Merchandise export receivables can't be set off against service import dues

Q. We have exported certain goods to a customer in Germany. We had also imported certain services from them. Can the customer set off the amount receivable for the services against the amount payable for the goods and remit the net amount?

No. AP (DIR) Circular no. 8 dated December 12, 2020 of RBI revised the instructions for banks allowing set-off of export receivables against import payables. Para 3 stipulates several conditions for allowing the set-off. One of the conditions says that “set-off of export receivables against goods shall not be allowed against import payables for services and vice versa”. Therefore, you may remit the amount against the import of services separately and ask the buyer abroad to remit the full payment against your export bill.

Q. We have been importing our raw materials on a CIF basis, paying basic customs duty, social welfare surcharge and IGST on the full CIF value of the goods, which includes the freight amount. Now, the GST audit team says that we are required to pay IGST also on the same freight amount on a reverse charge basis. Please guide us. 

S.No. 9 of notification 8/2017-IT (Rate) dated June 28, 2017 covers transport of goods in a vessel, including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. The IGST on this service is payable by the importer under reverse charge mechanism through S.No.10 of notification 10/2017-IT (Rate) dated June 28, 2017. However, this levy has been struck down by the Gujarat High Court in the cases of Mohit Minerals Pvt. Ltd. [2020(33) GSTL 321 (Guj)]. The same Court has followed that very judgment in the cases of Gokul Agro Resources Ltd. [2020 (35) GSTL 82 (Guj)] and Bharat Oman Refineries Ltd. [2020 (41) GSTL 292(Guj)].

Q. We had imported certain goods in August 2020 on open credit terms. We understand that as per RBI instructions, we are now allowed to pay within 12 months of import, instead of six months earlier. Can you please confirm the correct position?

RBI through its AP (DIR) Circular no. 33 dated May 22, 2020 had extended the time period for completion of remittances against normal imports (i.e. excluding import of gold/diamonds and precious stones/jewellery) from six months to 12 months from the date of shipment for such imports made on or before July 31, 2020 (except in cases where amounts are withheld towards guarantee of performance). Since your imports are made in August 2020, the extended time limit is not available to you. However, you may approach your bankers for any extension required up to three years (six months at a time) in accordance with Para B5 (ii) of Master Direction no.17/2016-17 dated January 1, 2016, as amended.

Business Standard invites readers’ SME queries related to excise, VAT and exim policy. You can write to us at smechat@bsmail.in