Under GST the exporters are effected a lot because of Custom Set Off to all importers and tax payments or duty payments for goods to be exported. Brief summary is as under:
1. Restriction on Procurement of Duty paid Inputs for
Exports outside India.
The proposed GST structure
stipulates that all the applicable duties must be paid at the time of procuring
inputs irrespective of the fact whether such inputs are to be utilized for
export of Goods or services or otherwise.
Import of Raw Materials only with Payment of Input Duties.
(a) Current Indirect Tax Regime
: An exporter can procure raw
materials without any payment of duty as allowed under Advance Authorization Scheme.
As per Export Promotion Capital
Goods Scheme, capital goods can be sourced from overseas without paying any
duty provided such importer of capital goods shall have to export goods six
times the value of duty saved on such import of machinery during the next six
years.
(b) Proposed GST Regime : Option to procure Duty free inputs for export of
goods not available under GST Regime.
This structural shifts in GST regime will significantly increase the working
capital requirements due to payments of input duties resulting in blocking of
much needed cash for the enterprises. This
situation can be understood through the examples mentioned below :
Example I : An exporter
wants to import raw material from USA.
i.
Payment of Import Duties @ 20% (assume):
TOTAL
Custom Duties leviable @ 24%.
ii.
Current Indirect
Regime: As per advance authorization scheme, no Custom duties shall be
payable by the exporter .
iii.
Under Proposed
GST Regime: Only exemption in
respect of Basic Custom Duty @7% shall be allowed to exporter & exporter
will be liable to pay IGST on such
import.
The exporter shall get refund of such duties paid but only after export consideration
has been realized i.e. working capital requirement of exporter has been
increased by the amount of Duty paid on inputs till the time refund has been
received by the exporter.
Increase in Finance Costs :
If cost of capital is assumed to be 12% then, the exporter will further
incur an additional interest cost of 1.56% (i.e. 12% of 13% IGST paid on
Import), thereby further increasing burden of interest on the exporter.
i.e. around 14 % of the value of export will be
blocked for the period of refund months leading to an increase in working
capital requirement of exporters.
Example II: Import of
capital goods from outside India by an Exporter.
If the exporter decides to import Machinery from outside India, then
such an exporter shall have to pay import duty of around 15% (let's assume)
on such machinery which will be blocked for a period of 6 years i.e. the time
allowed under Export Promotion Under Capital Goods Scheme for meeting the
export requirement of 6 times of the amount of the duty saved which was the
case under Pre GST regime.
Increase In Borrowing & Finance Costs: Now for an capital import value of INR. 1000, if the
exporter takes a loan @ 12% for paying 15% IGST along with cost of asset, the exporter will now have to borrow more to
import capital goods leading to higher interest payments & strain on
financial resources of exporter.
Accordingly , we can conclude that working capital requirements of
exporters are definitely set to increase with the requirement of payment of input
duties to the supplier which were exempted earlier.
2. GST Applicability on Stock
Transfers also: Under current regime, stock transfers are not
subject to tax. However, as per model GST law, stock transfers are deemed as
supplies & GST will be applicable on them. However, GST paid at this stage
will be available as credit only when goods are finally sold to the ultimate
consumer, thereby straining the cash flow positions of the domestic
suppliers.
3.
Options available to exporters for claiming benefit of Duties/Taxes paid on
inputs.
It has always been the policy of
the Govt. to promote export of goods. Consequently, export goods are not
burdened with any type of the taxes & duties on procurement of goods for
the purpose of exports.
Under the Current Indirect Tax
regime, exporter can avail any of the following options :
I.
Duty Free
Procurement of Goods: Procurement
of Duty free goods for the purpose of manufacture of goods which are exported without payment of any
export Duty. This Option is no longer available under proposed GST regime.
II.
Claim refund of
Duty paid on Inputs:
Procurement of Duty Paid inputs used in manufacture of goods for the purpose of
export of goods outside India without payment of Duty. The Duty paid on inputs
shall be claimed as refund once goods are exported & payment is duly
received in convertible foreign exchange.
III.
Rebate Claim of
Duty: Procurement of Duty
paid inputs & avail CENVAT Credit in respect of such goods. Export goods
are manufactured, cleared on payment of duty
after utilizing the CENVAT Credit. Unutilized Credit is then requested
by filing a Rebate Claim of Duty.
Under Proposed GST Regime, Option to procure Duty Free inputs have
been done away with.
Thus, under proposed GST regime,
exporters will be left with Option II & III mentioned above leading to an
increase in working capital requirements
of the exporters.
Extent of Increase in Working Capital Requirements: An exporter
shall have to arrange additional finance for payment of duties on inputs
& such finance shall be blocked till the time refund has been received by the Exporter in
case of Option II.
Whereas in case of Option III,
exporter can utilize the duties paid on inputs for payment of Output Duty &
any remaining Input Credit of Duties shall be refunded to the Exporter by
filing an application for Rebate.
Accordingly , it can be deduced
from the above hypothesis that Option II
,i.e. Procurement of duty paid inputs , export of goods without payment of
duty & claiming refund of duty,
requires more working capital on part of exporters since under Option II working capital for an amount equal to Input
duties paid by exporter shall be blocked till the time refund is received.
4. Provisions Relating to
Refund under Model GST Law
Processing of refunds has been made
a 100% online process is expected to be a faster & smoother process. All
data relating to refunds have to be uploaded electronically thereby resulting
in faster scrutinization &
verification of refunds.
4(i). Process of Refund under GST:
a. Application form GST RFD-1 shall be
filed electronically through GSTN portal.
b. An acknowledgement of application in
Form GST RFD-2 shall be generated
through common portal electronically clearly indicating date of filing claim
for refund.
c. If any deficiencies are noticed in
such application, such deficiencies shall be communicated to applicant in Form
GST RFD-3 through GSTN Portal electronically.
d. Provisional
Refund: In case of exporters, an order of
provisional refund in Form GST RFD-4 shall be granted within a period of 7 days
of acknowledgement of application.
e. Final Order of Refund : The amount
of refund to which the applicant is entitled shall be issued in Form GST RFD
-5.
f. Order of Adjustment of Refund against
outstanding demand or dues: An order in Form GST RFD -6 giving details of such
adjustment shall be issued to applicant through common portal.
g. Refund shall be credited electronically
to the bank account of applicant via RTGS, ECS etc.
4(b). Time limit for making an application: As per model GST Law, an application
for obtaining refund shall be made within
2 years from the relevant date.
4(c). Time limit for Grant of refund : Refund shall be granted within 90 days of receipt of an
application for refund. If refund is not granted within the abovementioned time
limit, then interest @ 6% shall be payable to the exporter in respect of such
refund from the date of expiry of 90 days.
No refund to be paid if amount of
refund is less than INR 1,000.
Contributed by Team GST at Sandeep Ahuja & Co
