Valuation for Exports on payment of GST under claim for Refund of IGST paid, Goods and Services Tax - GST

[Kaustubh Karandikar]

XYZ is exporting goods either without payment of GST under LUT or on payment of duty under claim for refund of IGST paid. They recover Freight, Insurance and Documentation charges over and above the value of the goods from the foreign buyer by charging the same separately in the Tax Invoice and Commercial Invoice. The freight and insurance are from factory in Maharashtra up to the customer’s place outside India. The terms of the contract can be either FOB or CIF and varies from customer to customer.

1) Whether the value for the purpose of GST should include Freight, Insurance and Documentation charges in case of both FOB and CIF terms of contract?

2) For Documentation Charges whether it can be shown under the tax invoice for goods or a separate service invoice for export needs to be prepared?

3) For Freight, Insurance and Documentation charges, what should be the GST Rate to be applied? Same as for goods supplied or any other rate?

In my view, if the contract is FOB, freight and insurance not to be included in value and only documentation charges to include and in case of CIF contract freight, insurance and documentation charges to include in value. The GST rate for freight, insurance and documentation charges will be what is applicable for the goods. Views of the experts please.

Posts / Replies

[Amit Agrawal]

My views for given situations:

1) Whether the value for the purpose of GST should include Freight, Insurance and Documentation charges in case of both FOB and CIF terms of contract?

- Yes, for both types of contract. Reference: Section 15 (2) (c) read with Section 2 (30)

2) For Documentation Charges whether it can be shown under the tax invoice for goods or a separate service invoice for export needs to be prepared?

- It should be part of value of supply of goods and hence, should be part of tax-invoice raised for goods.

3) For Freight, Insurance and Documentation charges, what should be the GST Rate to be applied? Same as for goods supplied or any other rate?

- As all these expenses are part of value of supply of goods, tax-rate will be what is applicable for goods.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Kaustubh Karandikar]

Thanks Amit ji for your detailed views. In light of the Circular No. 37/11/2018-GST dated 15.03.2018 issued by CBIC, can we take the following views?:

Valuation of supply, both DTA sales (supply within India) and Export of goods are governed under section 15 of the CGST Act, 2017 only. In other words, there is no separate legal provision for valuation with regard to export of goods.

As per clause (c) of subsection (2) of Section 15 of CGST Act, 2017 incidental expenses before delivery of goods shall form part of the value of such supply. In cases of CIF contracts, under INCOTERMS, freight and insurance are incidental expenses in respect of the supply of goods before delivery.

Therefore, the export of goods under CIF contracts, the value of supply is the transaction value which represents the value mentioned in the invoice, including freight & insurance.

Further, the intention of the Board is to clarify that the export value shall be the lower of the two values, viz., invoice value mentioned in GST invoice and the invoice value mentioned in Shipping Bills.

Export supplies being made on CIF and CIF value is recorded in both GST invoice and corresponding Shipping Bills and both Invoice Value i.e., CIF and FOB value are recorded in every shipping bill, therefore there is no difference in the value declared in Invoice and Shipping Bills.

Hence, for the purpose of GST refunds, the CIF Value should be considered.

[Amit Agrawal]

Dear Shri Kaustubh Ji,

A. For purpose of raising tax-invoice under GST, value of goods will be according to Section 15 of the CGST Act, 2017 (read with valuation rules, if applicable). And same is dependant on terms of contract between buyer & seller read with various provisions under GST.

My views - shared in earlier post above - were considering "factual position" narrated in your query read with my understanding of Section 15 (2) (c) read with Section 2 (30) of the CGST Act, 2017.

B. The terms FOB / CIF - per se - got no relevance while determining value u/s 15 for supplies made (i.e. export of goods) under GST Act, 2017.

C. As per 'explanation' under Rule 89 (4) of the CGST Rules, 2017, for refund of 'accumulated ITC' against goods exported under LUT (i.e. without paying IGST), the value of goods exported out of India shall be taken as –

(i) the Free on Board (FOB) value declared in the Shipping Bill or Bill of Export form, as the case may be, as per the Shipping Bill and Bill of Export (Forms) Regulations, 2017; or

(ii) the value declared in tax invoice or bill of supply,

whichever is less"

(Please note that CIF value is not even in picture, here)

D. For refund of 'taxes paid' against goods exported (i.e. IGST paid at the time of export of goods), the value of goods exported out of India shall be 'value' as determined under Section 15 of the CGST Act, 2017 (read with valuation rules, if applicable). And this 'value' - as explained earlier - is dependant on terms of contract between buyer & seller read with various provisions under GST (and nothing to do with the terms 'FOB / CIF value' per se).

As a natural consequence, GST needs to be paid (even if intention is to claim refund of taxes so paid) on 'value' so determined u/s 15 while exporting goods.

In other words, having 'FOB / CIF' value as lower or higher (as compared to value u/s 15) is irrelevant while claiming refund of 'taxes paid' against goods exported (i.e. IGST paid at the time of export of goods).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

I agree with views of Sri Amit Ji. For the purpose of GST, valuation shall be governed by Section 15 of the Act. CIF and FOB has no bearing in GST Valuation. Therefore I fully endure the reply 1 by Sri Amit Ji. In both cases, freight, insurance and documentation will form part of value and invoice.

[Shilpi Jain]

Is this query asked in the light of the fact that for the purposes of refund under GST only the FoB value of exports is considered in case of export under LuT?

This is a rule which is ultra vires and is bound to be struck down. Support of the decision in the case of the recent decision of the HC which struck off the provision that export turnover should be only 1.5 times the domestic sale value - can be taken support of.

[Kaustubh Karandikar]

Thanks Shilpi and Padmanathan ji for your kind advice.

[Shilpi Jain]

The HC decision which I had referred in my post is of Tonbo Imaging - 2023 (4) TMI 46 - KARNATAKA HIGH COURT

[Kaustubh Karandikar]

Thanks shilpi ji for the update. it will be helpful.