SEZ to DTA clearance of used machinery should be on depreciated value

Despite GST treating intermediary services as domestic supply, other laws like FEMA and FTDR Act recognise them as exports; SEZ units must pay duty on depreciated value

We are getting indenting commissions regularly from our principals abroad in foreign exchange. Under the GST laws, these are intermediate services and according to Section 13(8)(b) of the IGST Act, 2017, the place of supply is the location of the supplier. So, under the GST laws, such services are not treated as export of services. Can supply of such services be treated as export of services under other laws?

 

Yes. The intermediary services are provided by you to a resident in a foreign country. The GST laws apply only for the purpose of taxation. They do not affect how the other laws treat your services. Section 2(e)(II)(ii)(A) of the Foreign Trade (Development and Regulation) Act, 1992, as amended on August 19, 2010, says that (relevant extracts) ‘export’  means supplying services from India into the territory of another country. Section 2(l)(ii) of the Foreign Exchange Management Act, 1999 says that ‘export’, with its grammatical variations and cognate expressions, means provision of services from India to any person outside India. The RBI purpose code P1002 for inward remittances specifically covers trade related services commission on exports and imports. So, you can treat the intermediary services provided by you to your principals abroad as export of services under the said laws. 

 

We are an SEZ unit. We had imported certain machinery a few years back. We want to sell that machinery in DTA, after few years of use by us. The price we are getting for the machine is more than the depreciated value worked out in accordance with Rule 49(1)(a) of the SEZ Rules, 2006. My question is whether the duty will be charged on the transaction value or on the depreciated value. We are confused because Rule 48(2) of the SEZ Rules, 2006 says that we should determine the value in accordance with the Customs laws applicable for imported goods.  Please clarify giving the relevant provisions and reasons.

 

Rule 48(2) of the SEZ Rules, 2006 says that valuation of the goods and/or services cleared into domestic tariff area shall be determined in accordance with provisions of Customs Act and rules made thereunder as applicable to goods, when imported into India. The Customs Valuation Rules that give primacy to transaction value make no specific mention of used machines. The Central Board of Indirect Taxes and Customs (CBIC) has issued its circular no.7/2020-Cus dated February 5, 2020, on valuation of second-hand capital goods. In my opinion, these provisions will not come into play in your case because Rule 49(1) is a specific provision for sale of used capital goods from SEZ to DTA. That specific provision will prevail over the general provision at Rule 48(2) of the SEZ Rules, 2006. The specific provision at Rule 49(1)(a) says that duty shall be levied on such goods on the depreciated  value thereof and at the rate in force on the date of removal of the goods. That is a specific mandatory provision and so, you have to pay duty on the depreciated value regardless of the transaction value.