GST ON EXCISE DUTY

India is a socialist, secular, democratic republic and follows a federal structure that includes both the Central and State-level government. The government at both the levels share the responsibility to manage country's developmental needs. The primary source of income for both the government is tax. In other words, a tax is a contribution.

In India, the power to tax vest in both the Central and State government. The power to levy and collect divides the power between the Cental and the State Governments.

Prior to the launch of unified tax system as GST, Indian indirect tax regime was highly fragmented. Centre and States were separately taxing goods and services. The Centre was empowered to tax goods at the production or manufacturing stage. The Centre was also empowered to levy on services. This structure of taxation suffered from various shortcomings.

There were multiple taxes like central excise duty, Service tax, VAT, CST, purchase tax, entertainment tax etc. additionally, there was multiplicity of rate, laws and procedures. This caused heavy compliance burden on the taxpayer's serious problem. For example, VAT was levied on a value that included central excise duty.

Input tax credit chain broke as goods moved from one State to another, resulting in hidden cost for the business. There were tax Naksa at every inter-State border, creating bottlenecks in inter-State transport of goods. Every State was effectively a distinct market for the industry as well as consumer. Industry's choice of locating Factores or warehouse was heavily influenced by the prevailing tax regime rather than pure business considerations, making the industry uncompetitive.

Some of the primary problems with the pre-GST regime were:

(A) Taxation at manufacturing level

Central excise duty was levied on goods manufactured or produced, limiting the taxable event at manufacturing point leading to a narrow base and posed a severe impediment to an efficient neutral application of tax.

(B) Exclusion of Services

The states were precluded from taxing services. This arrangement posed difficulties in taxation of goods supplied as part of a composite works contract involving a supply of both goods and services, and under leasing contracts, which entail a transfer of the right to use foods without any transfer of their ownership

(c) Interpretational Issues

Problems also arose in respect of interpretation of various provisions and determining the category of the commodities. To decide the nature of transaction that is whether and activity was sale or works contract; sale of service was not free from doubt.

(d) Tax Cascading

Tax cascading means a tax-on-tax. Tax cascading occurred under both the Centre and the State taxes. The most significant contributing factor to tax cascading was the partial coverage by the Central and the state tax. Under the erstwhile system, tax payable at the time of sale was levied on a value which already included the tax paid at the time of manufacture that is central excise duty. Furthermore, there were certain taxes for which input credit tax was not admissible which thus formed a part of the cost of the goods. Moreover, input tax credit in respect of CST on inter-state sale of goods was not admissible. All these taxes become a part of cost of goods thereby leading to cascading.

(e) Local sale v/s central Sale

Fixing the situs of the sale transaction that is whether the sale takes place in one State, or another was a major confect as it affects the revenue of the State. CST that is Central Sales Tax was a tax levied on inter-State sale of goods by the Central government but the power to collect and retain the CST was vested with the State government.

(f) Lack of uniformity in VAT provisions and rates

The VAT structure lacked uniformity across the States which was not only confined to the tax rate but also extended to procedures, definitions, computations and exemptions.

(g) Complexity in determining the nature of transaction

The advancement in information technology had blurred the distinction between goods and services. In the present scenario, goods, services and other supplies are being packaged through as composite bundles and offered for sale to the consumers. Neither the Central nor the state government could levy tax on such bundles in a seamless manner.

(h) Complexity

In spite of the improvements made in the tax design and administration over the years, the tax regime remained complex. They were subject to disputes and court challenges and the process for resolution of disputes and court challenges and the process for resolution of disputes was slow and expensive. At the same time, the systems suffered from substantial compliance gaps, except in the highly organized sectors of the economy.

More than 17 taxes including both of the Centre and the States i.e. Central Excise duty, Additional duties of excises, Excise duty levied under Medicinal & Toiletries Preparation Act, Additional duties of customs, service Tax, State VAT or Sale Tax, Central Sales Tax, Purchase Tax, entertainment Tax, Luxury Tax, Entry Tax, Taxes on lottery, betting & gambling and other surcharges & cesses were subsumed into a single Goods and Services Tax (GST). Constitution was further amended to provide concurrent powers to both the Centre & the States to levy GST. The objective was to mitigate the ill effects of cascading or double taxation in a major way and pave the way for a common national market.

The introduction of the Goods and Services Tax (GST) was a significant step towards making India economically competitive by ushering in higher transparency costs and improved compliance. It was the much-needed transformation in the field of indirect tax Systeme of the country. It was launched with the object to streamline taxation and reduce compliance burden.

Since its launch, the country has witnessed digitalization in tax compliance and improved supply chain efficiencies. It is a tax regime founded on a technology-based monitoring system with e- business processes like, e-Returns, e-Invoice, e-Way bills, etc. It was also vital to recognize the effectiveness of the Centre- State collaboration under the auspices of the GST council which has ensured policy implementation uniformly across States. Despite the scale of the COVD-19 crisis, the government and the industry was agile in adjusting to the "new normal "and restarting economic activity GST has made Indian products competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production and distribution.

In the words of Hon'ble Prime Minister Shri Narendra Modi, the Goods and Services Tax (GST) is " a path-breaking legislation for new India"

This revolutionary taxation system was rolled out on the midnight of 01 July 2017 in a ceremony held in the Central Hall of Parliament's is not Nerely a tax reform but a milestone in realizing Sardar Vallabhbhai Patel's dream of building.                           

