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Applicability of GST on Traders, Exporters and Importers- India

April 21, 2022

By Rupin Chopra and Apalka Bareja

What is GST?

GST refers to the Goods and Service Tax which is a common tax levied on goods and services sold for domestic consumption in India. The tax is remitted to the government by the businesses selling the goods and services which they in turn charge from the consumers as the tax is included in the final price of the goods and services that is being provided to them. Demand for the goods and services can be fulfilled through different mechanisms either through local or interstate supply or by export or import for that matter. Taxes are levied accordingly according to the type of sale.

Applicability on traders

Tax levied on goods and services manufactured and sold within the territories of India is governed by the Central Goods and Services Tax[1], 2017.

Traders refers to an individual who is engaged in the activity of buying and selling of goods. For the purposes of this section, we will deal with traders dealing with the procurement or supply of goods and services within the territory of India as imports and exports are dealt with down below.

All traders are required to register under the GST act,

  • if they are engaged in intra-state supplies or
  • their turnover is above twenty lakhs or
  • are not dealing with exempted goods as mentioned under the GST act such as fruits, cereals, or food that has not been put into branded containers, etc.

A trader dealing with goods and services in local limits will not be required to register under GST.

Input Tax Credit

In simple terms, input tax credit means that at the time of paying the tax on the final output, a trader can reduce the amount of tax that he has already paid on inputs of such goods and services. Goods and service tax has brought under one umbrella the indirect taxation system that was prevalent in India before its implementation and various taxes had to be at different stages. Some of the taxes under that regime were credible and traders were not able to claim credit for taxes such as CST or entry tax. But under GST the traders can claim input tax credit on most purchases and inputs.

For example – a manufacturer or a trader has paid Rs. 200 as tax on inputs and the tax levied on the final goods or services is Rs. 300 then the trader can claim the input credit and he will only be liable to pay the remaining Rs. 100.

Certain supplies are not eligible for input tax credit such as motor vehicles which are used for transportation of people or vessels and aircraft, services of general insurance, etc but there are certain situations or exemption these cases as well in which scenario input tax credit can be claimed.

GST Composition scheme can be claimed by a trader

A trader with a turnover which is less than Rs. 75 Lakhs can avail the benefits under the GST composition scheme. This scheme acts as an alternative to the conventional method of levying GST to the small tax payers as they can pay GST at a fixed rate of turnover every quarter under this scheme. It provides a simple and reduced cost of compliance to the small traders. People availing the benefits under this scheme are not eligible to claim Input Tax Credit.

The rate for traders under this scheme is 1% of the turnover – [0.5% CGST and 0.5% SGST]

People not eligible under this scheme

  • Supplier of exempted goods
  • Supplier of services (except restaurants not serving alcohol)
  • Person engaged in inter-state supply of goods.
  • A supplier making any supply of goods through an electronic operator (e-commerce).

 Reverse Charge Mechanism

Under reverse charge mechanism, the liability to pay the GST is on the recipient of the goods and services and not on the supplier. This is mostly applicable to imports but there are other notified products under the tax will be paid under the reverse mechanism scheme. These products include supplies such as certain agriculture products like cashew nuts, silk yarn, raw cotton, or legal services, used vehicles, or if the trader is located in a non-taxable territory and the services are supplied by him to any person other than non-taxable online recipient, etc.

Payment of Tax

A trader registered under GST is liable to deposit their taxes on a monthly basis on or before the 20th of the succeeding month of liability.

A trader who is availing the benefits under the GST composition scheme is liable to pay taxes on a quarterly bases, on or before 18th of the month succeeding the quarter relating to supplies.

Invoice created by traders

The invoice created by traders must be in accordance with the GST invoice format[2] rules. In GST invoices, HSN code must be mentioned along with various other information like invoice number, invoice date, etc., The following is the criteria for mentioning HSN code on GST invoices.

  • Taxpayers whose turnover is below 1.5 crores need not mention HSN code in their invoices.
  • Taxpayers whose turnover is above 1.5 crores, but less than 5 crores shall use a two-digit code.
  • Taxpayers whose turnover is above 5 crores shall use a four-digit code.

Applicability on Exporters

Exports are governed by the Integrated Goods and Services Act, 2017[3]. Export from India refers to the trading or supplying of goods and services outside the domestic territory of India.

Every exporter must have an IEC code which refers to the Importer Exporter Code in which the Pan card of the Exporter will be authorised to be used as an IEC[4].

Export means supply of any service when[5];

  • the supplier of the service is located in India;
  • the recipient of the service is located outside India;
  • the place of supply of service is outside India;
  • the payment for such service has been received by the supplier of service in convertible foreign exchange; or in Indian rupees wherever permitted by RBI, and
  • the supplier of service and the recipient of service are not merely establishments of a distinct person. if place of supply is out of India

No GST is levied on the export of any kind of goods and services. Therefore, exporters don’t have to pay any tax or any kind of GST on the goods and services exported by them.

