Tolerating an act for a consideration is a taxable service: Expert

We placed a purchase order on a Chinese supplier. Due to non-availability of containers and vessels, they are unable to ship as per the agreed dispatch schedule. They have asked us to buy the items locally and agreed to compensate us for the differential purchase price (which is akin to the risk purchase clause). Please guide how to issue a service invoice mentioning “Heading — Damages claimed for non-supply of goods as per Risk Purchase Clause”. What about HSN and taxability or other issues,if any?
 
The payment from the Chinese supplier is a consideration for your tolerating his act of not supplying the goods as agreed. S.No. 5(e) of Schedule II of the CGST Act, 2017 (relevant extracts) specifies the activity of agreeing to the obligation to refrain from an act, or to tolerate an act, or a situation, or …to be treated as supply of service. Also, Section 2(31)(b) of CGST Act, 2017 (relevant extracts) says that “consideration includes the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services...” S.No. 720 in the Table given in the notification 11/2017-CT (Rate) dated June 28, 2017, mentions “agreeing to tolerate an act” against the service code 999794.  S.No. 35 in the Table in the notification 8/2017-IT (Rate) dated June 28, 2017, prescribes 18 per cent GST for services specified in that residual entry under the heading 9997. In my opinion, as it is a service you provide to the foreign party, it can be treated as “export of service” and be zero-rated.

 
In our EPCG Authorisation the duty saved amount is mentioned on the basis of our application and the export obligation is mentioned at six times the duty saved. Due to lower prices and exchange rate variations, the actual duty saved on our imports is much less. We want to know whether our export obligation will continue to be as mentioned in the EPCG authorisation, or get reduced based on the actual duty saved?
 

The export obligation will get reduced on the basis of actual duty saved.
 
Our account with the Customs was flagged as “risky exporter” and our claim for refund of IGST paid on export goods was blocked. We were instructed to comply with CBIC Circular no. 131/1/2020 GST dated January 23, 2020. We have complied and our jurisdictional GST authority has sent the compliance report.  We want to know the basis for blocking our account and who is authorised to remove the flag so that we get the IGST refund.

 
The MF (DR) Circular No. 16/2019-Cus. dated June 17, 2019, gives the administrative instructions regarding the identification of suspicious cases, inserting alerts in the system, examination of the export goods, suspension of IGST refunds, verification by GST formations and action to be taken by customs on receipt of verification report from GST formations. It says that Customs officers at the port of export shall process the IGST refund to the extent verified by the GST authorities.
 
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