AMIT BAJAJ ADVOCATE

Companies have hundreds of crores of rupees in input tax credit but they may still need to pay the goods and services tax ( GST) for July and August in full, potentially disrupting working capital flows.

That’s because the relevant GSTR 3B form doesn’t provide any column for carry-forward of credit from the earlier regime of central excise duty, service tax and value added tax. Companies will thus be unable to adjust the tax paid against their liability. Experts said this does not seem to be the government’s intention and it must clarify this quickly as industry is counting on this adjustment and would now need funds to pay GST in full.
Companies such as those in auto sector have hundreds of crores of rupees in such credit.

“This will cause substantial cash flow problems for the taxpayers unless the assessees are allowed to utilise transitional credit on a provisional basis,”

The GST Council, the apex decision-making body for the new tax regime, had approved a liberal transition framework to ensure smooth sailing when making the switch.

Any entity can claim credit of service tax or VAT paid in the previous regime against GST liability. If it does not have proof of payment of tax, it can take advantage of the deemed benefit norm. The key benefit of GST is that there is no cascading of tax through seamless availability of input tax credit.

Companies have to file form GSTR 3B, a summarised return, for July by August 20. That for August has to be filed by September 20.

The format of this return includes a summary of details of outward supplies, inward supplies liable to reverse charges and input tax credit eligible on various procurements made during the month. But the form does not provide space for carry-forward of credit from the earlier regime. This essentially implies that the GST liability for the months of July and August will have to be settled in cash.
CALL FOR CLARITY

There is a mechanism for claiming credit from the previous regime but that has not been integrated with the GST filing process.

This transitional credit will be available only after filing of GSTR TRAN-1 on the GSTN common portal.

Even if a taxpayer files TRAN-1 prior to August 20 (that is, prior to filing GSTR 3B for July), the credits would not be allowed to be migrated in GST as there is no specific table for disclosing opening credit in GSTR 3B. TRAN-1 and TRAN-2 are the forms for transition of input tax credit while GSTR 3B is the form in which actual GST payable is filed. To be sure, input tax credit can be availed of after September in all instances.

Tax experts are seeking a clarification or a change in the form.

“It cannot be the intention of the government to deny the benefit of input credit,  “It could lead to huge cashflow issues for industry, running into thousands of crores. A clarification or amendment in Form(GSTR) 3B is needed urgently.”

Circular No. 33 /2017-Cus

F.No.450/131/2017-CusIV

Government of India

Ministry of Finance

Department of Revenue

(Central Board of Excise and Customs)
New Delhi, dated the 1st August, 2017

All Principal Chief Commissioners/Chief Commissioners of Customs /Customs
(Preventive),

All Principal Chief Commissioners/Chief Commissioners of Customs and Central Excise/GST,

All Principal Commissioners/Commissioners of Customs / Customs (Preventive),

All Principal Commissioners/ Commissioners of Customs and Central Excise/GST.

Sir /Madam,

Subject: Leviability of Integrated Goods and Services Tax (IGST) on High Sea Sales ofimported goods and point of collection thereof-reg.

Reference has been received in the Board regarding clarity on Leviability of Integrated Goods and Services Tax (IGST) on High Sea Sales of imported goods.

2. The issue has been examined in the Board. 'High Sea Sales' is a common trade practicewhereby the original importer sells the goods to a third person before the goods are entered forcustoms clearance. After the High sea sale of the goods, the Customs declarations i.e. Bill of Entryetc is filed by the person who buys the goods from the original importer during the said sale. Inthe past, CBEC has issued various instructions regarding high sea sales appropriating the contractprice paid by the last high sea sales buyer into the Customs valuation [Circular No. 32/2004-Cus.,dated 11-5-2004 refers].

3. As mentioned earlier, all inter-state transactions are subject to IGST. High sea sales ofimported goods are akin to inter-state transactions. Owing to this, it was presented to the Boardas to whether the high sea sales of imported goods would be chargeable to IGST twice i.e. at thetime of Customs clearance under sub-section (7) of section 3 of Customs Tariff Act, 1975 and alsoseparately under Section 5 of The Integrated Goods and Services Tax Act, 2017.