 

GST under Export

 Export of goods and refund under GST

1 Introduction

Government has always focused on making industry friendly polices when it comes to exports since the consideration is received in foreign currency. Under per-GST regime, excisable goods were allowed to be exported without payment of duty in terms of rule 19 of the Central Excise Rules, 2002. along similar lines, but without any binding precedent, section 16 is placed in Integrated Goods and Service Tax Act, 2017 (IGST Act). This article summarizes authors learning from a deep dive into various aspects involved in neutralizing GST incidence on exports and lays out some concerns for reader's attention.

Procedure for making zero-rated supply

Eeporter who intends to export goods without payment of IGST, is required to furnish LUT. LUT has to be applied on common portal in Form RFD-II and the same will be valid for the entire Financial Year.

LUT is to be furnished prior to undertaking export of goods. However, Central Board of Indirect Taxes (CBIC) vide circular no. 125/44/2019 dated November 18, 2019, has clarified that the substantive benefit of zero-rated supply may not be denied where the exporter has delayed in furnishing LUT. Accordingly, LUT may be admitted on ex post facto basis, taking into account, facts and circumstances of each case.

Exporter is required to issue a tax invoice for export of goods and the particulars "Supply meant for export under bond or Letter of Undertaking without payment of integrated tax" is required to be mentioned on the tax invoice. Do note that overseas buyer does requires an export Invoice denominated in agreed foreign currency and not tax invoice denominated in Indian Rupees.

In addition to the invoice, exporter is required to file shipping bill in Form SB-I. Shipping bill is required to be issued in four copies.

It is pertinent to note that exporter is required to export the goods within 3 months from the date of tax invoice. In case the goods are not exported within such time, Rules 96A (1) of the Central Goods and Service Tax Rules, 2017 (CGST Rules) provides that tax along with the interest at 18 percent is required to be paid withing 15 days from the end of this 3 months period or such further period as may be allowed by the commissioner.

Export of goods under LUT

Section 54 of the CGST Act read with Rule 96 of the CGST Rules provides the mechanism for claiming refund on account of export of goods. As discussed earlier, exporter has an option for export goods under LUT or they may export goods on payment of IGST. Accordingly, the refund provision for each scenario are as under

Certain issues in amendments in the refund formula:

* It is pertinent to note that the restriction place in Rule 89 (4) (c) of the CGST Rules on the value of export of goods maximum to 1.5 times the value of like goods sold domestically s inserted vide Notification No. 16/2020-Central Tax dated March 23, 2020. There were no such restriction placed earlier. To expect that export price greater than 50 percent over domestic price is unwarranted restraint on export benefits that is described and earned by exporters.

* It is deeply concerning if the said restriction applies to refund claim filed after March 2020 which are pertains to past period i.e. before March 2020. 

* It is worthwhile to highlight that the said sub rule has been 'substituted' vide Notification No 16/2020-Central Tax dated March 23, 2020. In other words, the old rule has been replaced with new rule. Accordingly, one needs to interpret whether the said substitution can extent this restriction to rebates yet to be filed for past exports and thereby be retrospective.

* The calculation of 1.5 times the value of export of goods is applicable in the numerator only. In numerator the actual export value of goods is required to be added to the total adjusted turnover. Hence, this would further reduce the net refund amount to the exporter and is clearly a retrograde step.

Zero-rated supply

Supplies specified in section 16 of IGST Act are called 'zero-rated suppliers' notwithstanding the generally applicable rate of GST. Zero-rated supply is a moniker for supplies enlisted in section 16 of IGST Act:

Export of goods is defined under Section 2 (5) of the IGST Act which states that "export of goods" with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India. Expert of goods would be treated as inter-state supply in accordance with Section 7(5) (a) of the IGST Act. Under section 16 of the IGST Act, following are treated as zero-rated supplies:

(a) Supply of goods or services to /special Economic Zone developer or a Special Economic Zone Unit

(b) Export of goods or services or both

Zero-rated supply does not mean that the goods or services or services are nil rated or are subject to 0 percent tax. In respect of such zero-rated supplies, section 16(3) provides options to neutralize the incidence of GST on exports, namely, either exporter is free to export goods on payment of IGST (rebate option) or to export under Letter of Undertaking ('LUT') without payment of IGST to claim refund of utilized input tax credits (refund option).

Export of goods under LUT

Section 54(3) (i) of the CGST Act provides that a registered person may claim refund of unutilized input tax credit (ITC) for zero- rated supply made without payment of tax. The refund application may be made for each tax period. The said section comes with some of the restriction which are enumerated below.

(i) Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty

(ii) Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both of drawback in respect of central tax and claims refund of the integrated tax paid on such supplies. Accordingly, if the goods which are exported as subject to export duty or any drawback is to be claimed on such exerts, refund of utilized ITC may not be available

FURTHER, it is pertinent to note that, refund of utilized ITC has to be computed as per the method prescribe under Rules 89 (4) of the CGST Rules. The same is reproduced below.

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC/Adjusted Total Turnover

Where, -

(A) "Refund amount" means the maximum refund that is admissible.

(B) "Net ITC" means input tax credit availed on imputes and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub- rules (4A) or (4B) or both.

" Turnover of zero-rated supply of goods" means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other sub-rules (4A) or (4B) or both.

> Export of goods on payment of IGST

Any person availing option to export goods on payment of IGST is not required to file separate application for refund. Folling procedure is to be complied with for export of goods on payment of IGST:

(a) A registered person is required to file shipping bill showing prescribed details.

(b) Details or goods exported as to be reported in Table 6A of Form GSTR - 1

(c) The amount disclosed inGSTR-3B should not be less than the same shown in GSTR -1

Upon matching the above details on the GSTIN and ICEGATE portal, the refund of IGST paid would automatically be get credited to the bank account of the exporter. Accordingly, a registered person is required to take utmost care at the time of uploading exports details at the time of filling GST returns.