Export is treated in one of two ways

  • inter-state supply under the IGST Act
  • as zero-rated supply under Section 16(1) of the IGST Act

Zero Rated Supply of goods and services

“Zero rated supply”[6] means any of the following supplies of goods or services or both, namely:

  • Export of goods or services or both; or
  • Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone

It does not mean that the exporter does not have to pay any tax but that the person exporting such goods and services or both will be entitled to claim refund of the GST paid by him as per Section 54[7], under one of two conditions

  • If the goods and services or both have been exported under bond or letter of undertaking (LUT) without paying any integrated Tax and therefore the exporter can claim refund of the unutilised input credit.
  • If the exporter has supplied the goods and services after fulfilling certain conditions, safeguards and procedures as may be prescribed and has paid the Integrated goods and service tax, then in this case the exporter can claim refund of the tax paid by him on the supplied goods or services or both.

Procedure for claiming refund by the Exporter

Application for refund of IGST paid has to be made under Section 54[8] of the IGST Act by the exporter in the prescribed format.

An exporter has to file a shipping bill for the goods that are being exported. This shipping bill is treated as a “deemed application” for the refund of tax that is already paid by the exporter along with the export manifest or reports mentioning the number and date of the shipping bills.

Documents required for claiming refund

  • Copy of return evidencing payment of duty
  • Copy of Invoice
  • Document proving that the burden of paying the tax has not been passed on by the exporter (CA certification or even a self-certification)
  • Any other document as required

Deemed exports

Sometimes the goods supplied do not leave the country (in present case India) and the payment for such supplies manufactured in India is received in either Indian rupees or in convertible foreign exchange, therefore the Government may notify the supplies of these products as deemed exports.

Some supplies that have been notified as deemed export by the Government[9] include:

  • Supply of goods by a registered person against Advance Authorization
  • Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization
  • Supply of goods by a registered person to Export Oriented Unit
  • Supply of gold by a bank or Public Sector Undertaking against Advance Authorization as per the Custom law applicable.

The returns which are filed under GST for the deemed exports are done is as same as the general procedures provided for any other type of export under GST.

Applicability on Importers

Imports refer to goods and services, or both supplied from any other place outside the domestic territory of India into the territory of India in the course of Inter-state trade or commerce. Therefore, import of goods or services is treated as deemed inter-State supplies and exporters are liable to pay Integrated Tax (IGST). Tax would be levied on the import of services under the IGST Act, whereas on import of goods taxes would be levied under the Customs Act, 1962 read along with the Custom Tariff Act[10], 1975.

Imports are subjected to tax as the consumption of such goods and services occurs in India.

Reverse Charge Mechanism

In case of imports into the territory of India the tax will have to be paid on a reverse charge basis. The liability to pay the tax is on the importer (recipient of supply of such goods and services instead of the supplier)

Every importer must also have an IEC Code. The importer is required to declare the GSTIN number as registered under GST[11].

Levying of taxes on imports

The taxes are levied on the assessable value of the goods and services plus the basic customs duty levied under the Act along with the education cess. The compensation cess is calculated on the amount before the addition of the integrated tax which is same as the amount on which the integrated tax was calculated.

Particulars Duty
(A) Assessable Value Rs. 100/-
(B) Basic Customs Duty@10% Rs.10/-
(C) Education Cess @3% Rs.0.30
(D) Value for Integrated Tax Rs.110.30
(E) Integrated Tax @18% Rs.19.85
(F) Value for Compensation Cess Rs.110.30
(G) Compensation Cess @ 15% Rs. 16.55
(H) Total Duty (B+C +E+G) Rs.46.70

*Source[12]

Goods imported by a unit or a developer in the Special Economic Zone for authorised operations are exempted from the whole of integrated tax[13].

Input Tax Credit

In terms of Import the definition of input tax also includes integrated tax and compensation cess. Therefore, the importer can claim the input tax credit of the integrated tax and compensation cess paid by him at the time of import which can be utilised by him for payment of taxes on his outwards supplies. The basic customs duty and education cess are not available as input tax credit[14].

Conclusion

The GST regime has unified the tax structure and made the taxation schemes more efficient and simpler for the people to follow as well as making it easy for the government as well to keep track and levy taxes. Various types of concessions and privileges are provided under GST specially to exporter and the whole process has been made more effective as compared to the previously prevailing indirect tax regime. These are the GST provisions and implications that the trader, exporter and importers in India are subjected to.

[1] CGST Act, 2017, https://www.cbic.gov.in/resources/htdocs-cbec/gst/cgst-act.pdf

[2] https://www.indiafilings.com/learn/gst-invoice-format-rules/

[3] IGST Act, 2017 https://www.cbic.gov.in/resources//htdocs-cbec/gst/igst-act.pdf

[4] Import in GST Regime, https://www.cbic.gov.in/resources//htdocs-cbec/gst/Imports_in_GST_Regime.pdf

[5] Integrated Goods and Services Act, §2(6), 2017

[6] Integrated Goods and Services Act, §16(1), 2017

[7] Integrated Goods and Services Act, §54, 2017

[8] IGST, supra note 7

[9] Notification no. 48/2017 – Central Tax https://taxguru.in/goods-and-service-tax/cbec-notifies-supplies-deemed-exports-cgst-act-2017.html

[10] https://www.cbic.gov.in/htdocs-cbec/customs/cs-act/formatted-htmls/cs-import-rule12

[11] Import in GST Regime, supra note 4

[12] Import in GST Regime, supra note 4

[13] The Customs Tariff Act, §3(7), 1975 (vide Notification No. 64/2017-Customs dated 05.07.2017)

[14] Import in GST Regime, supra note 4

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