Wednesday, August 16, 2017


                In the Letter of Undertaking, referred to in clause (a) of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017, read with rule 96A of the Central goods and Services Tax Rules, 2017, a taxable person, who has prepared an export invoice, has been required to give undertaking to -
(a)    export the goods or services supplied without payment of integrated tax within time specified in sub-rule (1) of rule 96A ;
(b)   observes all the provisions of the Goods and Services Tax Act and rules made thereunder, in respect of export of goods or services;
(c)    pay the integrated tax, thereon in the event of failure to export the goods or services, along with an amount equal to eighteen percent interest per annum on the amount of tax not paid, from the date of invoice till the date of payment.

                Suppose that a supplier in India enters into a contract of supply of goods with a foreign buyer, for supply at a place located outside India. Condition of dispatch of goods requires that goods should be dispatched from India by a particular date. The supplier starts procuring goods and prepares export invoice in advance. However, the supplier fails in arranging part of the consignment within the available time and because of this he fails to dispatch goods by the agreed date. In the circumstances, recipient cancels the order. In these circumstances, the supplier will cancel the invoice. Now following questions may arise?
1. Would there be any liability of GST if goods procured are lying in the stocks held by the exporter?; and
2. How the supplier will discharge his liability of GST in respect of goods in respect of which exporter order has been canceled?
                In my opinion, the supplier will not be required to make any payment of GST till the procured goods are lying in his stocks and his future liability will depend on mode of disposal of goods. He may make -
(a)    intra-State supply of such goods. In that case he will be liable for payment of State Tax and the Central Tax to the State Government and the Central Government respectively; or
(b)   inter-State supply of goods within India, except a supply to SEZ unit or SEZ developer. In that case, he will have to pay Integrated Tax to the Central Government.
(c)    Zero-rated supply to SEZ unit or  SEZ developer and in that case avail benefits of zero-rating supply..
(d)   export those goods against some other export supply order. In that case, zero-rated supply benefits will be available to him.
(e)   Goods may be disposed of or dispossessed in any other manner. In that case, he will have to reverse the amount of input tax credit already claimed by him.

                In aforesaid circumstances, how a supplier can give undertaking "to pay the integrated tax, thereon in the event of failure to export the goods or services, along with an amount equal to eighteen percent interest per annum on the amount of tax not paid, from the date of invoice till the date of payment." Second thing is that liability arises as per provisions of Law and not on failure of any supplier in making a supply. Tax event is supply of goods or services or both and not on the activity of preparation of invoice. Agreement or contract for supplying goods cannot be equated with supply of goods. Taxable event is a completed event.
                What I could gather is that earlier to GST, under Central Excise, a manufacturer-exporter was permitted to remove goods without payment of excise duty if goods were meant for export. Similar was the situation in cases of merchant-exporter where they used to procure excisable goods, without payment of excise duty, from manufacturers. In export cases, there had been two events. One had been of levy of excise duty and other had been export sale of manufactured goods.  For this purpose, Notification No. 42/2001-Central Excise (N.T). dated June 26, 2001 was issued by the Department of Revenue, Ministry of Finance, Government of India.  Any exporter (merchant-exporter or manufacturer-exporter) could have exported goods without paying excise duty after giving the undertaking or bond of making payment of excise duty if goods were not exported. Where, after removing goods, from place of manufacture or registered warehouse, without payment of excise duty, exporters were failed to export such goods within the stipulated time, they were required to give intimation to the Excise Department and to make payment of excise duty (It was a case of withdrawal of facility of rebate of excise duty earlier availed by the exporter) alongwith interest.
                Earlier to GST,  export sale was being dealt with under VAT Law. Exemption on export sale was available on the basis of Shipping Bill or Bill of Export. Benefit of ITC was also available. Sales, of un-exported goods,  were liable to tax as intra-State sale or inter-State sale, as the case might have been.  There had been no time limit for export of goods.
                Similar are the facts with Bond required to be furnished before export of goods. Both requirements are unnecessary and undesired. Condition of pre-deposit of any amount before making export is also not required. Such provisions, in excise regime were made in order to facilitate the export but in GST regime, such requirements have put a burden on export.
                Inclusion, of export supplies in the category of supplies in the course of inter-State trade or commerce, is not required. By including this provision, tax on export supplies, of goods and services, has become leviable under sub-section (1) of section 5 of the IGST Act. Any amount collected as tax becomes part of general revenue of the State. Benefit of such amount cannot be  given to tax payer or any other individual. Tax can also not be levied for allowing refund to tax payer. As per several decisions of Hon'ble Supreme Court where such type of provisions are made, they render the levy invalid. Supplies to SEZ unit and SEZ developer may also be looked on the same lines.

                I hope that the Government of India and the Goods and Services Tax Council of India will look into the matter and will help the exporter in conducting hassle free export business.

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