The place of supply becomes further critical when the goods are being exported. In such a situation, the rules and regulations surrounding such transactions become very essential. Such transactions require different documents in terms of custom duties as well as other certificates in terms of compliance which assists the businesses in conducting different export-related transactions efficiently.
The legal and regulatory framework governing place of supply for exports
As per section 2 Subsection 5 of the IGST Act, 2017, the place of supply for exported goods from India is meant to be a place where goods are sold outside of India. This implies that exports are devoid of GST within the country.
Rules and regulations:
- Section 13 of the IGST act is applied to various services and goods to determine the place of supply. As per section 30 clause 1, the place of supply for goods exported from the country should be a location that is outside of India.
- The notification number 14/2017-IGST clarified the meaning of export of goods as well as it specified the required documents that will allow people to claim zero rate tax for export.
- The GST Council meetings have ensured that there would be issues regarding recommendations and notifications, which the government will provide to provide clarity and thus provide a better interpretation of the place of supply rule for the exported goods.
- The CBIC has issued circulars and other instructions which provide guidance on implementing provisions under the GST regarding the place of supply for exported goods.
- Different businesses will look for the verdicts of advance authority for ruling for various specifications where there is doubt about the exported goods and place of supply.
Note: Although the place of supply for the exported goods is considered to be the places outside of India, the place of supply for the services to clients outside that of India might have a different nature of treatment depending on the type of services and the location of the recipient.
Determination of place of supply for different types of exports
The laws revolving around GST in India will exempt the taxes applied on the exports. However, determination of the place of supply will become very important for different reasons, which include:
- Treatment during claiming zero tax.
- Determination of appropriate law that is required for compliance.
- Understanding the applied rate of tax for the related services.
Export of goods: As per section 2 subsection 5 of the IGST act, the place of supply for the exported goods will be based on the goods that are supplied outside of India, thereby making it exempt from GST implementation.
Deemed exports: There will be specific situations where the supply of goods might be treated as it is being exported, even though there is no physical movement. This will include the goods supplied to SEZ, notifications of short installations, and fairs and exhibitions in the foreign.
Export of services: The place of supply depends on the type of services rendered and the recipients’ location. The place of supply outside that of India is considered to be exported goods and those GST will be exempted. Some kind of services such as consultations on IT, marketing consulting, and other services might be considered. There are services that are deemed to be in connection with the export of goods, which will also be exempted from GST. This will include services that are insurance and transportation with exported goods.
Exceptional cases: There are some situations where specified rules and regulations are applied. For instance, the place of supply will be considered to be the location of a buyer in the foreign if it is exported through any kind of intermediaries, even though the goods are held in a foreign land. Also, during the sale of goods in any kind of aircraft or vessels in the destination where the goods are to be unloaded.
- Export contracts
- Shipping bills
- Export promotion licenses
Tax implications of export transactions based on place of supply
- Under the section 2 subsection 5 of the IGST act, GST will be exempted from the goods exported outside of India. This exemption will be applied to any kind of good, regardless of the mode, nature, or value of the good.
- There are certain transactions which could fall under the GST regime, even though there is no movement of physical goods. This will be the goods supplied to SEZ and other mentioned areas.
- When services are provided to recipients overseas or recipients from India, and those are related to exports in certain cases, GST is exempted as well.
Input Tax Credit:
Input Tax Credits on services and goods could be availed by exporters for the export of such services and goods. The Input Tax Credit can be used to upset the tax liability on the taxable supplies. The Input Tax Credit will require particular documentation, including invoices, purchases, orders, and evidence that shows goods have been exported.
- Although there are exports that are exempted from GST, there could be situation where they might be subjected to customs duties that are imposed by the Customs Act of 1962. Such duties applied might vary depending on the type of goods and the country where the goods are being exported.
- Specific custom rules to be complied with by organisations and duties applicable must be paid to provide export clearance.