4. GST council has deliberated the levy of Integrated Goods and Services Tax on high sea sales in the case of imported goods. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

5. The above decision of the GST council is already envisioned in the provisions of sub- section (12) of section 3 of Customs Tariff Act, 1975 inasmuch as in respect of imported goods, all duties, taxes, cessess etc shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the customs clearance purposes. The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction. In case of a doubt regarding the truth or accuracy of the declared value, the department may reject the declared transaction value and determination the price of the imported goods as provided in the Customs Valuation rules.

6. Field formations are requested to decide the cases of high sea sales of imported goods accordingly. Difficulties, in the implementation of this circular may be brought to the knowledge
of the Board.

Yours faithfully
(Zubair Riaz)
Director (Customs)

CIRCULAR NO.32/2017-Cus, Dated: July 27, 2017

Sub: Clarification regarding exports under claim for drawback in the GST scenario.

As you are aware, the higher All Industry Rates (AIRs) under Duty Drawback scheme viz. rates and caps available under columns (4) and (5) of the Schedule of All Industry Rates of Duty Drawback have been continued for a transition period of three months i.e. 1.7.2017 to 30.9.2017 (Circular No. 22/2017-Customs dated 30.6.2017).

2. Various issues have been highlighted by field formations and exporters regarding the requirement of a certificate to be obtained from the jurisdictional GST officer prescribed vide Note and Condition 12A of Notification 131/2016-Cus (N.T.) dated 31.10.2016 as amended by Notification 59/2017-Cus (N.T.) dated 29.6.2017. The certificate aimed to ensure that there was no double neutralisation of taxes by way of credit/refund and drawback. However, in view of factors such as absence of clarity about jurisdictional GST officer, time lag between exports and the requisite returns to be filed under GST laws, etc., the said certificate from GST officer may not be available immediately at the time of export.

3. Keeping in mind the above difficulties, the Government has amended Note and Condition 12A of Notification 131/2016-Cus (N.T.) dated 31.10.2016 by Notification 73/2017-Cus (N.T.) dated 26.7.2017 and dispensed with the requirement of the certificate from GST officer to claim higher rate of drawback. To facilitate exports, the higher rate of drawback can be claimed on the basis of self-declaration to be provided by exporter in terms of revised Note and Condition 12A of aforesaid Notification.

4. Since Notes and Conditions of Notification No. 131/2016-Cus (NT) dated 31.10.2016 (as amended) are integral part of the rates of drawback given under the Schedule to said Notification, accordingly in terms of the Section 75(3) of the Customs Act, 1962 and Rule 5(2) of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, it may be noted that the changes made in Note and Condition 12A shall be applicable w.e.f. 1.7.2017 itself. Thus, exports which have been made from 1.7.2017 onwards shall be governed by the revised Note and Condition 12A. For all exports made w.e.f 1.7.2017 for which higher rate of drawback is claimed, exporter has to submit the self-declaration in the format attached. This format is also being suitably included in the EDI shipping bill. In respect of exports that have already been made, exporters may submit a single declaration regarding the export products covered in past shipping bills for which let export order has been given from 1.7.2017 onwards. This shall be irrespective of any certificate or declaration, if any, given earlier.

5. Another aspect that may be noted is that there could be cases where export goods had been cleared from factory, warehouse, etc. prior to 1.7.2017 but let export order has not been issued before 1.7.2017. Such goods are not supplies under GST and accordingly, said Note and Condition 12A is not applicable. For such goods, the declaration from exporter or certificate from the then Central Excise officer as applicable in terms of Note and Condition 12 of said Notification No. 131/2016-Customs (NT) shall continue.

