Import and Export under GST Act

The present Indirect tax government in India is multifaceted as there are multiplicities of taxes, complicated compliance obligations and tax cascade.  The Information Technology / Information Technology Enabled Services sector has been fraught with disputes due to vagueness in provisions as well as multiple taxation including dual taxation.

Under the proposed GST government all the key Indirect tax legislations would be subsumed and hence it is expected that it would result in a simpler tax regime especially for the Information Technology / Information Technology Enabled Services.

GST is a destination based tax on utilization of goods or services. It is also the policy of the Government of India to export the goods and/or services not the taxes out of India. Thus, exports will become cheaper making Indian products or services will be more competitive in the international markets.

This module would cover in-depth impact of GST on export and import of goods and services under GST.

Definition of India in GST

Section 2 (56) of CGST Act, 2017 defines “India“, which means the territory of India as referred to in article 1 of the establishment, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters.

Meaning of Export & Import of Goods

Section 2 (5) defines  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) defines  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.

Meaning of Export & Import of Services

“Import of Services” as defined under Section 2 (11) of IGST Act, 2017 means the supply of any service, when –

1.The supplier of service is located outside India;

2.The recipient of service is located in India; and

3.The place of supply of service is in India

Meaning of Export & Import of Services

“Export of Services” as defined under Section 2 (6) of IGST Act, 2017 means the supply of any service, when –

1.the supplier of service is located in India;

2.the recipient of service is located outside India;

3.the place of supply of service is outside India;

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,—

·         n establishment in India and any other establishment outside India;

·         an establishment in a State or Union territory and any other establishment outside that State; or

·         an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory then such establishments shall be treated as establishments of distinct persons.

Broad Scheme of Taxation on Imports

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.

Treatment of Exports under GST

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.

Export of services at ZERO rated

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.

GST on Software transactions including cloud computing

Packaged software provided on media is likely to be covered under “goods”, and therefore is likely to be taxed based on the rate of tax and place of supply for goods. However, customised software may not qualify as “goods”, and therefore may be treated as services.

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.

Refund of input tax credit in case of export of goods

·         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.

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·         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.

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·         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.

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·         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.

by ALOK PATNIA