In the latest move to sort out the procedural mess that exports got stuck into after the Goods and Services Tax (GST) regime was rolled out, the government has issued further notifications regarding currency exchange rates for drawback purposes.
To this end, a circular issued by the Customs Department under the Finance Ministry on July 27 effectively notified that currency exchange rates would be announced by the Customs Department on a fortnightly basis, as was the case earlier.
Customs duty is payable only in Indian Rupee and the GST norms had stipulated that foreign exchange conversions should be according to the Reserve Bank of India's reference rate, which is updated on a daily basis. Traders had complained that it made processing large volumes of payments difficult.
Now, traders can go back to paying the free on board (FOB) value of exports, based on the rupee value as per the exchange rate notified by customs department for drawback purposes, said Abhishek Jain, Tax Partner, EY. For services exports, any generally accepted accounting basis is allowed.
The circular also allowed self-certification for higher duty drawback. "Being asked to furnish a certificate from the tax authorities stating that exporters will not claim benefits under the new GST regime, if they claim higher a duty drawback, was causing problems," said Ganesh Kumar Gupta, President of the Federation of Indian Exports Organisations (FIEO).
Tax authorities were not issuing such certificates and, in its absence, the grant of lower drawback was affecting the liquidity of businesses, especially those operating in the small and medium enterprises segment, besides complicating administrative work at exporter’s end, he added.
Even services exporters are facing roadblocks in the wake of the new requirement of having to submit letters. “Exporters are reluctant to export as getting a certificate from the GST authorities only adds to the transaction time and cost,” said FIEO in a representation to the finance ministry.
The new move is expected to save the transaction time and cost for exporters but they have been advised to do their own calculation, even while claiming a higher drawback as they have to forego IGST refund/ITC refund/carry forward of CENVAT credit.
The circular also clarified that while supplying to special economic zones (SEZs), traders need to mention whether it was being done under LUT (letter of undertaking) or a bond.
After the GST implementation, exporters had raised the issue of lack of clarity on norms relating to submission of bonds or LUTs for clearance of export consignments, besides seeking an exemption from IGST. However, earlier this month, the government had said that big exporters with a good track record can give an LUT to the customs department, while small exporters would have to give bond to seek IGST exemption. But problems in this regard have persisted.
The government had mentioned that those exporters who had received inward forex remittances exceeding Rs 1 crore in the previous financial year were eligible for LUTs, effectively edging out a large number of SME exporters, Jain added. On the other hand, a bond now needs to be accompanied by a bank guarantee to the tune of 15 per cent of bond amount, he added.
Among other issues, exporters pointed out the fact that they now have to deal with state tax authorities who are not yet aware of export procedures and therefore not willing to endorse documents. Exporters also wanted clarity on whether IGST on exports should be paid in FOB or cost and freight.