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)