By Sachin Dave & Muskaan Sofet
The Directorate of Revenue Intelligence (DRI), primary anti-smuggling intelligence agency, is issuing show-cause notices to exporters for wrongfully availing exemptions in cases where exports preceded imports. The notices also ask exporters to pay IGST in cases where raw material is exported only after goods are partially or fully exported.
This could lead to a 100% penalty and interest that exporters may have to cough up in the coming months, said people aware of the development. About 100 exporters who import goods from Kolkata and Gujarat have got notices so far. Two people in the know said more notices may be issued.
Exporters have been asked to pay IGST first, as the foreign trade policy has been amended and several notifications issued in last few months. ETviewed one of the notices issued to an exporter.
The amendment mainly spoke of a “pre-import condition” that every exporter has to follow to avail duty exemptions on imports. “In cases where exports preceded imports, availment of exemption does not seem legal and proper. This office has initiated an inquiry in wrongful availment of exemption,” a notice read.
Tax experts point at a Delhi High Court ruling that allows exporters to import raw materials used for exported goods—a practice permitted under the erstwhile regime.
However, the government had come out with notifications following the order that again put certain conditions for such leeway, say industry trackers.
“Due to the nature of the business and the way supply chains function, exporters may export goods first and then import raw materials,” said Abhishek A Rastogi, partner, Khaitan & Co, who is arguing various writ petitions on behalf of exporters. “A subsequent amendment means exporters will not get the desired benefit in spite of a Delhi High Court judgement. We have challenged the preimport condition.”
Exporters would have to cough up IGST — 18%, with some products in 12% and very few in the 5% category — as soon as they import goods.
Industry trackers say under the earlier tax regime and foreign trade policy (FTP), there was no duty if imported raw materials were used for exports, even when the export of goods preceded imports.
“Consequent to amending the Customs Notification for imports under Advance Authorisation and corresponding change in FTP, if the pre import condition is not fulfilled then exporters would not be able to take benefit of duty free import to the extent of IGST payable thereof. This could require exporters to pay the IGST upfront and for such imports done from 13 October 2017, payment of interest would also be mandated.
Issuance of demand notice would lead to litigation with exposure to penalties at a later stage,” said Suresh Nair, partner, EY India.
Under the erstwhile advance authorisation scheme, exporters could get an authorisation to import raw materials used for manufacturing exported goods without payment of taxes on imports based on past exports.
ET had reported Delhi High Court’s decision in the case of Narendra Plastic Vs UOI, granting interim relief to importers.
Tax experts fear Indian exporters may end up becoming uncompetitive and may have to export Indian taxes as well.