Indian Desk: Mapp Law Chambers has participated in several conferences

Indian Desk Trebeki Acompañamiento

Mapp Law Chambers has recently participated in several conferences to increase awareness about the vibrant business opportunities presented by the growing Indian economy.

In May 2017, Mapp Law Chambers conducted a business conference in an entrepreneurial club in Ribera in the Navarra district of Spain. The conference saw participation of over 20 companies representing different industrial sectors, especially Renewable Energy and Agro Alimentaria. The conference focused on the different possibilities to leverage the opportunities presented by the huge Indian market, methods for entering and consolidating a position in the market and optimization of capacities between the Indian and Spanish companies.

Similarly, on 24th May, Mapp Law Chambers also conducted an executive conference on the business opportunities in India in Fomento, Barcelona. This conference was attended by high level executives from over 25 business entities operating in the region in different sectors and industries. The presentations focused on the current business opportunities available in India and how Spanish entrepreneurs could make the most of such avenues to expand their business and profits.

Mapp Law Chambers has also recently contributed a chapter to the book, ‘Indo – Spanish Cultural Encounters (1956 – 2016): Impact & Visions’,ed. by Anil Dhingra and Gonçal A. López Nadal (New Delhi, Jawaharlal Nehru University and Universitat des Illes Balears, 2017). Titled ‘Perspectiva económica y empresarial de las relaciones India – España’, the chapter details the economic and business relations that have grown between India and Spain over the last 60 years.

Imports and Exports under the new Indian Goods & Services Tax

India is all set to roll out its new Goods & Services Tax (GST) on 1st July, 2017. The GST is a massive reform of the currently existing indirect tax regime, which will replace all manner of indirect taxes applicable at the Central and State level in India and instead create a uniform system of taxation throughout the country.

Created by the 101st Amendment to the Constitution, the GST is applicable on the supply of all goods and services (with exceptions such as alcohol for consumption, tobacco products etc.) The GST has three core components, which are Central GST (CGST), State GST (SGST) and Integrated GST (IGST)

At its core, the GST is a consumption based tax levied on sale, manufacture and consumption on goods & services. All direct taxes like income tax, corporate tax and capital gains tax will not be affected by the introduction of the GST.

Any business with an annual turnover of more than INR 2,000,000 would have to mandatorily register for the GST. In certain States, this threshold is fixed at INR 1,000,000. Even if a business does not cross the threshold figure, they can still voluntarily register for the GST.

There are four tax rates which will be applicable to all goods and services, namely 5%, 12%, 18% and 28%. The rates applicable are decided by and specified in a separate schedule by the GST Council.

Taxation of Imports under the GST

As per the current laws, all goods imported into India are subject to Customs Duty at the border. This Customs Duty used to consist of separate components such as the Basic Customs Duty (BCD), the Additional or Countervailing Duty (CVD), specific Cess and if applicable Anti-Dumping Duty.

Under the new system, the CVD and the Special Additional Duty (SAD) will be replaced by the IGST. The additional custom duty in lieu of CVD/Excise and the SAD in lieu of sales tax/VAT will be incorporated into the GST. So, Basic Customs Duty, Anti-Dumping Duty and Safeguard Duty, as well as the Cess would continue to be applicable.

The IGST will thus be levied on all imports into the territory of India as the imports of goods and services shall be deemed to be a supply in the course of inter-State trade or commerce. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. However, full and complete set-off will be available on the GST paid on import on goods and services. This integrated tax on goods imported into India would be levied and collected in accordance with the Customs Tariff Act, 1975.

The practical effect of these changes on a person importing goods into India would be that instead of paying the Customs Duty as it currently exists, there would be a new component of IGST which would be charged at the specified rate, which may be different from the rate already specified for CVD and SAD.

For import of Services, GST accords liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the current provisions where the service receiver is required to pay tax and file return.

However, in case the recipient of the services is a non-taxable entity in India, the burden of paying the GST would shift to the service supplier, who may even be located in a foreign country. So, any international company providing services in India would also have to register for the GST in such cases.

As per the GST, the tax paid during import will be available as a credit under “Import and Sale” model. This is a new model as no such credit is available in the present system. This new Input Tax Credit (ITC) would be available for setting off the cascading effect of indirect tax. Thus, any IGST paid by the importer would be available as an Input Tax Credit, which can be used for the payment of IGST liability on outward supplies.

In addition, any ITC availed by payment of CGST or SGST can be used for the payment of IGST liability. However, ITC gained from CGST cannot be used for paying SGST liability and vice versa.

The current customs import tariff mechanism includes multiple exemption notifications which are likely to reviewed and possibly withdrawn or converted into a refund mechanism. This could mean change in the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may get limited to exemption from payment of BCD, while IGST may not be exempted.

Taxation of Exports under GST

Exports will be treated as zero rated supplies under the GST. Therefore, no tax will be payable on exports of goods or services. However, credit

from the input tax credit will be available as a refund to the exporters.

As per the provisions of IGST law, export of goods and/or services are to be treated as “zero rated supplies” and a registered taxable person exporting goods or services shall be eligible to claim refund under one of the following two options:

  • Export under bond or letter of undertaking without payment of Integrated Tax and claim refund of unutilized input tax credit.
  • Export on payment of Integrated Tax and claim refund of the tax so paid on goods and services exported.

Because of the need to determine whether a service is “exported” out of the country, a detailed analysis of the nature of services and its place of supply is required to assess whether the services can be treated as exports and therefore be “zero rated”.

The levelling of the playing field might however imply that deemed export benefits may be discontinued by the GST. A deemed export refer to the transactions in which the goods supplied do not leave the country and the payment for such supplies is received either in Indian currency or free foreign exchange. So, entities in export oriented Special Economic Zones might be adversely affected by this development.

Furthermore, no refund of unitized input tax credit is allowed in cases other than exports including zero rated supplies. In addition, no refund of unutilized input tax credit is allowed in cases where the goods exported out of India are subjected to export duty.

Finally, in regard to the duty drawback scheme, which was introduced by Indian government as a rebate for duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods, manufactured in India and exported, the new law states that no refund of input tax credit is allowed if the supplier of goods or services avails ‘duty drawback’ of CGST/SGST or claims refund of IGST paid on such supplies.

The enactment of the GST is the first step in unifying the entire Indian economy into a common marketplace with uniform rules. The Indian government is therefore heavily relying on IT solutions to smoothen the transition. This is why the filing of returns under the GST is all electronic, and can be affected by internet banking, credit/debit cards, NEFT or RTGS. In addition, the government is contemplating a relaxation of liabilities during the transition period so that enterprises can fully adapt to the new tax regime.

+info: Thomas Joseph