Rajiv GuptaOnline GST Certification Course by TaxGuru & MSME- Click here to Join
It is the sole responsibility of the policymakers & the implements to define the taxes correctly & devise appropriate collection mechanisms & collect the taxes. In Value Added taxation, this happens all over the world. Therefore, I am compelled to ask the mandarins in the North Block & the Finance Minister in particular because he is himself a legal luminary that can we reduce the scope of litigation per say by way of an active approach to put a stop to unnecessary litigation. I would like to touch upon certain issues, which come to my mind, which need to be put to rest in a proactive manner for better appreciation of the GST.
The first & foremost is related to the place of delivery & valuation. The taxable event is supply & in case of goods, the supply ends with the delivery of goods to the recipient address. Therefore, any charges including freight & insurance incurred up to the place of delivery constitutes transaction cost & subject to tax under GST. There is no scope for discrepancy or interpretation as such. Therefore in case of a CIF contract, the valuation on which GST liability has to be discharged is invoice value including the freight & insurance element whether shown in the invoice or not. Once, this is accepted, there should not be any scope for charging the GST on the freight amount paid for the transportation under the reverse charge mechanism. The reason being that this freight amount is already included in the invoice value & paid once only by the supplier of goods & therefore GST cannot be collected twice on the same carrier charges. This effectively means that the supplier will not have to make a reverse charge Invoice & effect the payment of GST & take credit thereof. If there is any discrepancy in what is crystal clear then that should be put in the public domain. Now, we move to the export transactions where goods are to be delivered to the foreign buyer. For e.g., an exporter in Mumbai receives an order from a German buyer for supply of 1000 Kgs. of Danazol at a price of US 525/Kg. on CIF Hamburg by air basis. Now, the buyer has placed an order on composite price i.e. the price includes the estimated freight & insurance. Therefore, when the exporter is invoicing the goods under a tax invoice, the exporter will simply convert US$ 52500 as per the prevailing exchange rate into Indian Rupees & that would be the transaction value. There is absolutely no scope for litigation of any sort. The reason being simple that this is an export transaction & the place of delivery is not India but outside India i.e. Hamburg in Germany & the delivery to the buyer completes only when the goods are delivered to the buyer at Germany. Further, as per the law, if the buyer delays payment & the interest is recovered from the buyer then the export is required to pay GST on that by way of supplementary invoice as such. The exporters will ensure compliance with that. Therefore, since this issue applies to all export transactions, it would be better if the Finance Minister directs the mandarins in Delhi to decide the issue in terms of the spirit of the law & avoid any unnecessary litigation & extra burden in terms of time, energy & efforts on both sides in fighting cases. It is pertinent to point out that export transactions are subject to IGST on the premise that the place of delivery is outside the Indian jurisdiction therefore any person with little common sense will agree that what is being asked for, is logical & already accepted & implemented as such & final seal of approval in relation to the export transaction is granted to settle the issue once & for all. This freight & insurance is already subjected to GST & therefore reverse charge mechanism should not apply to this.
Another issue I would like to highlight is about the commission payable to the foreign Agent (whether appointed or not or operating on his own free will being a free lancer). Here again, the exporter is required to make a complete disclosure on the Shipping Bill about the Commission to be remitted. Now, please note this commission comes from the buyer as such as it is part of the price & included in the Export invoice therefore the Indian exporter is simply acting as a conduit i.e. collects the commission amount from the buyer & passes on to the agent. The agent is not covered by the Indian jurisdiction. The agent discharges liability as per the regulations of the country in which he is providing the services & pays the applicable taxes. Finally, this commission is a part of the transaction value included in the taxable invoice value & GST paid therefore the exporter has discharged the GST liability on the payment of commission. Please note that the commission is paid by the exporter once only & the exporter discharges the tax liability as part of the transaction value of goods. Therefore, there cannot be collection of GST on the remittance being effected to the foreign agent for the second time in any case. Once again, this is explicitly clear. If anybody can point out any discrepancy then the same should be put in the public domain to be thrashed out & settled. I sincerely hope that the MoF & the Finance Minister will get this examined & close the issues finally. Earlier, it has been brought to the attention of the MoF that HSN classification & GST rates should be accessible at the click of mouse if the tax is to be collected without hassles & they came out with an app to implement this. The quick response instills confidence in the tax payers & encourages them for compliances & I hope this will be taken forward in the best interest of exports & exporters. This facilitation will mean a lot for the exporters & give them a feeling that the GoI is approachable & willing to respond in case of issues. The most significant point is that this will stop unnecessary litigation. The exporters are willing to discharge the liability of taxes in fair manner therefore the GoI walk a step & ensure that.