of Nagpur, while they are in transit is called high sea sale.
There is no bar on same goods being sold more than once on high seas. The same consignment
of goods in transit can be sold multiple times before such goods cross customs frontier and
enter into territory of India.
Why high sea sales?
In the case of HSS, the end HSS buyer would be treated as importer. He clears the goods from
customs on payment of applicable import duties. Further if there is any end user-based
exemptions in respect of the goods, then such end HSS buyer who uses such goods, for
specified purposes can claim such exemptions/concessional tax benefits when he presents the
bill of entry for home consumption at customs.
For example, the goods imported by EOUs or SEZs are normally exempted from the payment of
BCD and IGST on the import of goods. Where the HSS seller purchases the goods from outside
India and enters into an HSS contract with an EOU or SEZ when such goods are in the transit,
such EOU or SEZ would not be required to pay BCD and IGST when it files the bill of entry for
home consumption.
Suppose such goods were cleared by the original importer from the customs area and then sold
to the EOU instead of selling such goods on HSS basis, the original importer would be required
to pay BCD when it imports the goods which would be a cost to him and which would be
recovered from the EOU when the goods are sold subsequently.
Procedure for High sea sales-
The HSS seller buys goods from an overseas supplier against POs received from its
customer in India i.e., HSS buyer. That is, it will be a back to back PO. As against the PO
given by the HSS seller, the overseas supplier will export the products. The export
documents such as the bill of lading will show the HSS seller as the buyer of the goods.
After the goods are dispatched from the port of the exporter country and before the
goods reach/ cross the customs frontier of India and is entered for customs clearance, the
goods will be sold by the HSS seller to its HSS customer by entering into HSS contract/
agreement.
HSS contract should be entered on stamp paper, signed by both the HSS buyer and HSS
seller and should be duly notarised. In the cases where the HSS Contract is not notarised,
the same is required to be attested by the authorized signatory of bankers. The
notarisation is required in order to determine the time of entering into HSS agreement or
contract.
The sale is to be effected by endorsing the bill of lading, invoice and packing list in favor of
the HSS buyer. The endorsement should read "Transferred on High Sea Sales basis to M/S
-------- for a sales consideration of Rupees --------". Such endorsement should be stamped
and signed by the HSS seller. Sale invoice indicating the price at which goods are sold by
the HSS seller to HSS buyer should be issued. [This is suggestible if the HSS seller does not
mind disclosing original import values to HSS buyer.]
In the example given above, A of Mumbai buys goods from the USA against POs received
from B of Nagpur. After the goods are dispatched from USA and before the goods reach/
cross the customs frontier of India, the goods would be sold by A of Mumbai to B of
Nagpur by entering into HSS contract/ agreement. A is called the HSS seller and B is called
as HSS buyer.
Filing of IGM
The Import General Manifest [IGM] is to be filed in the name of HSS buyer as the
consignee of the goods by the shipping line if such shipping line is aware of the HSS
contract before filing IGM. In such cases IGM is not required to be amended.
Where the IGM is already generated by the shipping line and has mentioned the HSS
seller as the consignee of the goods in the IGM, then the shipping line would be required
to amend the IGM in order to change the consignee as the HSS buyer. The procedure to
amend IGM by the shipping line is given below.
Amendment of IGM
Circular 14/2017- Customs dated 11 April 2017 provides the procedure for amending IGM. The
shipper would be required to file an application for the amendment in the IGM in its letter head.
The following documents are required to be filed along with the application for the amendment
in the IGM:
1. HSS contract signed by both the HSS buyer and HSS seller and duly notarised. In the cases
where the HSS Contract is not notarised, the same is required to be attested by the
authorized signatory of Bankers.
2. Non-negotiable copy of Bill of Lading in original. If same is not available, then a photocopy
of such Bill of Lading duty authenticated by Shipping Line/ Steamer Agent/ Custom Broker;
3. HSS invoice and commercial invoice in original or a duly attested Copy thereof;
4. Authority letter for custom broker appointed by the HSS buyer or application from HSS
buyer (if CB is not appointed) in original,
5. IEC copy of both the buyer and the seller.
Minor amendment: Wherethe HSS contract was entered and notarised or attested by the
bankers before the date of the IGM then the IGM can be amended under minor amendment by
the shipping line.
Major amendment: Wherethe HSS contract was entered and notarised or attested by the
bankers after the date of the IGM, then the amendment would be dealt by the Customs as a
major amendment.
Note: The amendment of IGM could be adjudicated if the Customs department contend that
such major amendments involve fraudulent intention or substantial revenue implication arising
from the amendments.
The bill of entry should be filed by the HSS buyer who will discharge the applicable duties
of customs and IGST on the imported goods and will clear the goods for home
consumption/ warehousing, as the case maybe.
The delivery from customs is on account of HSS buyer. He is liable to pay BCD and IGST on
the import of HSS goods and take the credit of IGST paid on such imports in GSTR-3B
based on the bill of entry, if used for effecting taxable supplies and exports in the course
or furtherance of business.
Procedure in the case of multiple HSS:
There is no bar on same goods being sold more than once on high seas [as discussed
above]. That is, the same goods which are in high seas sold by A of Mumbai to B of Nagpur
can be sold by C of Solapur and so on.
