FINANCIAL CONSULTING & SERVICES

The implementation of Goods and Services Tax (GST) in India significantly impacted international trade for Indian businesses. The article explores both the opportunities and challenges presented by this new regime. While GST benefits exporters with zero-rated exports and Input Tax Credit (ITC) mechanism, challenges include navigating compliance procedures and delays in claiming ITC refunds. Importers benefit from a clearer duty structure but face complexities in valuation and upfront payment of Integrated Goods and Services Tax (IGST). The article concludes by recommending streamlining procedures, expediting ITC refunds, clarifying regulations, and promoting trade facilitation measures to unlock the full potential of GST for Indian businesses in the international market.

Introduction:

The Goods and Services Tax (GST), implemented in India in 2017, marked a significant shift in the nation’s indirect tax landscape. Replacing a cascading structure of levies with a single, destination-based tax, GST aimed to streamline compliance, reduce tax burden, and boost trade. This article examines the implications of GST for Indian businesses engaged in international trade, exploring both the opportunities and challenges presented by this new regime.

Benefits for Exporters:

1. Zero-Rated Exports: Exports from India are considered zero-rated supplies under GST. This implies that exporters are not liable to pay any GST on their outward supplies. This eliminates the cascading effect of taxes on exported goods, making Indian exports more competitive in the global market.
2. Input Tax Credit (ITC) Mechanism: GST allows exporters to claim credit for the GST paid on inputs and input services used in the production and export of goods. This mechanism ensures working capital efficiency and improves cash flow for export-oriented businesses.

Challenges for Exporters:

1. Compliance Burden: While GST aims to simplify procedures, navigating the online GST portal, filing returns, and adhering to documentation requirements can be a challenge for some exporters, especially small and medium enterprises (SMEs).
2. Refund Delays: The process of claiming refunds for ITC on exports can be cumbersome and may involve delays. This can negatively impact exporters’ cash flow.
3. Post-Export GST Liability: In certain situations, exporters may become liable to pay GST if the exported goods are subsequently returned to India. This creates uncertainty and adds complexity to export transactions.

Implications for Importers:

1. Integrated Goods and Services Tax (IGST): Imports into India attract IGST, a combination of Central GST (CGST) and State GST (SGST). This tax is payable at the point of customs clearance.
2. Duty Structure: While GST eliminates some indirect taxes on imports, basic customs duty and certain other levies may still apply. Importers need to factor in these additional costs when calculating their landed price.

Challenges for Importers:

1. Valuation for GST Purposes: Determining the correct value of imported goods for GST calculation can be complex. Importers need to be familiar with customs valuation rules and ensure proper documentation to avoid disputes with customs authorities.
2. Advance Payment of IGST: Importers are required to pay IGST upfront at the time of customs clearance. This can be a significant cash flow burden, especially for high-value imports.

Case Analysis:

Comm. Of Customs (Import), Mumbai vs M/S. Dilip Kumar And Company on 30 July, 2018: (AIR 2018 SUPREME COURT 3606)

Parties Involved:

• Commissioner of Customs (Import), Mumbai: Represents the Indian government agency collecting customs duties.
• Dilip Kumar and Company: An Indian company that imported goods.

The Dispute:

• Dilip Kumar imported Vitamin E50 powder (used in animal feed).
• The company claimed a lower duty rate for the product based on a specific customs notification.
• The government argued the product should be taxed at a higher rate.

key Issue:

• The key question was how to interpret unclear customs notifications in favour of taxes or the importer.

The Law before this case:

• An earlier court case (Sun Export Corporation) said unclear tax benefits should favor the taxpayer.

The Court’s Decision (July 2018):

• A larger group of judges in the Supreme Court reviewed the Sun Export Corporation case.
• They clarified that, in general, customs notifications should be interpreted clearly and precisely.
• But, if there’s genuine ambiguity that can’t be cleared up, the benefit should doubt the importer, not the government.

Outcome:

This case set a precedent for how to interpret unclear customs notifications in India. It promotes clear communication in tax rules but offers some protection to importers if the rules are confusing.

Recommendations:

1. Streamlining Compliance Procedures: Simplifying the online GST portal and providing user-friendly guidance for exporters and importers can significantly ease the compliance burden.
2. Expeditious ITC Refunds: Implementing a faster and more efficient mechanism for processing export-related ITC refund claims can improve exporters’ cash flow.
3. Clarifying Post-Export GST Liability: Clearer guidelines and regulations regarding the GST implications of returned exports can provide certainty for exporters.
4. Trade Facilitation Measures: Initiatives like online customs clearance and duty drawback schemes can further enhance the ease of doing international business.

Conclusion:

GST has brought about significant changes for Indian businesses engaged in international trade. While it offers benefits like zero-rated exports and ITC mechanism, challenges remain regarding compliance, refund delays, and post-export GST liability for exporters. Similarly, importers need to navigate complexities around valuation and advance duty payments. Continuous efforts to streamline procedures, clarify ambiguities, and promote trade facilitation are crucial to fully realize the potential of GST for boosting India’s international trade competitiveness.

DISCLAIMER:

i) This opinion/clarification note is based on the facts provided to us and the same is being issued without any knowledge of intent, prejudice, non-disclosure, misrepresentation, or concealment of facts if any.

ii) We have not done investigation of correctness of facts and the limited opinion represents our understanding of the provisions of the law on the matter. The compliance mentioned above is not exhaustive and other compliance may also be involved depending on case to case basis.

iii) The conclusions reached and views expressed are matters of opinion based on our understanding of the related laws, rules, notifications, Citations, circulars, etc.

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