Chatroom: Denial of ITC on inter-state transfer of duty-free goods unfair

Q. We want to transfer raw materials imported under advance authorisation from one of our manufacturing units to another. Can we do it? What is the procedure?

Para 4.10(i) of the Handbook of Procedures, Vol.1 (HBP), says that “transfer of any duty free material imported or procured against Advance Authorisation from one unit of a company to another unit for manufacturing purpose shall be done with prior intimation to jurisdictional Customs Authority”. This provision ought to pose no problem when both the manufacturing units are in the same state with the same GSTIN, because you can transfer the goods under a delivery challan. However, if they are in different states, then the two units will be considered as distinct entities under Sections 25(4) and 25(5) of the CGST Act, 2017.

Further, S.No.2 of Schedule no. I of CGST Act, 2017 treats the movement of goods between distinct persons, even if made without consideration, as “supply”, and so the transfer will be considered as inter-state supply under Section 7 of the IGST Act, 2017. So, the movement of goods will have to take place on payment of IGST under an invoice. The trouble is that the last sentence of Para 4.10(i) of HBP says that the benefit of Input Tax Credit shall not be claimed on such transferred input. In my opinion, it is an unfair and unnecessary condition that must be removed by the government. However, as long as it is there, you have to abide by it. Of course, e-way bills have to be generated for movement of the goods.

Q. Para C.26 of the RBI Master Direction no.16/2015-16 dated January 1, 2016 (as amended) on “Export of Goods and Services” permits set-off of export receivables against import receivables, subject to certain conditions. One of the conditions is that the set-off should be between the export and import legs taking place during the same calendar year. We do not understand why this condition is there, and what we should do if the imports and exports have taken place in different calendar years. Please guide us.

I see no justification for this condition. Anyway, since you cannot fulfill this condition, you may approach the RBI through your bankers for necessary approval to set off import payables against export receivables, even where the imports and exports have taken place in different calendar years.

Q. We refer to the DGFT notification no.6 dated May 22, 2023, prescribing testing and production of certificate of analysis from specified laboratories for export of cough syrups. Will this requirement apply to export of cough syrups to Nepal and Bhutan also?

Yes. The testing requirement will apply for exports to all countries, without exception.

Q. Is domestic sourcing of inputs through the invalidation route allowed under Annual Advance Authorisations that mention only product groups and not individual items/quantities?

I see no reason why domestic sourcing through the invalidation route should not be allowed against such authorisations, when imports are indeed allowed against such authorisations.

Email: tncrajagopalan@gmail.com