‘EXPORT’ IN DRAFT GST ACT, 2016:-

GST Update 16.01.2016

GST DAILY DOSE OF UPDATION:-

‘EXPORT’ IN DRAFT GST ACT, 2016:-

Section 2(29) defines the term export as ‘export’ with its grammatical variations and cognate expressions, means taking out of India to a place outside India.

It is submitted that the meaning of the term ‘export’ is extremely crucial in indirect taxation laws because a number of benefits and exemptions are being granted to export of goods and services. The ultimate intention of the government is not to export domestic taxes and so there is exemption from levy of excise duty and service tax on the export of goods and services respectively. However, in order to claim the benefit of exemptions, it is extremely important that the contents of the defination are complied with.

The proposed defination of export given in the draft GST laws seeks to restrict the meaning of export to physical exports only that is taking out of India to a place outside India. However, presently, in order to promote exports, a number of set-ups can be there like EOU, SEZ etc. wherein although the units are situated within India, the clearances to such units is being treated as ‘deemed exports’ under the Foreign Trade Policy and a number of other incentives are being extended to such units. However, the restricted defination proposed in the GST laws seeks to take away all the lure of setting up such units. It is pertinent to note that there is exclusive Act called the Special Economic Zones Act, which has overriding effect over all the Acts that are presently in force in India. This has the effect that clearances to SEZ are being treated at par with physical exports for export incentive benefits. Consequently, even after introduction of GST Law, the supply of goods and services will continue to enjoy all export benefits irrespective of the defination given in the GST Law. However, this defination will snatch the exemption benefits otherwise available to EOU units. Furthermore, we would also like to mention that vide Budget, 2015-16, similar defination has been provided in Rule 5 of the Cenvat Credit Rules, 2004 granting refund of accumulated cenvat credit and Rule 18 of the Central Excise Rules, 2002 which has the effect of denying the refund/rebate benefits to EOU units. This has been done to overrule the effect of Gujarat High Court decision in case of NBM Industries and EI Du-Pont India Pvt. Ltd. wherein refund of accumulated cenvat credit was allowed treating supply to EOU as export.

Furthermore, as far as export of services is concerned, presently certain conditions have been prescribed in Rule 6A of Service Tax Rules, 1994. The said conditions are as follows:-

Service provider located in taxable territory, i.e., India

Service receiver located in non-taxable territory, i.e., outside India

Consideration received in convertible foreign currency

Place of provision of service is outside India

It is submitted that one of the conditions for export of service is place of provision of service is outside India as per the Place of Provision of Service Rules. Moreover, if the defination of export as proposed in GST law is considered for export of service also then it will create ambiguity.

Even the DGFT regards a service as export of service if the payment is received in foreign currency but the service tax has not regarded it as export of service. We think that the impugned ambiguity will continue in GST regime also.

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GST Update 16.01.2016

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