Advance Authorisation, Goods and Services Tax - GST

[Kumar Kedia]

Hi Sir,

I have a query regarding why if imports are made after completing the export obligation then those imports shall be used only in manufacture and supply of taxable goods. What is the intention of government in making such change in Notification 1/2019- CGST?

Thanks

Posts / Replies

[KASTURI SETHI]

Dear Kedia Ji,

Notification No.1/19-Central Tax dated 15.1.19 has made two changes as under:

(i) Insertion of requirement of a certificate from C.A.

(ii) Omission of words, "on pre-import basis" in the Explanation given in Notification No.48/2017- CT dated 18.10.17.

The condition of producing a certificate from C.A. to the effect that inputs imported under Advance Authorisation have been used only in the manufacture and supply of taxable goods, was already in force vide Para No.4.16 of Foreign Trade Policy (2015-2020). The words "dutiable goods" have been replaced with the words,"taxable goods" in the Notification dated 15.1.19. Changes have been made because of completion of export obligation in advance .Hence in omission of words, "inputs on pre-import basis".

The intention of the Govt. is to make the goods manufactured with imported material dearer in Indian market so that Indian economy must not be hit by imported goods. That is why CVD was in force in pre-GST era.Govt. of India prefers indigenous goods to imported goods.

 

Relevant extract is appended below:

4.16 Actual User Condition for Advance Authorisation

(i) Advance Authorisation and / or material imported under Advance Authorisation shall be subject to ‘Actual User’ condition. The same shall not be transferable even after completion of export obligation. However, Authorisation holder will have option to dispose of product manufactured out of duty free input once export obligation is completed.

(ii) In case where CENVAT credit facility on input has been availed for the exported goods, even after completion of export obligation, the goods imported against such Advance Authorisation shall be utilized only in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer). For this, the Authorisation holder shall produce a certificate from either the jurisdictional Central Excise Authority or Chartered Accountant, at the option of the exporter, at the time of filing application for Export Obligation Discharge Certificate to Regional Authority concerned.

⁶[4.14: Details of Duties exempted (FTP 2015-20)

Imports under Advance Authorisation are exempted from payment of Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, Transition Product Specific Safeguard Duty, wherever applicable. Import against supplies covered under paragraph 7.02 (c), (d) and (g) of FTP will not be exempted from payment of applicable Anti-dumping Duty, Countervailing Duty, Safeguard Duty and Transition Product Specific Safeguard Duty, if any. However, imports under Advance Authorization for physical exports are also exempt from whole of the integrated tax and Compensation Cess leviable under sub-section (7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be provided in the notification issued by Department of Revenue, and such imports shall be subject to pre-import conditions.

[Kumar Kedia]

Sir,

If i am not wrong then CA certificate to this effect that inputs imported after completing export shall be used in taxable goods will be required in case where Exporter have used the already available inputs with him to manufacture and export goods and has availed ITC of those inputs used in exported goods.

Request you to please give a word of confirmation to clear my doubt.

[KASTURI SETHI]

Dear Querist,

I do not agree with you. This is not the situation.

In the changed scenario, export obligation has to be completed first and thereafter, material is to be imported free of tax under Advance Authorization. Prior to 15.1.19, situation was contra. In my reply dated 27.1.19, I have detailed of Customs duties/taxes for which exemption is being availed under Advance Authorisation.

Though export is zero rated, yet exported goods are treated as duty paid goods for the purpose of availment of ITC. No ITC is required to be reversed in respect of inputs used in the manufacture of exported goods. Duty/Tax paid on finished goods, if paid, is also refunded by way of refund/rebate. So many other benefits have also been provided in respect of exportation. After availing these benefits, Govt. intends to tax the goods manufactured out of those materials/inputs which are to be imported free of Customs duties including IGST and Compensation Cess (mentioned above in reply dated 27.1.19). Hence these goods must suffer CGST/SGST or IGST when cleared for home consumption so that indigenous goods should be able to compete with those goods.

Therefore, a certificate to the effect that the goods so supplied (free of import duties under Advance Authorisation Scheme) have been used in the manufacture and supply of taxable goods.

This is my interpretation.Also solicit views of other experts on this issue.

[YAGAY andSUN]

We endorse the views of Kasturi Sir.

[YAGAY andSUN]

“Actual user” under Advance Authorisation implies that procured goods have to be used by the authorization holder only, although he may transfer the same for job work. Other implications of Actual user condition are as follows:

Raw material imported under Advance Authorisation shall be subject to ‘Actual User’ condition.

Actual User condition means, raw material imported under advance authorisation shall not be transferable even after completion of export obligation.

Authorisation holder will have option to dispose of product manufactured out of duty free input once export obligation is completed.

Goods imported against such Advance Authorisation shall be utilized only in the manufacture of dutiable goods whether within the same factory or outside (by a supporting manufacturer like Job worker).

Waste / Scrap arising out of manufacturing process, as allowed, can be disposed off on payment of applicable duty even before fulfilment of export obligation

[Kumar Kedia]

Dear Sirs,

Thank you for your replies I agree with the fact that after completion of export obligation if any inputs are imported same shall be used in taxable goods and cannot be transferred but I am extremely sorry that I am not able to understand that :-

In notification 1/2019 or even in pre-GST era as stated in the proviso:-

“Provided that goods so supplied, when exports have already been made after availing input tax credit on inputs used in manufacture of such exports, shall be used in manufacture and supply of taxable goods (other than nil rated or fully exempted goods) and a certificate to this effect from a chartered accountant is submitted to the jurisdictional commissioner of GST or any other officer authorised by him within 6 months of such supply.

What does the words after availing ITC on inputs used in manufacture of such exports mean?

[YAGAY andSUN]

It talks the about Post Export scenario wherein goods were procured after export of goods sent out of India and ITC availed on such good but such goods cannot be used by the Importer's other units which are exempted says located at J&K, Uttarakhand etc. and also not for exempted goods.

[Kumar Kedia]

Thank you very much sir