Goods and Service Tax - Impact on Imports / Exports / Foreign Trade Policy
September, 08th 2016
Impact of Goods and Service Tax on Imports and Exports in India is the area which calls for review of various statutory compliances, IGST Rates, Export Benefits, Import Exemptions, Position of EOU in present Vs GST Regime, Supplies to SEZ/STPI/Mega Power Projects/Projects under ICB (International Competitive Bidding)......
Industry at large needs to review the Impact of GST on Imports from Working Capital perspective, Input / Capital Cost of Imports, Decision making, Imports Vs Indigenous sourcing........
In the present Indirect Tax structure, Central Taxes are refunded by either the office of Ministry of Finance or Ministry of Commerce, but the provisions under Model GST law seems to involve State also if the existing benefits under FTP 2015-20 continued, which has been discussed below in detail.
Ministry of Commerce should take up with the Ministry of Finance and it is recommended to have members from DGFT also to be part of GST Council so that the provisions of FTP 2015-20 should be taken care of and suitably considered while drafting GST Bill. Royal Malaysian Customs GST on Imports can be referred to as a guide for formulating GST treatment in case of Imports.
Utilisation of Duty Credit Scrip (MEIS/SEIS)
Duty Credit Scrip is issued by the office of Regional DGFT at a specified % on FOB Value of Exports on the Notified products into Notified Markets.
Chapter 3 of FTP 2015-20 (Para 3.02) provides for utilisation of Duty Credit Scrip for the payment of Central Taxes i.e. Excise Duty / Custom Duty / Service Tax / Composition fees / Import Duty against E.O. Defaults in case of IMPORTS & Domestic Sourcing of RM/Capital Goods.
Duty Credit Scrip at present is utilised for payment of Excise Duty, Service Tax, Custom Duty, CVD, SAD on Indigenous and Imported Inputs/Capital Goods. The same is also used for payment of Duty payments against E.O. Defaults in Chapter 4 and 5 of FTP 2015-20
No Provision exists in the Model GST Law-2016 (Section 35) for the utilisation of Duty Scrip for the payment of GST in case of Indigenous sourcing or Imports or E.O. Defaults.
The same should be reviewed and suitably incorporated in GST Law as one of the Mode of Payment of GST as in the absence of same, financial outflow will increase and the Duty Credit Scrip remain unutilised or accumulated with the Exporter. However as the Basic Custom Duty is out of GST, the Duty Scrip can be utilised towards payment of Basic Custom Duty, but nevertheless issue remains for payment of IGST in case of Imports or Indigenous sourcing.
CENVAT Credit admissibility on Utilisation of Duty Credit Scrip
Duty Credit Scrip utilised for payment of Excise Duty / Service tax is eligible for CENVAT Credit in the present Excise Law / FTP 2015-20 (Para 3.15 of FTP), whereas NOTHING has been specifically provided in Section 35, Section 16 of Model GST Law and Section 8 of IGST Act for Credit of Input Tax.
Transitional Provisions not aligned with FTP 2015-20
Transitional provisions have been defined under Model GST Law for carry forward of Input Tax credit on the appointed day, but NOTHING has been specified for Input Tax Credit in GST regime in respect of Duty Payments made from Duty Credit Scrip before the appointed date.
Transitional provisions should be specified by the Office of DGFT (Ministry of Commerce) in alignment with the Model GST Law in respect of Imports cleared against Advance Authorisation / EPCG Schemes before the appointed date, but the material has been received after the appointed day.
What would be the scenario if the Imports are duty paid under present regime i.e. CVD & SAD is paid on Imports???? Would the credit of CVD and SAD is available as IGST in the GST regime????
What would be the fate of CENVAT Credit of duties debited from Duty Credit Scrip against E.O. Defaults or regular Imports or Indigenous sourcing against Import Licences with Invalidation letter???
All the above needs to be considered and incorporated in GST Model Law so as to have continuity in business operations.
Exempted Supplies to EOU/STPI/Mega Power Projects against Concessional Certificates
At present Supplies to EOU/STPI/Mega Power Projects/World Bank Funded Projects / Projects under ICB are exempted from Central Taxes against CT-3/CT-1/Certificates from State Govt. or by way of Refund of Terminal Excise Duty / Duty Drawback.
All supplies as stated above are subject to Tax in GST regime. In case of supplies to EOU, Refund of GST may be claimed either by the Supplier of goods or Recipient subject to some conditions.
Nothing has been specified for supplies to STPI/Mega Power Projects / World Bank funded Projects as to the payment of GST and refund of same. In absence of clarity, these supplies would attract GST which adds to cost of product and may impact on sourcing from within India thus defeating the Make in India concept.
What would be the GST Liability for Temporary Importation of Goods in India and sent back after repairs, reconditioning, testing or any other processes- Not defined in Model GST Law???????
What would be the treatment of GST in case of Import of material in India and transfer to Warehouse, which would be cleared for home consumption afterwards from Warehouse. GST is to be paid upon clearance of goods from warehouse but all these needs to be specified by GST Law.
Supplies as stated above should be reviewed in the GST regime by MOF and MOC.
Import of Inputs against Advance Authorisation / EPCG Scheme
Imports are treated as Inter-State Purchase and are liable to IGST in GST Regime.
Import of Inputs / Capital Goods are exempted from Import Duties if sourced under Advance Authorisation Scheme / EPCG Scheme subject to conditions to be fulfilled for Export of Products. In this, Importer saves on account of Cash Outflow and the Country stands to gain in terms of realisation of Free Foreign Currency.
IGST will be substituted for CVD (Countervailing Duty) and SAD (Special Additional Duty). At present the CVD and SAD put together accounts for tax rate of nearly 17%, whereas GST rates may be 18-22%.
Change in GST Rates may impact Export Obligation also. For e.g. in case of sourcing under Zero Duty EPCG Scheme, in majority of cases CVD (12.50%) and SAD (4%) thus put together amounts to 17% considering cascading impact. If IGST rates prevail around 20-22%, the same would also add to increase in Export Obligation and Importer may not have his business strategy to Import under Import schemes.
In GST Regime, Imports of Inputs / Capital Goods should be exempted ab-initio from IGST or else the exemption of Basic Custom Duty and payment of IGST in cash would result in increased outflow of Working Capital thus leading to Increase in Transaction Cost.
The above is to be taken on priority by MOF and MOC so that the Importers Cash flow should not be impacted and furthermore Exports should be sustained.
Refund of Terminal Excise Duty in case of Supplies against Invalidation Letter for Inputs / Capital Goods
Terminal Excise Duty leviable on sourcing against Advance Authorisation / EPCG with Invalidation letter is refunded at present (but not sales tax part), whereas in the GST Regime, CGST/SGST or IGST (Summation of SGST & CGST), would be refunded thus making the TED refund for state levies too.
If the State Levies are refunded under Terminal Excise Refund by offices of DGFT in relation to above transactions, then Notifications to be issued under SGST also as is done by presently by MOF & MOC. (Ministry of Finance and Ministry of Commerce)
Transitional Provisions should be specified for Import Duty Payment against E.O. Default against AA/EPCG or Suo- Moto. No provision of Input Tax credit under Model GST Law. Input Tax Credit should be allowed in GST for duty debited from Duty Credit scrip as IGST.