Sharing with you a recent announcements pertaining to exemption of IGST and compensation cess payable on import of capital goods by EOU/STP units and a subsequent notification issued by DGFT giving effect to the same under the FTP 2015-20. NASSCOM has been asking for this exemption and had very recently represented this matter with the export committee and the GST council. We are glad that our recommendations are considered.
A summary of the Notifications along with our brief comments are as under:
- Notification No 78/ 2017 – Customs dated October 13, 2017 has amended Notification 52/2003-Customs dated March 31, 2017.
To recap, Notification 52/ 2003 which dealt with upfront exemption to EOUs/ STPI units only covered Sections 3(1) Basic customs duty and Countervailing customs duty 3(5) and 3(7) of the Customs Tariff Act, 1975. Therefore, IGST levied on imports on capital goods under Section 3(7) was not covered. Through Notification No 78/ 2017 – Customs dated October 13, 2017, this amendment has been effected and the upfront exemption to EOU/ STPI units has been extended to IGST on import of goods as well. However, please note that the upfront exemption is only applicable till March 31, 2018.
The relevant extract from the notification is given below for ease of reference:
“2. In the said notification, for the words, brackets and figures “from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under subsections (1), (3) and (5) of section 3 of the said Customs Tariff Act, subject to the following conditions, namely:-”,
the following shall be substituted, namely:-
(A) the whole of the duty of customs leviable thereon under the First-Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under sub-sections (1), (3) and (5) of section 3 of the said Customs Tariff Act; and
(B) the integrated tax and compensation cess leviable thereon under subsections (7) and (9), respectively of section 3 of the said Customs Tariff Act:
Provided that nothing contained in clause (B) above shall apply on or after the 1st day of April, 2018, subject to the following conditions, namely:-”.
As a result of this Notification, import of capital goods under Notification 52/2003 will not attract any taxes in the hands of the EOU/ STP. This is a huge relief for EOU/ STPI units as till the issuance of the said notification, imports of capital goods attracted IGST and no refund was eligible of the said duties, thereby increasing the cost of doing business. Further, while this upfront exemption has been made only up to March 31, 2018, it is hoped that in case of capital goods, EOU/ STPI would at least be extended benefit of refund. Our efforts on this front shall continue.
- Notification No 33/2015-2020 dated October 13, 2017 issued by DGFT has incorporated the above exemption from IGST and compensation cess on imports in the Foreign Trade Policy 2015-2020 by way of an amendment. Further it also provides that any domestic supply will not attract any taxes in the hands of the EOU/ STP and the GST is to be paid by the supplier and claimed as refund.
Upfront exemption for EOU/ STPI units for domestic procurements comes as a big relief to software exporters and is a welcome move. However, challenges in claiming refund in the hands of DTA supplier will remain.
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