GOODS AND SERVICE TAX (GST) IN INDIA

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GOODS AND SERVICE TAX (GST) IN INDIA ( EXPORTS OF GOODS / SERVICES UNDER GST REGIME )

The President of India approved the Constitution Amendment Bill for Goods and Services Tax (GST) on 8 September 2016, following the bill’s passage in the Indian parliament and its ratification by more than 50% of state legislatures. This law will replace all indirect taxes levied on goods and services by the central government and state government and implement GST by April 2017. The implementation of GST will have a far-reaching impact on almost all the aspects of the business operations in India. With more than 140 countries now adopting some form of GST, India has long been a stand-out exception.

GST is a value-added tax levied at all points in the supply chain, with credit allowed for any tax paid on input acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner, with exemptions restricted to a minimum. In a nutshell, only value addition will be taxed and burden of tax is to be borne by the final consumer. The tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply.

In keeping with the federal structure of India, it is proposed that the GST will be levied concurrently by the central government (CGST) and the state government (SGST). It is expected that the base and other essential design features would be common between CGST and SGSTs for individual states. The inter-state supplies within India would attract an integrated GST (IGST), which is the aggregate of CGST and the SGST of the destination state.

The following are the salient features of the proposed GST system:

GST would be levied on the basis of the destination principle. Exports would be zero-rated, and imports would attract tax in the same manner as domestic goods and services. In addition to the IGST in respect of supply of goods, an additional tax of up to 1% has been proposed to be levied by the central government. The revenue from this tax is to be assigned to the origin states. This tax is proposed to be levied for the first two years or a longer period, as recommended by the GST Council.

With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST would bring in a modern tax system to ensure efficient and effective tax administration. It will bring in greater transparency and strengthen monitoring, thus making tax evasion difficult. While the process of implementation of GST unfolds in the next few months, it is important for industry to understand the impact and opportunities offered by this reform. GST will affect all industries, irrespective of the sector. It will impact the entire value chain of operations, namely procurement, manufacturing, distribution, warehousing, sales and pricing.

The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.

The current Indian government has an aim of increasing the output and the quality of exports from India as portrayed by the “Make in India” policy, and the many tax benefits provided to the exporters. GST rolled out on July 1 and yet there is still some ambiguity among the exporters on the possible impact of the new regime on this industry. Traders want to know how GST will affect the products exported, and the amount of tax paid on the raw material/input used. To erase this confusion, the Indian government has shared a set of notifications and guidance note for the public on 28th June 2017 regarding the applicability of CGST, SGST, UTGST and cess and GST rates.

GST on Exports : The export of goods or services is considered as a zero-rated supply. GST will not be levied on export of any kind of goods or services.

A duty drawback was provided under the previous laws for the tax paid on inputs for the export of exempted goods. Claiming the duty drawback was a cumbersome process. 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.There was some confusion surrounding the refund of the tax paid by exporters on the inputs. A guidance note relating to the above issue was released by the Indian government which has helped in clearing doubts regarding the claim of input tax credit on zero-rated exports. An exporter dealing in zero-rated goods under GST can claim a refund for zero-rated supplies as per the following options :

Option 1: Supply goods or services, or both, under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax, and then claim a refund of unutilised input tax credit.

The exporter needs to file an application for refund on the common portal either directly or through the facilitation ccenternotified by the GST commissioner. An export manifest or report has to be filed under the Customs Act prior to filing an application for refund.

Option 2: Any exporter or United Nations or Embassy or other agencies/bodies as specified in section 55 who supplies goods or services, or both, after fulfilling certain conditions, safeguards and procedures as may be prescribed; and paying the IGST, can claim refund of such tax paid on the supplied goods or services, or both. The applicant has to apply for the refund as per the conditions specified under section 54 of the CGST Act.

An exporter is required to file a shipping bill for the goods being exported out of India. In this case, the shipping bill is considered as a deemed application for refund for the IGST paid. It would be deemed to have been filed only when the person in charge of the shipment files the export manifest or report, mentioning the number and date of the shipping bills.

Deemed Exports:

The supply of goods or services to the following would be treated as exports under GST

Supply of goods by a registered person against Advance Authorisation
Supply made to an Export oriented undertaking (EOU) or Hardware Technology Park unit, Software Technology Park unit, Biotechnology Park unit
Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
Supply of gold by a bank or Public Sector Undertaking against Advance Authorisation as per Customs law
Filing of returns under GST for the deemed export is to be done as per the general procedures provided for export under GST.

GST Rates for Goods / Services :

The Government has proposed a 4-tier tax structure for all goods and services under the slabs : 5%, 12%, 18% and 28%. After the recent revision of GST rates, these are the commodities that fall under the four tax slabs along with those that do not attract any tax.

Guide on Exports / Imports Tax Rates :https://www.icegate.gov.in/Webappl

For more information, please visit https://cbic-gst.gov.in/