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Chatroom: 'DGFT should review Para 2.12 of FTP'

Rajagopalan answers readers' SME queries related to GST, export and import matters

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TNC Rajagopalan

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Are we required to pay IGST on reverse charge basis on foreign bank charges recovered by our bank from us on our import/export transactions?

The issue regarding whether the foreign banks provide services to the banks in India that put through the transactions on your instructions or whether the foreign banks provide services to you, with the Indian banks acting only as intermediaries is far from settled. The Commissioner of Service Tax, Mumbai had issued Trade Notice no.20/2013-14-ST-1 dated 10-02-2014 clarifying that where the foreign banks are recovering certain charges for processing of import/export documents regarding remittance of foreign currency, the banks in India would be treated as recipient of service and therefore required to pay Service Tax. Some Tribunal decisions were also on the same lines. However, in the case of State Bank of Bikaner and Jaipur [2021(45) GSTL 293 (Tri.Del)], the Tribunal ruled that the bank is not the recipient of any service given by the foreign bank. The government appeal against this decision to the Supreme Court has been admitted [(2023) 12 Centax 308 (SC)]]. My opinion is that even in situations where an itermediary is reimbursed any expenses incurred as ‘pure agent’, it cannot be said that the principal reimbursing the expenses becomes the recipient of any service that the intermediary procures. So, in my view, the bank should pay the IGST on foreign bank charges and recover the same from you as part of the expenses incurred as ‘pure agent.’ 

Para 2.12 of FTP says that goods already imported/shipped/arrived, in advance, but not cleared from the Customs may also be cleared against an authorisation issued subsequently. However, we do not understand why this Para requires that such goods already imported/shipped/ arrived in advance are first warehoused against bill of entry for warehousing and then cleared for home consumption against an authorisation issued subsequently. Also, the provision that this facility will however be not available to ‘restricted’ items or items traded through STEs, unless specifically allowed by DGFT is also difficult to understand. Can you please clarify?

I do not think the requirement to warehouse the goods before clearance for home consumption makes any sense. Also, I am of the view that the DGFT should review the policy of  limiting the facility to allow clearance of goods imported/shipped/arrived against authorisations issued later only for items that are not restricted or traded through STEs. 

One of our subsidiaries abroad has received huge export orders that they cannot execute with their installed capacity. We have several idle machines that they can install and use in their unit. We want to know whether we can export second hand machines on sale basis and whether we have to take care of any particular aspect. Please clarify.

You can export second hand machinery at the depreciated value under free shipping. In the export valuation form, you must declare that your export is to a related party and that the relationship has not influenced the price. 

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First Published: Jun 11 2024 | 11:51 PM IST

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