The role of exports in achieving a quicker pace of economic development in India becomes all the more important in the wake of strong upward revision of global export prospects for 2017 to 3.6% by the WTO as against 2.4% earlier. While, on one hand, exports are encountering a volatile foreign exchange situation, on the other hand exporters are trying to adapt to the new indirect tax regime of GST. Zero-rating of exports: In India, exports were zero-rated even when there was no VAT before 1986 for central excise duty, since it is possible to zero-rate exports without having an all-comprehensive VAT/GST. Evidence suggests that zero-rating does make exports more competitive. Unlike exempt supplies, which are input-taxed, zero-rating of supplies (as per Section 16 of IGST Act, 2017) helps maintain an uninterrupted input tax credit (ITC) flow across the whole production-distribution chain. In order to have a seamless flow of ITC under GST, exemptions are not available even for exports.Dhananjay Singh

Significant changes in export procedures: In GST regime, supplies of goods by manufacturer exporter to merchant exporter for export purpose is leviable to GST as the two have different PAN (so different GSTIN). Unlike earlier excise regime, the design of GST is such that it does not recognise merchant exporter and manufacturer exporter (for export of same goods) as same transaction, so even merchant exporter is now required to pay integrated tax upfront and later claim refund. The concept of merchant exporter, as understood in the earlier indirect tax regime, is no more valid in the GST era. Importers would thus have to pay integrated tax and then take ITC as applicable under GST rules. ITC for exports under GST are WTO-compliant.

Goods export and services export are treated equally under GST and are required to get bond or letter of undertaking (LUT). As a measure of ease of doing business, LUT in plain paper can be given by status holders or those who have received the due foreign remittances amounting to a minimum of 10% of export turnover, which should not be less than Rs 1 crore in the preceding financial year.

Duty Drawback Scheme (under Section 75 of Customs Act, 1962) had been extended till September 30, 2017. Post-exports, drawbacks are being disbursed regularly at the higher rate of composite AIR (provided no IGST refund, no ITC of IGST/CGST or cenvat credit has been availed), which helps buttress the working capital needs of exporters (especially small and service exporters) during the GST transition phase. Duty drawback rates are likely to be revised downwards as many duties (like additional duty of customs, special additional duty) except Basic Customs Duty (BCD) will get ITC under GST. As and when the GST Council deems fit, it can include taxes on petroleum products within the purview of GST, which will then be available as ITC and will increase India’s export competitiveness.

Duty exemption schemes like Advance Authorisation and Duty-Free Import Authorisation (DFIA) enable duty-free import of inputs. Duty Entitlement Passbook (DEPB) and Duty Drawback schemes are post-import duty remission schemes. Export Promotion Capital Goods (EPCG) is a pre-export duty exemption in case of import of capital goods to be used in manufacture of export goods. All duty-free scrips have been clubbed into Merchandise Exports from India Scheme (MEIS) and Software Exports from India Scheme (SEIS) in the Foreign Trade Policy2015-20.

The ‘no exemption and only refunds’ philosophy underlying exports in GST has led to a profound change in the way these export promotion schemes will be administered. The export benefit holder has to pay IGST in cash at the time of import for which ITC can be taken, while only liability for BCD can be debited from duty-free scrips. After export, refund of any unutilised ITC can be claimed in terms of Section 54 of CGST Act, 2017. By virtue of amendment to Section 3 of Customs Tariff Act (CTA) 1975, additional IGST is leviable on imports made after July 1, 2017, but the Delhi High Court recently permitted clearance of consignments of imports constituting inputs for fulfilment of export orders placed prior to July 1, 2017, without any additional levies and subject to the terms of the Advance Authorisation licence issued prior to July 1, 2017.

Export refunds: Even though exporters do not collect the VAT when exporting, they have to pay duties upfront while making supplies and later take refund of GST paid on inputs. This may put pressure on their working capital. Thus, the sine qua non for exporters to benefit from zero-rating is that there should be timely refunds of all input taxes. Even though Liam Ebrill et al in the book “The Modern VAT” state that export refund is the Achilles’ heel of the VAT, expeditious disposal of refund applications by the tax administration after due diligence will go a long way in helping exporters preserve their precious working capital enhancing liquidity. The press release by the finance ministry on September 22, 2017, rightly explored the possibility of giving refund through a manual process (if required) till the IT backbone of GST stabilises in the near future.

Exporters are also unable to claim ITC on duty suffered exports even for the month of July 2017 as GSTR-3 (actual monthly return) has still not been filed. Also, grant of provisional refund for July 2017 under Rule 91 of CGST Rules, 2017, is stuck for the same reason. The earliest date by which 90% refund for the month of July can be received by the exporter is November 17, as the last date for filing of GSTR-3 for July 2017 has been extended to November 10, 2017. Refund on the basis of GSTR-3B (simplified monthly return) read with GSTR-1 (return for outward supplies) is possible (after issue of necessary notifications) and is rightly being considered as an interim measure to expedite refunds for July and August 2017, for which the last date for filing GSTR-3B is already over.

As the statutory time limit for processing of refund application by tax authorities has been reduced from the earlier 90 days to 60 days and with the leveraging of IT, the refunds process is expected to be faster and more efficient under GST, with minimal physical interaction between exporter and the tax department. Thus, a GST based on destination principle can act as a force-multiplier for boosting exports at it frees exports from the indirect tax burden on inputs if the tax is efficiently administered.

Source: Financial Express