lut export sale of garments july to sept 17 and dbk itc reversal

[satbir singhwahi]

Sir

Garment exporter made Lut export sale from July to sept.2017. It claimed full drawback and reversed the itc balance after domestic sale. Suppose total itc was 100 then it used 20 for domestic sale and reversed 80 as it claimed full drawback. Custom notification 73/2017 (nt) dt 26.07.2017 was followed. Now central gst audit has raised objection and says to apply rule 43 and allow proportionate claim . Pls guide.

[Vijay kumar]

Drawback deals with goods produced or manufactured from imported materials or excisable materials, as per Rule 3 of DBK Rules, 2017 and as per sub-rule (2) thereof (reproduced below), DBK is in respect of taxes suffered on the raw materials. On the other hand. Rule 43 of CGST Rules, 2017 deals with apportionment of ITC in respect of capital goods. Besides, Nonf.131/2016-Cus(NT) as amended by Nofn.cited by you clearly mentions non-permissibility of ITC only in respect of inputs and input services (12AA cited below). Accordingly in my view, both are mutually exclusive and hence there is no need to reverse the credit on CG in such cases. Please check whether the reversal of 80 already made by you covers inputs & input services in proportion to the export value. If so there is no issue.

(12A) The rates and caps of drawback specified in columns (4) and (5) of the said Schedule shall be applicable to export of a commodity or product if the exporter satisfies the following conditions, namely:-

Nofn.131/2016- 12AA(a) (i) the exporter shall declare, and if necessary, establish to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs, as the case may be, that no input tax credit of the central goods and services tax or of the integrated goods and services tax has been and shall be availed on the export product or on any of the inputs or input services used in the manufacture of the export product, or

Rule 3(2) of DBK rules - In determining the amount or rate of drawback under this rule, the Central Government shall have regard to, -

(a) the average quantity or value of each class or description of the materials from which a particular class of goods is ordinarily produced or manufactured in India;

(b) the average quantity or value of the imported materials or excisable materials used for production or manufacture in India of a particular class of goods;

(c) the average amount of duties paid on imported materials or excisable materials used in the manufacture of semis, components and intermediate products which are used in the manufacture of goods;

(d) the average amount of duties paid on materials wasted in the process of manufacture and catalytic agents:

Provided that if any such waste or catalytic agent is re-used in any process of manufacture or is sold, the average amount of duties on the waste or catalytic agent re-used or sold shall also be deducted;

(e) the average amount of duties paid on imported materials or excisable materials used for containing or, packing the export goods;

(f) any other information which the Central Government may consider relevant or useful for the purpose.

[Shilpi Jain]

If drawback is claimed of the customs duty, credit under GST cannot be denied. Even if drawback of GST taxes are claimed. credit of SGST cannot be denied.

Please refer circulars - 37/11/2018-GST, dated 15-3-2018 and 125/44/2019-GST, dated 18-11-2019

[satbir singhwahi]

Thanks,full drawback was claimed from July to sept 17,now dept asking to reverse gst by applying rule 42,though all itc reversed after adjusting domestic sales.whether rule 42 applicable for export sales. Previously rule 43 wrongly typed.

AI Summary

Drawback claim and ITC reversal: proportionate ITC apportionment for export sales under dispute, seeking compliance clarity. Exporter sold garments under LUT July-September 2017, claimed full drawback and reversed remaining ITC after domestic sale (used part for domestic sale, reversed balance). Central GST audit objects, urging proportionate ITC apportionment under the CGST Rules. Advisors state drawback pertains to taxes on raw materials and inputs, apportionment provision cited by audit relates to capital goods, and that if reversals already proportionately covered inputs and input services, the objection may not apply; guidance also notes that customs drawback claim does not automatically deny GST credit and refers to GST circulars.