If recipient fails to pay supplier in 180 days, he loses ITC and interest

A person who provides services to us says that under the GST laws we have to pay him within six months. We are in financial difficulties. How can we cope with this situation?

The second proviso to section 16(2) of the CGST Act, 2017 says that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed. The third proviso in the same section says that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. So, you lose the credit if you don’t pay within 180 days but can take the credit if you pay later. However, interest is a loss that you cannot get back.

We have imported from China, on payment of duty, unpainted wooden slates used in making wooden blinds. Now we plan to send these slates by sea to China to get them painted on a job-work basis. Kindly advise as to how we can re-export these goods to China and re-import after getting the wooden slates painted. 

There are two ways to handle this. First, you can re-export the imported goods and claim a drawback of 98 per cent of the duties paid at the time of import, under Section 74 of the Customs Act, 1962 and when the goods come back from abroad, treat it as a fresh import and pay full duty under Section 20 read with Section 12 of the Customs Act, 1962. Procedurally, this could be a bit complicated at the time of re-export, but quite straightforward at the time of import of painted slates. The second option is to export the goods under free shipping bill and re-import the goods under claim of exemption under notification no. 45/2017-Cus dated June 3, 2017. Procedurally, this could be easy at the time of export, but quite complicated and very uncertain at the time of re-import. However, you may take note that with the enactment of the Finance Act, 2018, thirty-one amendments to the Customs Act, 1962 have come into effect. Of these, insertion of the new Section 25B dealing with outward processing of goods is relevant for you. The new provisions empower the government to exempt goods exported and then re-imported into India after repair, further processing or manufacture. So a new notification may be issued soon. I believe it will be clearer and have conditions that will be easier to comply with.