6. As part of audit checks, the need for regular sample checking of the veracity of declarations accepted for disbursing AIR drawback claims has been highlighted in Board’s instruction F. No. 603/01/2011-DBK dated 11.10.2013. The said instruction is reiterated for the purpose of audit checks for above cited self-declarations. Directorate General of Audit (Central Taxes) is also being asked to have the declarations given by exporters about non-availment of ITC/refund etc. in respect of exports under drawback verified at the time of audit of these units/exporters. These checks will thus ensure that there is no double neutralisation of taxes by simultaneous availment of credit/refund and drawback.

7. In order to further facilitate exporters, it may be ensured that all pending drawback claims are disposed of on priority and zero pendency be maintained. Supplementary claims whenever filed should also be processed on priority.

8. Wide publicity on these aspects may be given by way of issuance of trade notice and field officers also should be sensitised.

[F. No. 609/64/2017-DBK]

Press Information Bureau

Government of India

Ministry of Finance

Position regarding applicability of the Margin Scheme under GST for dealers in second hand goods in general andfor dealers in old and used empty bottles in particular.

Doubts have been raised regarding the applicability of the Margin Scheme under GST for dealers in second handgoods in general and for dealers in old and used empty bottles in particular.

Rule 32(5) of the Central Goods and Services Tax (CGST) Rules, 2017 provides that where a taxable supply isprovided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after suchminor processing which does not change the nature of the goods and where no input tax credit has been availedon the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored. This is known as the marginscheme.

Further, notification No.10/2017-Central Tax (Rate), dated 28.06.2017 exempts Central Tax leviable on intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods [who pays the central tax on the value of outward supply of such second hand goods as determinedunder sub-rule (5)] from any supplier, who is not registered. This has been done to avoid double taxation on theoutward supplies made by such registered person, since such person operating under the Margin Scheme cannotavail input tax credit on the purchase of second hand goods.

Thus, Margin Scheme can be availed of by any registered person dealing in buying and selling of second hand goods [including old and used empty bottles] and who satisfies the conditions as laid down in Rule 32(5) of theCentral Goods and Services Tax Rules, 2017.

In GST regime, duty drawback may lose relevance as there would be seamless
credit at each stage of value addition and better transparency. Even if duty
drawback is continued to offset the impact of basic customs duty component, which is non-creditable tax, the drawback rate could be very less. This could impact largely, those assesses who are dependent on duty drawbacks for
achieving good margin / profit.

No amendments have been made to the drawback provisions (Section 74 or
Section 75) under Customs Act 1962 in the GST regime. Hence, the drawback
scheme will continue in terms of both section 74 and section 75. Option of All
Industry Rate (AIR) as well as Brand Rate under Section 75 shall also continue.
Drawback under Section 74 will refund Customs duties as well as Integrated Tax
and Compensation Cess paid on imported goods which are re-exported.

At present Duty Drawback Scheme under Section 75 neutralises Customs duty,
Central excise duty and Service Tax chargeable on any imported materials or
excisable materials used or taxable services used as input services in the
manufacture of export goods. Under GST regime, Drawback under Section 75
shall be limited to Customs duties on imported inputs and Central Excise duty on items specified in Fourth Schedule to Central Excise Act 1944 (specified petroleum products, tobacco etc.) used as inputs or fuel for captive power generation.

A transition period of three months is also being provided from date of
implementation of GST i.e. 1.7.2017. During this period, existing duty drawback scheme under Section 75 shall continue.

For exports during this period, exporters can claim higher rate of duty drawback (composite AIR) subject to conditions that no input tax credit of CGST/IGST is claimed, no refund of IGST paid on export goods is claimed and no CENVAT credit is carried forward. A declaration from exporter and certificate from jurisdictional GST officer in this regard has been prescribed in the notification related to AIRs. This will prevent double availment of
neutralization of input taxes. Similarly, the exporter can claim brand rate for
Customs, Central Excise duties and Service Tax during this period.
Exporters also have the option of claiming only the Customs portion of AIR and
claim refund/ITC under GST laws. All Industry Rates for the transition period shall be notified in due course of time.