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114th Report of the Parliamentary standing committee on exports – GST

Blog Post created by NASSCOM Community on Aug 24, 2018

Please find attached the Report of the Parliamentary Standing Committee on Exports covering the impact of GST on exports. You would recall that NASSCOM had represented to the committee in November 2017 highlighting key issues of the technology industry. Some of the observations of the committee are welcome and we will continue to engage with them for further deliberations and consultations.

 

This is a follow-up report to the earlier report (139th report) issued in December 2017. Some of the key aspects covered in the report are summarised below. 

 

  • Delays in granting of refunds -  Committee has expressed its displeasure in the delays in sanctioning of refunds although the time frame provided under the Act is 60 days.  The Committee also hopes that a semi-automatic system currently in place be replaced by a completely automatic system with no human interference. 

 

  • Supplies to SEZ/ EOUs -  Committee has noted that all supplies to an SEZ unit are required to be made in foreign currency under the IGST Act.  Earlier, SEZ units were not required to pay in foreign exchange for all supplies.  It was only in case of services.  However, now this requirement has been extended to goods as well.  This issue has been referred to the TRU, Dept. of Commerce, Ministry of Finance and a favourable consideration is expected. 

 

  • Refund of credit in respect of capital goods - Committee has noted that a temporary relief has been given to exporters till March 2018 (it is now actually upto September 30, 2018).  However, this does not solve the problem of non-refund of IGST on capital goods imported post this period.  The Committee has reiterated that there must a permanent solution to this problem. 

 

However, no action is proposed in view of the fact that this the same treatment that was in existence in the pre-GST regime also.  Further, that the rebate mechanism would enable liquidation of such credits.  Also that the proposed e-wallet scheme would help address this issue. 

 

  • HO-BO transactions -  On the aspect of export of services, the Committee has recognised the need for Section 2(6), ie, the definition of “export of services” to be revisited in order to keep transactions between HO-BO outside its ambit.  The issue and response captured in the report are extracted below. 

 

“2.47 The Committee desires that the Government may revisit section 2(6) of the IGST Act and ensure that such transactions between Head office and its branches may be kept outside of its ambit. 

 

2.48 Head office and branch office being two distinct taxable entities, [Under section 8 of IGST Act, establishment of a person in India and another establishment of the said person outside India, are establishments of distinct persons] transaction between them would be leviable to tax.  However, GST is leviable on a supply and/ or services and not on mere transactions.  If overseas Branch Office of an Indian entity provides services to Head office in India, it will be taxable but if the Branch Office merely remits money or profits to Head office for service provided by Branch office or Head office to a third party located overseas, it will not be taxable.  Taxability would depend on the terms of contract, agreement, working arrangement between the Branch Office and Head Office.”

 

Do share your views and comments on observations listed above and any other observations which you may want to share.

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