Don't keep exporters in suspense on GST

No GST need to be paid on goods or services that are exported or supplied to an SEZ

A few days earlier, an entrepreneur intending to set up an export-oriented unit (EOU) asked me whether he should abandon the idea. For, he’d heard that the scheme in this regard might be scrapped under the coming goods and services tax (GST) regime.

Later, a finance head of an EOU called to ask whether GST exemption would be available for the inputs and capital goods he procures. A director at another company phoned later to ask whether the Advance Authorisation Scheme would continue. Another owner of an exporting company asked whether the new regime would allow GST payment through transferable duty credit scrips.

I am getting more and more of such questions, indicating a great deal of uncertainty and anxiety among exporters. In all the cases, I could only say that we have to wait and see. Statements from some top government functionaries indicate a possibility that upfront exemptions for taxes/duties on input services or inputs or capital goods might be replaced by a regime of prior payment of taxes/duties and their refund upon furnishing evidence of export. Whether the possible withdrawal of upfront exemptions will cover only GST or even Customs duties is not clear. The correct position will be known only when the revised version of the Foreign Trade Policy is announced and the consequent notifications are issued by the revenue department.

Under the GST laws, export and supply to a Special Economic Zone (SEZ) would be zero-rated. In the sense that no GST need be paid on goods or services that are exported or supplied to an SEZ but the input tax credit need not be reversed. The refund of unutilised credit can be obtained. There are no provisions in the GST laws to either exempt GST debited to advance authorisations or export promotion capital goods (EPCG) authorisations or duty credit scrips or exempting GST for import/procurement by an EOU.

Of course, these issues can be dealt with through exemption notifications but till these are issued, there is uncertainty. Meanwhile, exporters can only take some action to cope with various possibilities.

At present, upfront exemption is available for import or procurement of inputs or capital goods under advance or EPCG authorisation. To the extent possible, exporters can utilise these before the GST regime comes into force. They should also utilise duty credit scrips to the extent possible and procure their services, inputs and capital goods without payment of taxes/duties. It must be noted that they can take Cenvat Credit of the excise duty and additional duties of customs (CVD, SAD) paid through duty credit scrips (except scrips issued under the Served from India Scheme).

In case the upfront exemptions go, the working capital requirement of exporters will go up. So, such entities must start planning on ways and means to support these. If they have new projects coming up, the project costs might have to include the duties and taxes. To that extent, they have to find sources for financing the higher costs.

The government is very keen on implementing GST as early as possible. However, it must end this suspense and put its draft notifications in the public domain, so that exporters can suitably amend their software and make a smooth transition to the GST regime.  

E-mail: tncrajagopalan@gmail.com