In such cases, the bill of entry is to be filed by the end HSS customer. The last HSS
agreement should give an indication of previous title transfers. The last HSS buyer should
also obtain copies of previous HSS agreement.
The ultimate HSS buyer would be required to furnish the entire chain of documents, such
as original Invoice, HSS contract, details of service charges/ commission paid etc, to
establish a link between the first contracted price of the goods and the last transaction
which is required for the determining value of imported goods.
Determination of value of imported goods: Circular No. 32/2004-Cus., dated 11-5-2004
provided the clarification relating to the valuation of imported goods for the determination of
customs duty payable.
It is clarified that the actual HSS contract price paid by the HSS buyer would constitute the
transaction value under Rule 4 of Customs Valuation Rules. Hon’ble Supreme Court, in the
case of M/s. Hyderabad Industries Limited [2000 (115) E.L.T. 593 (S.C)] has upheld that the
service charges/ HSS commission (‘actuals) are includable in the CIF value of imported
goods.
The HSS seller will normally sell at a price higher than the price paid by HSS seller to his
overseas vendor. The HSS price is to be considered for the determination of value of
imported goods even if such price is lower than the price paid by HSS seller to his
overseas vendor. The price paid by HSS seller to his overseas vendor cannot be a basis for
determination of transaction value. Held in Excel Glasses Ltd. Vs Commissioner of
Customs, Trichy- 2004 (166) E.L.T. 496 (Tri. - Bang.).
Where the same goods are being sold more than once on high seas the last HSS value is to
be considered for the payment of BCD and IGST.
HSS goods are entitled to classification, rates of duty and all notification benefits as would
be applicable to similar import goods or normal sale.
However, the customs can call for the original import invoice, in which case the HSS seller
may have to part with this information. Where the HSS seller is not ready to disclose the
details of the goods procured by it, the HSS seller should take on the responsibility of
customs clearance and site delivery.
After customs clearance, the HSS seller could withdraw import invoices and only hand over
clearance documents with HSS agreement to the HSS buyer. The customs bill of entry does
not indicate original import value and is prepared on HSS value.
In case of a doubt regarding the truth or accuracy of the declared value, the department
may reject the declared transaction value and determination the price of the imported
goods as provided in the Customs Valuation rules.
Whether GST is applicable on the HSSIGST
on the imported goods is levied and collected in accordance with the Customs. Since,
BCD is not payable on the HSS, even IGST is not payable on HSS.
Circular No. 33/2017-Cus., dated 1-8-2017 has clarified that IGST on HSS of imported
goods, whether one or multiple, shall be levied and collected only at the time of
importation i.e. when the import declarations are filed before the Customs authorities for
the customs clearance purposes for the first time.
The CGST amendment act, 2018 has amended Schedule III to include supply of goods by
the consignee to any other person, by endorsement of documents of title to the goods,
after the goods have been dispatched from the port of origin located outside India but
before clearance for home consumption i.e., HSS. The above amendment act has included
HSS in the activities which are not to be treated as supply under GST. This amendment is
effective from 01 February 2019.
Difference between HSS and bond sales: The imported goods are at times stored in the
warehouses before filing the bill of entry for home consumption in the name of buyer. The
storing is commonly referred to as bonding of goods or stored in the bonded warehouse as the
customs duty on such goods is assessed and paid only on the date of clearance of goods from
the customs authority. Such goods are thereafter sold ex-bond to the buyer.
Bond sales i.e., sale of warehoused goods is not similar to the case of HSS since the sale/
transfer of imported goods after warehousing cannot be considered to have been made in the
course of international trade. Sometime HSS buyers buy goods after their arrival. Such sales are
also not HSS.
Reversal of ITC as attributable to HSS
The Authority for Advance Ruling under GST, Maharashtra in the case of Basf India Limited-
2018-TIOL-82-AAR-GST dated 21st May 2018 has held that goods sold on HSS by the HSS seller is
a supply which is not taxable under GST [i.e., non-taxable supply] and is exempt supply. Input
tax credit of common inputs, capital goods and input services to the extent related to HSS is
required to be reversed by the HSS seller.
Based on the above ruling, a view might arise that the common credits to the extent relating to
HSS is required to be reversed by the HSS seller. However, this might not be correct as the sales
effected outside India cannot be treated as covered under the scope of supply under GST.
However, the above advance ruling does not have much persuasive value. These rulings are not
applicable and cannot be relied upon by any person other than the applicant of the ruling.
As discussed above, the amendment act has included HSS in the activities which are not to be
treated as supply under GST effective from 01 February 2019. Since, the amendment is
beneficial to the assessee, the amendment may be of retrospective effect. Since HSS is not a
supply only, it cannot be treated as exempt supply and accordingly the ITC relating to HSS is not
required to be reversed.
Conclusion:
HSS, though has several benefits as discussed above, is required to be practiced and complied
with utmost care and diligence with proper documentation. Where the HSS seller or buyer is not
in a position to prove that the title of the goods in high seas was transferred before such goods
enter the customs area, the possibilities are that there could be excess payment of BCD and
IGST. The government has clarified the position of high sea sales under GST in favor of the
assessee that it would not be taxable under GST by treating it as an activity which is not a supply.
For Any Business Queries can direct call us at +91 9210599295, or you can
Email us at amitaggarwal100@gmail.com
No comments:
Post a Comment