India: Government Amends GST Law To Rekindle The Indian Economy

The beginning of October has set in various relief measures to taxpayers who were grappling with challenging procedural and compliance provisions under the Goods and Services Tax regime (GST). This newsflash covers two significant updates, one deals with relaxation of cumbersome export procedures and the other covers recommendations made by GST Council in its 22nd meeting held on 6 October 2017.

Extending facility of Letter of Undertaking ("LUT") to all exporters (effective 4  October  2017)

Considering the difficulties faced by the exporters in obtaining Bond and Bank Guarantees (BG) for making exports without payment of Integrated Goods and Services Tax (IGST), the Government, vide Notification No. 37/2017-Central Tax and Circular No. 8/8/2017-GST dated 4 October 2017 has allowed all exporters holding an unblemished record to avail facility of LUT in place of a Bond and BG. It must be noted that exporters who have been prosecuted for tax evasion of an amount exceeding INR 25 million are ineligible for this facility. To avail this facility, exporters are required to give a self-declaration.

Recommendations by the GST Council in its 22nd meeting held on 6 October 2017

The 22nd meeting of GST Council that was held on 6 October 2017 has taken significant steps to resolve the difficulties faced by the Small and Medium Enterprises (SMEs) and exporters. Further, various recommendations were also made to rationalise the rates on essential goods and certain services. The key recommendations made by the GST Council are as follows:

Relief to SMEs

  • Composition Scheme: The threshold limit to opt for the composition scheme has been increased to INR 10 million (in case of special category states except Jammu and Kashmir and Uttarakhand, the limit is INR 7.5 million). A person providing exempt service will also be eligible for composition scheme.
  • Registration: Service providers with an aggregate turnover below INR 2 million (for special category states except Jammu & Kashmir with turnover below INR 1 million) and making inter-state supply of services are exempted from mandatory registration requirements. However, this is not extended to inter-state supply of goods.
  • Procurement from unregistered suppliers: The GST payable under reverse charge for procurement of goods and services from unregistered persons has been suspended till 31 March 2018.
  • TDS/TCS: Registration and operationalization of Tax Deducted at Source (TDS)/Tax Collected at Source (TCS) provisions is suspended till 31 March 2018.
  • Advance receipt: A supplier of goods having annual aggregate turnover up to INR 15 million is not required to pay GST at the time of receipt of advances.

Relief to exporters

  • Refund: The expeditious processing of refund claims for July and August 2017 to begin from 10 October 2017 and 18 October 2017 respectively.
  • Export Incentive Schemes: The Council has extended the benefits of Advance Authorisation (AA), Export Promotion Capital Goods (EPCG) and 100% Export Oriented Unit (EOU) schemes for sourcing inputs / capital goods without payment of GST and cess. Certain specified banks and Public Sector Units (PSUs) have been permitted to import gold without payment of IGST for onward supply to the exporters. However, it is unclear as to who would qualify as a specified bank.
  • Merchant exporters: Merchant exporters to pay a nominal GST of 0.1% on domestic procurements for export.
  • Duty scrips: The supply of duty scrips has been exempted from GST.
  • E-wallet: The e-Wallet facility to provide advance refund on notional basis to exporters with effect from 01 April 2018 has been introduced.

Other measures

  • Leasing of vehicle: The leasing of vehicles purchased and leased prior to 01 July 2017 shall attract 65% of the applicable GST and cess rate. The reduced rate shall be applicable for a period of three years effective from 01 July 2017.
  • E-way bill: The E-way bill system shall be introduced in a phased manner with effect from 01 January 2018 and shall be rolled out nationwide with effect from 1 April 2018.

Comment

The extension of LUT to all zero-rated supplies, expeditious refund and the ab-initio GST exemption under export promotion schemes provides a major relief to the exporters. Further, the recommendations of the GST Council provide substantial relief to SMEs. The interim suspension of provisions relating to TDS/ TCS, E-way bills and reverse charge from unregistered suppliers offers the industry head room to gear up for better compliance. The aforesaid recommendations will be effective upon notification and it is prudent that one examines the fine print of the notifications before acting upon the recommendations. Yet, it is heartening to see that the GST Council has taken earnest efforts to reduce tedious compliances and has taken measures revive the Indian economy.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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