Overall framework of Exports under GST

Exporting is a general concept, but applicability is not general. If it were, then you will find that all countries have thrived and flourished to export. Export regulations, laws and policies are seen by many as the largest stumbling block for anyone who wants to export. Not only do they have to comply with regulations within their own markets or countries, they also have to make sure that they are also not in violation of the existing applicable laws and regulations in the market they will be exporting their products to. Other than laws, there are also trade agreements in place that have to be observed by exporters. Compliance with the applicable laws and regulations and securing the permits, certifications and other documents are a few basic requirements.

Like any other country, India also has various rules and regulations. Further, to boost the export industry, the Government has taken several initiatives in terms of incentives and benefits. One such initiative was the implementation of GST in July 2017 with the vision of an easy and timely refund to the export industry without human intervention.

Under GST, the export of goods or services is considered as zero-rated supply and can be made with or without payment of tax. This provision also specifically expresses that taxes are not exported such taxes are not collected from the recipient of goods or services or both. The exporter may utilize such credits for discharge of other output taxes or alternatively, the exporter may claim a refund of such taxes However, to enlighten the Exporters on all the issues faced by exporters while calming a tax refund under GST, GSTN has taken the necessary steps to smoother the process of refund. Further, to the manual process the IGST refund module has been designed to have an in-built mechanism to automatically process and grant a refund after validating the shipping bill data available in ICES against the GST return data transmitted by GSTN. Manual intervention would be limited to only exceptional cases where automatic validation becomes impossible due to some technical errors.

Further, for the export of services, one of the essential requirements is the receipt of currency in convertible foreign exchange. However, as per the general practice prevalent in the industry, net payments are received in order to avoid two-way traffic i.e. to avoid formal remittance to the foreign buyer first and thereafter to receive the proceeds of exports. Now, ambiguities have been raised whether the amount of foreign currency not received physically on account of adjustment shall be treated as receipt of income in convertible foreign exchange? The absence of any provision in this regard has resulted in the outright rejection of legally admissible refund claims.

Export of goods is checked by Customs authority at the port which is later reflected at ICEGATE, a refund for the same are processed in a swift manner as filings in GST are inter-linked with ICEGATE. However export of services has no physical component, thereby GST law linked it to receipt of money. Till date, there have been no efforts in liking the GTSN with servers of RBI/Banks to ensure auto-check of refunds in case of export of services. Real-time linking of GSTN with RBI would be a win-win situation for exporters and exchequer both.

Further, the export of the goods is subject to certain legal and procedural formalities before being permitted clearance by Customs. Registration with regional licensing authority is a prerequisite for the export of goods. Comply with the applicable laws and regulations and secure the permits, certifications and other documents that will allow you to start exporting your products or services.

Essential documents for export include the bill of lading, the export declaration, the letter of credit and bill of exchange, proforma invoice, packing list, certificate of origin, shipping bill, insurance certificate, and other export-related documents. The Exporter must be aware of all the essential documents related to trade.

Exporters are also benefitted through Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS) with the aim to promote manufacturing, trading and service sectors by providing duty scrip credit for eligible exports. Under this scheme credit scrip* are issued to exporters at a notified rate on goods and services exported. In the Mid-Term Review of the Foreign Trade Policy (FTP) 2015-20 the Ministry of Commerce and Industry has enhanced the scope of Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS), increased MEIS incentive raised for ready-made garments and made-ups by 2 percent, raised SEIS incentive by 2 percent and increased the validity of Duty Credit Scrips from 18 months to 24 months. However, there was uncertainty amongst exporters on whether the MEIS scheme would continue beyond March 31, as the existing Foreign Trade Policy 2015-20 comes to an end this month. Many want the scheme, which offers export incentives ranging from 2 -5 percent of export value on specific products, to continue for some more time because there was almost a 2 percent decline in the exports in the period April 2019 to January 2020 amounting to USD 265.26 billion. Further due to the pandemic of Covid-19, it is estimated that there will be a huge impact on exports and imports in the Indian economy. The transactions in which goods are manufactured in India, don’t leave the country and money can be received in Indian as well as in foreign currency to treat them as deemed exports. Deemed exporters are benefitted in terms of manufacture and supply of goods by duty drawback scheme, special income tax allowances, special imprest license.

The twin objective of trade policy is to promote exports and restricts import to level the foreign exchange available in the country. The gap between exports and imports is financed through borrowing and foreign aid. However, the government aims at financing imports by exports, in the long run.

RBI has simplified the rules for credit to exporters, through which they can now get a long-term advance from banks for up to 10 years to service their contracts. This measure will help exporters get into long-term contracts while aiding the overall export performance. The Government of India is further expected to announce an interest subsidy scheme for exporters in order to boost exports and explore new markets. On the other hand, the government has changed the rules and is going to recover the refunded amount from those exporters who have not received export proceeds against the export transaction of goods. The step is opt due to the reason to give the refund benefit only to those who are trading in the market genuinely.

To conclude, with impetus on developing industrial corridors and smart cities, the government aims to ensure the holistic development of the nation. The corridors would further assist in integrating, monitoring and developing a conducive environment for industrial development and will promote advance practices in the manufacturing, trading and service sectors. One step towards the same is the implementation of the Goods and Services Tax (GST) which has created a common national market and reduced the overall tax burden on goods and services. It is expected to reduce costs in the long run on account of the availability of GST input credit, which will result in a reduction in prices of services.