- Export promotion licenses
- Custom duty proof of payment
- Shipping bill
- Export contracts
GST return: Although there are exemptions for exports from the GST, exporters are mandated to file a specified kind of GST return, which are GSTR-1 and GSTR-3B. Such returns will provide details of the exported goods and help the government track the goods being shipped.
Maintaining record: The exporter should keep records of the transaction about export for a minimum of the 5-year period. Such documentation will include the customs clearance document, shipping documents, invoices and specific contracts with respect to the export of goods.
Requirements for compliance: The exporter should be able to comply with different custom rules and revolutions and GST regarding documentation reporting and record-keeping. In case of any non-compliance and the tax period, some kind of penalties or fees could hinder operating in the country.
Professional advice: Since the GST regime of the nation is very complicated. Therefore, to tackle the nuances of such transactions, it is recommended that track professionals should be consulted, which will provide them guidance on the implications of certain taxes in relation to exports that are based on the place of supply, thereby ensuring that specific rules and regulations have been complied with.
Customs procedures and place of supply considerations
Customs procedure will imply the rules and regulations that cover the export and import of goods across the border. The procedure will involve:
- Certain documents such as certificate, certificate of origin, invoices, and other custom declaration need to be completed and submitted.
- The custom value must be determined to calculate the custom duties and taxes
- There are certain cases where the authorities in charge of customs will inspect the goods physically, thereby verifying the value and the description of the goods
- The custom duties and taxes that are applied to the export of goods must be paid before the goods are released
- The customs authorities will be providing the approval for the export import of quotes.
Compliance requirements for exporters
- The exporters must be able to prepare a shipping bill and consult with the customs authorities for each and every goods that is exported. These documents will provide details about the good’s value, the country to be shipped, and other details.
- The accurate details of the invoices must be issued for each and every transaction to export of goods, which includes value quantity, tax and many more
- The copies of the contract of exporting goods should be maintained in order to keep records of the purpose and thereby stop the export transactions nature.
- Depending on the goods type that is being exported, there are certain permissions as well as licenses that might be required.
- In case the custom duties have been paid. It must be kept on record for audit purposes in the future.
Accurate records of all the transactions in relation to the export of goods must be maintained by the exporters for at least five years. Such records will include shipping, bills, export contracts, and other relevant information required.
- The GSTR-1 and the GSTR-3B must be filed by the exporter for the exemption in GST for the exported goods.
- The deadline for filing the return on GST must be adhered to so that any kind of fees or penalties such as interest charges, can be avoided.
Electronic Data Interchange or EDI:
- The large exporters must be required to fill out EDI in order to file the declaration in terms of customs and other related documents.
- The system of EDI will facilitate efficient and faster clearance of customs for exporters were eligible
Import Export Code or IEC:
- Every exporter should be able to obtain the IEC from the DGFT before the export operation could be commenced.
- The IEC will be an identification number for the exporters and it will be required for different activities in terms of trade.
Note: There will be exporters who will be required to comply with specified rules and regulations, depending on what types of goods are being exported. This regulation might include obtaining certain kinds of permits licenses, or other certifications from regulatory bodies. Also, it is the responsibility of the exporters to be updated on the changes that take in GST as well as custom rules and regulations, thereby conducting practises accordingly.
It is certainly true that the legal framework surrounding the place of supply of exported goods becomes much more complex when there are different kinds of scenarios where goods are being exported. There are certain rules and regulations that must be added to in order to ensure that there are no such fees or penalties to be paid. One must ensure that each and all documents and certifications must be taken care of.
In the case of exported goods what is the place of supply?
Location of supply of goods should be outside of India.
What documents are required for claiming zero tax on the exported goods?
Shipping bills, export promotion licenses, export contract, and others.
Will an exporter required to file returns on GST?
Yes, GSTR-1 and GSTR-3B.
How long an exporter is required to hold the records?
What could be consequences of non-compliance with GST rules?
Penalties and fees to be paid.