Advance Authorisation: Job work abroad and its key tax implications

Experts clarify rules on overseas job work under advance authorisation, leasing capital goods under EPCG and timelines for invoicing and export shipments

We have an export order for an item. We have imported the materials required for manufacturing the item duty free under an advance authorisation. One of our machines to carry out a specialised process has broken down. It will take quite some time to send the machine abroad for repairs and get it back. Our customer cannot wait that long. So, we want to send the imported duty-free material abroad to get the specialised process done and re-import it for further manufacture at our factory. We refer to Paragraph 4.33 of the Handbook of Procedures (HBP), which allows the endorsement of the name of the supporting manufacturer in an advance authorisation. Can we get endorsement of the name of a supporting manufacturer abroad and if so, what are the tax implications?

 

Para 4.33 of the HBP does not expressly restrict endorsement only to supporting manufacturers or job workers located in India. You can therefore seek endorsement of the overseas job worker’s name and address, explaining that the materials will return to India for further manufacture and subsequent export towards discharge of the export obligation. The proviso to condition (xii) of notification number 21/2023-Customs permits transfer of imported materials for job work subject to the relevant GST (Goods and Services Tax) conditions. Those provisions do not expressly prohibit overseas job work. You should comply with the applicable job-work-challan, recordkeeping, reporting and return-period requirements, and declare the purpose of the temporary export in the shipping bill. On re-import, the processed goods will attract duty under Section 20 of the Customs Act, 1962, read with any applicable exemption notification. The original duty-free import under the Advance Authorisation does not necessarily exempt this re-import. The invoice of the foreign job-worker will not attract IGST on reverse charge basis because where the specialized process is performed entirely abroad on goods physically made available to the foreign job worker, the place of supply is outside the taxable territory in accordance with Section 13(3)(a) of the IGST Act, 2017.

 

In the previous Foreign Trade Policy (FTP), capital goods could be imported under Export Promotion Capital Goods (EPCG) even if the same were financed by a leasing company. In the current FTP 2023, there is no such provision. Can we import capital goods on lease basis and clear under EPCG scheme even in current policy 2023?

 

Para 2.33 of the FTP permits import of capital goods under lease financing without specific DGFT permission. Also, the current definition of ‘importer’ in the Customs Act, 1962 covers the lessee even for import under the EPCG scheme.

 

Our customer wants us to raise the invoice but delay export shipment by two months. Can we do that?

 

Yes. Section 31(1) of the Central Goods and Services Tax (CGST) Act, 2017 requires you to raise the invoice before or at the time of removal. However, Rule 96A of the CGST Rules, 2017 requires you to export the goods removed under Letter of Undertaking or bond within three months from the date of invoice (not removal from the factory). The Commissioner may extend the period.

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