IGST ON RE-IMPORT OF PRECIOUS & SEMI-PRECIOUS STUDDED GOLD JEWELERY BROUGHT BACK FROM EXHIBITION ABROAD

[pooja jajwni]

By  Rakesh Chitkara, Advocate & CA Pooja Jajwani

Issue :  Whether IGST @ 3% is leviable when the goods are re-imported into India ?

Backdrop : Proceedings are being initiated by Customs to demand tax from re-importers  of gold jewellery, alongwith recovery of  interest under Section 28AA, penalty under Section 112a (ii) and confiscation of goods under Section 111 (o) of the Customs Act, 1962.

Customs has rejected the exemption claimed under Entry 5 of the Notification no. 45/2017,  contending that the activity is covered under Entry 1(d) of the Notification no. 45/2017 as the goods are initially exported on the basis of LUT by availing IGST exemption and thus, at the time of re-import of such goods, tax equivalent to IGST, which was leviable at the time of initial Export, should be paid.

In this 3 series write-up, we will cover the following points :

• What is the nature of articles / goods covered ?
• How the system works ?
• What are the procedures to export precious and semi-precious jewellery ?
• What is the role of Jewellery Appraisers before export and after the re-import  ?
• Which are the relevant Legal provisions of the Customs Department ?
• Which are the relevant Legal provisions of the Foreign Trade Policy Customs Department ?
• Why Customs contends that exemption is not available but IGST should be paid ?
• What defence should be taken by such exporters & re-importers from such demand notices?
• Infamous instances and cases of misuse of this facility. 

Introduction

One of the most pertinent principle consistently followed by all the countries across the globe is that taxes cannot be exported. Therefore, it is a well established principle  that exports must be exempted from taxes.  However, with the ever changing business environment, there are some transaction which are complex and the application of principle of not exporting taxes requires some additional concessions.

One such transaction is re-import of specified goods. It means a transaction wherein goods are not intended to be exported for sale.  However, the goods are supplied with the intention to keep them in exhibitions. On several occasions, the goods are sold and if the goods are not sold then, the same are brought back to India. In this situation, it is pertinent to understand how the principle of exemption to exports works.

How It Works :

The article focuses on specific goods i.e. *studded and other jewellery made of gold and silver of varying purities*. Procedure  followed for Export and re-import of goods is as explained below.

The Indian Companies sending goods outside India are referred as "Exporters" hereinafter.

The Exporters participates in various exhibitions (including private exhibitions), trade shows and promotional sales tours abroad for promotion and sales of their goods.

The goods are carried by the Exporters as hand carried goods which are re-imported through the Passengers Terminal. The Exporters have to follow  procedure defined by the Department vide Standard Operating Procedure ('SOP') dated 29.03.2016 issued by the Commissioner, Customs, Air Cargo (Exports), New Delhi.  

The SOP describes the procedure to be adopted while undertaking exports and re-import of goods carried by hand for the purpose of exhibitions, etc.

The goods are initially exported under a Shipping Bill filed with an Export Invoice. The Documents bear the name of the Exporter as the Consignor, the name of the Consignee is different as that of the Exhibitor or the buyer abroad.

After the goods are taken abroad, they are either sold abroad or brought back to India – partly or fully.

When such  goods are brought back to India, the passenger reports at the Red Channel. As per the procedure defined, the goods are forwarded to the Jewellery Appraiser for examination and appraisement of the goods being re-imported.

Documents like triplicate copy of the Shipping Bills alongwith EDF and Copy of Export Invoices with invoices for sold and re-imported goods,  invoices which bear the name of the Exporter as the Consignee and that of the buyer from abroad as the Consignor are required to be submitted.

The Exporter carrying the goods at the time of exhibition or promotional tours becomes the Consignee while the Exhibitor / Business tour promoter or the buyer abroad becomes the Consignor at the time of re-import.

As per the prescribed procedure, the Jewellery Appraiser examines the contents and verifies  these with the goods exported. After this process, the goods are cleared by filing a Bill of Entry.

Taxability of re-imported goods

The re-import of the goods is governed by the Section 20 of the Customs Act, 1962 which purports to levy Customs duty when the goods are re-imported. It reads as under:

"If goods are imported into India after exportation therefrom, such goods shall he liable to duty and be subject to all the conditions and restrictions, if any, to which goods of the like kind and value are liable or subject, on the importation thereof"

However, such re-imports is exempted vide Notification 45 / 2017 Cus. dated 30.06.2017, subject to such rates and conditions as defined thereunder.

The Notification 45/2017 Cus has exempted the goods falling within any Chapter of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and specified in column (2) of the Table below when re- imported into India, from so much of the duty of Customs leviable thereon which is specified in the said First Schedule, and the integrated tax, compensation cess leviable thereon respectively under sub-section (7) and (9) of section 3 of the said Customs Tariff Act, as is in excess of the amount indicated in the corresponding entry in column (3) of the said Table. Relevant Entries from the said Table are as reproduced below:-

Sr. No.	Description of Goods	Conditions
(1)	(2)	(3)
1	Goods exported - (a) under claim for drawback of any customs or excise duties levied by the Union (b) under claim for drawback of any excise duty levied by a State (c) under claim for refund of integrated tax paid on export goods (d) under bond without payment of integrated tax (e) under duty exemption scheme (DEEC / Advance Authorisation / DFIA) or Export Promotion Capital Goods Scheme (EPCG)	(a) Amount of drawback of customs or excise duties allowed at the time of export; (b) Amount of excise duty leviable by State at the time and place of importation of the goods allowed at the time of export; (c) Amount of refund of integrated tax, availed at the time of export; (d) Amount of integrated tax not paid; (e) Amount of integrated tax and compensation cess leviable at the time and place of importation of goods and subject to the following conditions applicable for such goods...............
3	Cut and polished precious and semi-precious stones exported for treatment abroad as referred to in Paragraph 4A.20.1 of the Foreign Trade Policy*, other than those falling under Sl. No. 1.	Duty of customs which would be leviable if the value of re-imported precious and semiprecious stones after treatment were made up of the fair cost of treatment carried out including cost of materials used in such treatment, whether such costs are actually incurred for not, insurance and freight charges, both ways.
5	Goods other than those falling under Sl. No. 1, 2, 3 and 4.	Nil

* Para 4A.20.1 of FTP prescribes Export of cut & Polished precious and semi-precious stones for treatment and re-import.

(Continued to Part-2)