Section
147 of the CGST ACT and SGST Act empower Central Government and State
Governments to notify certain supplies of goods as "deemed exports".
In my opinion, sections under both Acts are incomplete and useless.
Section 147 of the Central Goods and
Services Tax Act, 2017 runs as follows:
"147. The Government may,
on the recommendations of the Council, notify certain supplies of goods as
deemed exports, where goods supplied do not leave India, and payment for such
supplies is received either in Indian rupees or in convertible foreign
exchange, if such goods are manufactured in India."
Since
the section creates a legal fiction of treating an intra-State supply of goods
as export, it requires purpose for which legal fiction has been created. Legal
fiction can be created only for limited purpose. Secondly, section is silent
about the effect of notified "deemed exports". Notified supply may be
an exempt intra-State supply of goods as well as a taxable intra-State taxable
supply of goods. After issue of notification, the important question will arise
that whether the notified deemed export supply will be a taxable supply of
goods or an exempt supply of goods. What benefits will be available to supplier
of goods and the recipient of goods. In the normal course, benefit of input tax
credit is not available to the supplier where supply of goods is an exempt
supply. Where "deemed export" supply will be treated "exempt
supply", a specific provision will be required to allow credit of input
tax to the supplier in respect of inputs and input services utilised by him in
making deemed export supply.
Where
exemption from tax will be given to supplier making deemed export supply,
definition of expression "exempt supply" will also be disturbed. On
the other hand if deemed export supply is not declared exempt from tax, purpose
of notifying deemed exports will be defeated. Claim of credit of input tax by
the recipient depends on mode of disposal of inputs by the recipient.
A
"taxable supply" is a supply of goods or services or both which is
leviable to tax. All other supplies are "exempt supplies". Such
exemption may be for two reasons:
(i) Supply is exempt because it is outside
the purview of the Act; or
(ii) Supply is exempt because it
attracts Nil rate (in reference to numbers NIL is zero) of tax or it is exempt
from tax by virtue of any provision of the Act.
Where an exempt supply of goods
(supply referred to in clause (ii) above) will be notified "deemed
export", if credit of input tax is not allowed to the supplier, value of
deemed export will include amount of tax paid by the supplier on inputs and input services, even if
deemed supply is declared exempt supply. In such circumstances, recipient of
supply who will utilise such supply in making "Zero rated supply" will
not be in a position to make the export supply a zero rated supply (a supply
value of which does not contain any element of tax) because the value of supply
will contain amount of tax paid by supplier of deemed exports.
Why
deemed exports are being limited to supply of only those goods which are
manufactured in India, is not clear. In my opinion, it may be extended to all
goods.
These
are the reasons which compel me to think that section 147 of the CGST Act, as
well as section 147 of the State GST Acts, is incomplete and unworkable.
These
issues cannot be solved under the rules because this is the part of the
substantive law. I think that section could have, usefully, been drafted as
follows:
147. (1) For
facilitating business of export of goods or of services, the Government may, on
the recommendations of the Council, notify certain supplies of goods as deemed
exports, where goods supplied do not leave India, and payment for such supplies
is received either in Indian rupees or in convertible foreign exchange.
(2) Where any supply of
goods is notified a deemed export under sub-section (1), the supply shall be
treated a supply exempt from tax and the supplier shall, subject to fulfillment
of such conditions as may be prescribed, the supplier, -
(a) notwithstanding
anything contained contrary to in any other provision of the Act, be entitled
for claiming credit of input tax in his electronic credit ledger in respect of
inputs and input services used in effecting such deemed export supply; and
(b) where amount of input tax credit
referred to in clause (a) above cannot be utilized by him, be entitled to claim
refund of unutilised amount of such input tax credit in accordance with
provisions of section 54.
3. Without prejudice to any other
action that may be taken under this Act or under any other law for the time
being in force, where recipient of a deemed export supply fails to make use of
the supply in the manner which entitles him to receive such supply without
payment of tax, the recipient of the supply shall make payment of an amount
which would have been payable on such supply by the supplier as tax, had such
supply not been a deemed export supply and where the supply would have been a
taxable supply otherwise, alongwith interest, at the rate of eighteen percent
per annum, for the period commencing on date of invoice till the date of
payment:
Provided
that where supply had been an exempt supply otherwise, the recipient shall pay
an amount of tax computed applying the rates of tax on supply of inputs
contained in the received supply alongwith interest, at the rate of eighteen
percent per annum, for the period commencing on date of invoice till the date
of payment.
4. Amount payable under sub-section
(3) shall be added by the recipient of the deemed export supply in the output
tax liability of the month in which recipient makes disposal of such supply or
part of such supply.
5. Where a recipient, of deemed export
supply which had been a taxable supply, makes payment of tax in accordance with
sub-section (3), he can, subject to provisions of section 17, claim credit of input
tax ledger in respect of such supply in his electronic credit.
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