GST on benefits from merchant exporter

[Rajesh Kumar]

Sir/ madam

The under mentioned is an old query which now not accepting new comments, that's why I am posting again.

XYZ(Manufacturer) is supplying goods for export through PQR (Merchant Exporter). 1) In case of FOREX gain to PQR, XYZ will issue debit note to PQR to recover the same. 2) DBK amount received by PQR, will be transferred to XYZ 3) MEIS scrip will be transferred in the name of XYZ by PQR without any monetary benefit. Is XYZ liable to pay GST on all these transactions?

sir I could understand why XYX will issue debit note to recover Forex ? Why drawback will be transferred to XYZ ?

Please explain in details with provisions . As both Forex and drawback are pertains to exporter. Which provisions say these are to be transferred by merchant exporter to manufacture? Please elaborate. Regards

[CA Hemanth Kumar]

Dear Sir,

There is no provision under Customs or GST which insists the merchant exporter to transfer Forex gain or DBK to the manufacturer. At may it may be due to their contractual understanding.

In case if merchant exporter transfers the benefit of DBK and Forex gain to the manufacturer, it is only a payment made without having any underlying supply to it. Thereby no GST will be applicable on the same and such transfers can be made by financial debit/credit notes

[Amit Agrawal]

Just to add to the views by CA Hemanth Kumar:

A. Transfer of MEIS scrip by the merchant exporter to the manufacture will amounts to 'supply' from merchant-exporter.

A1. Transaction value for the same will NOT be NIL but will be at 'market value'.

A2. 'Duty Credit Scrips' (falling under HSN '4907') is exempted from GST vide Notification No. 2/2017-C.T. (Rate), dated 28-6-2017 as amended by Notification No. 35/2017-C.T. (Rate), dated 13-10-2017.

A3. Merchant-exporter needs to reverse appropriate ITC under Rule 42 / 43. This is in my view, a totally unintended consequences resulting from above-said exemption. I do hope Govt. carries necessary corrections with retrospective effect or issue instructions to its officers in favor of trade.

B. Transfers the benefit of DBK, Forex gain as well as 'Marker Value of MEIS scrip' - from the merchant exporter - ALL amounts to 'additional consideration to the manufacturer against supply of goods to the merchant-exporter.

B1. GST, as applicable at the time of original sale, will be payable by the manufacturer on above '3' additional considerations as well.

B2. Manufacturer can issue debit-note to the merchant exporter u/s 34 charging gst on these additional considerations.

[Shilpi Jain]

Adding to Mr. Amit, the reversal of credit relating to the sale of scrip transaction will only be in respect of any common credit. It has generally seen that the department insists reversal of total credit u/r 42/43.

[Shilpi Jain]

Agree with Mr. Amit on GST on the value of the debit note, additionally interest liability @ 18% on GST in such debit note will also have to be looked at.

[Amit Agrawal]

With regards to issue of payment of interest @ 18% p.a. against supplementary invoices / debit notes u/s 34, I would also suggest to have a look to the article bearing subject as 'Non-liability to pay interest against supplementary invoices under GST' at

https://www.taxtmi.com/article/detailed?id=9859

But, please be aware and mindful about 'factual differences' between the situation discussed here and situation covered in the article and thereby, potential consequences therefor.

All above post/s from me are strictly my personal views and same must not be taken as professional advice or suggestion.

AI Summary

GST on transferred export benefits may be taxable as additional consideration when transfer constitutes a supply. Transfers by a merchant exporter of benefits such as forex gain, drawback amounts and MEIS scrips may either be non-taxable financial transfers or treated as supplies/additional consideration; if treated as additional consideration (with MEIS scrip transfer treated as a supply at market value despite notification-level exemption), GST is payable by the manufacturer on those amounts and the merchant exporter may need to reverse ITC under Rule 42/43, with the manufacturer able to issue a debit note under section 34 charging GST.