Deemed Export

[THYAGARAJAN KALYANASUNDARAM]

Dear Friends,

One of my clients sold the goods to exporters by charging 0.1% as deemed exports. In turn, the exporter has also exported the goods within the stipulated time. However, the exporter has not stated the GST No. & sale invoice no. in the shipping bill or Bill of Export also not registered with the Export Promotion Council or a Commodity Board recognized by the department of commerce. Further, the purchase order of the exporter is also not produced before the respective jurisdictional tax officer of the registered supplier. Due to this, the department asks my client to pay the tax amount. Please suggest to me, how to resolve this issue.

Thanks in Advance.

[KASTURI SETHI]

Dear Sir,

Go through the following Sections of the Customs Act as amended w.e.f. 28.3.21.

SECTION 149. Amendment of documents. - Save as otherwise provided in sections 30 and 41, the proper officer may, in his discretion, authorise any document, after it has been presented in the custom house to be amended [in such form and manner, within such time, subject to such restrictions and conditions, as may be prescribed] :

Provided that no amendment of a bill of entry or a shipping bill or bill of export shall be so authorised to be amended after the imported goods have been cleared for home consumption or deposited in a warehouse, or the export goods have been exported, except on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be:

[Provided further that such authorisation or amendment may also be done electronically through the customs automated system on the basis of risk evaluation through appropriate selection criteria:

Provided also that such amendments, as may be specified by the Board, may be done by the importer or exporter on the common portal.]

SECTION 154. Correction of clerical errors, etc. - Clerical or arithmetical mistakes in any decision or order passed by the Central Government, the Board or any officer of customs under this Act, or errors arising therein from any accidental slip or omission may, at any time, be corrected by the Central Government, the Board or such officer of customs or the successor in office of such officer, as the case may be.

[Shilpi Jain]

Not being registered with the export promotion council could be a condition not fulfilled. The other conditions can be fulfilled by an amendment to shipping bill possibly or subsequent suission to officer.

This could lead to denial of reduced rate. In that case a debit note can be raised now and credit be taken.

[Shilpi Jain]

Interest cost would have to be borne

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

Thanks for your valuable reply. My client has not followed the conditions (iii) and (iv) stipulated under notification no.40/2017-Central Tax(Rate) dated 23.10.2017. Since my client is the supplier of goods to the registered recipients, how do my clients expect these conditions are fulfilled by the merchant exporter? whether the recipient of the goods had mentioned the invoice number of the supplier in relevant records and registered with the Export promotion council, It is the duty of the merchant exporter to mention the invoice no. of the supplier in the shipping bill or bill of export also registered with the export council. If the supplier asks for all those details from the exporter, then the supplier would not get any orders from the exporters. However, the supplier obtained the declaration from the exporter as the goods purchased is meant only for export purpose only. Now, the onus is transferred to the exporter, please correct me if I'm wrong. As per my understanding, this is only a procedural lapse where is the question of revenue loss in this case. If any case laws related to this kindly provide me.

Thanks in advance.

[Shilpi Jain]

These being procedural lapse - is something which the courts will have to decide. It would be a long way to go before winning. However, not being registered under EPC also if we consider as a procedural lapse then what would be the difference between procedural aspect and a condition for the exemption?

Another suggestion would be to have a condition in the contract that any tax liability imposed on the supplier due to non-compliance by the recipient should be borne by the recipient.

[Amit Agrawal]

Besides contravention of the conditions (iii) and (iv) stipulated under Notification no.40/2017-Central Tax(Rate) dated 23.10.2017, from the query, it appears to me that conditions (v) was also not satisfied which reads as under:

"the registered recipient shall place an order on registered supplier for procuring goods at concessional rate and a copy of the same shall also be provided to the jurisdictional tax officer of the registered supplier;"

Now, it is not clear from query if registered recipient indeed had placed order for procuring goods at concessional rate OR even though such order was placed by the recipient with the supplier but same was not provided to the jurisdictional tax officer of the registered supplier.

In case of former, it would be much more difficult for supplier to prove his case (which is in anyway difficult, considering whole facts of the case). In case of later and depending upon other terms & conditions, supplier may try and force recipient to pay differential taxes with interest.

[Amit Agrawal]

To start with defending your client's position, first, it is necessary for the recipient - in my view - to get shipping bill or bill of export amended as suggested by Shri Kasturi Sethi Ji above.

However, one needs to be aware of limitation of this facility which can be done "on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported, as the case may be".

Without fulfillment of condition (ix) of the subject notification in given sets of fact (where almost no other condition for claiming concessional rate was fulfilled), it would be very difficult to defend your client's case.

Mere post-export declaration from recipient to your client may not be sufficient to defend concessional rate, in my view (though ultimately, it would be a courts' call, but seems risky to my mind).

In all above posts, shared views of mine are strictly personal and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

I would strongly urge you to consider possibility of recovering differential taxes from the recipient by raising debit-note u/s 34.

If you can prove bonafide of earlier transaction (i.e. no intention to evade taxes, while claiming concessional rate) from documentary evidences etc., then, you will not be liable for penalty u/s 74 and recipient will also get ITC against such debit notes.

[Amit Agrawal]

In my post at No. 6 above, please read concerned para as follows:

Now, it is not clear from query if registered recipient indeed had not placed order for procuring goods at concessional rate OR even though such order was placed by the recipient with the supplier but same was not provided to the jurisdictional tax officer of the registered supplier.

AI Summary

Deemed export compliance risks loss of concessional rate; amend shipping bill or recover differential tax. Non fulfilment of notification conditions for treating supplies as deemed exports-notably absence of supplier invoice/GST details in the shipping bill and lack of exporter registration with an Export Promotion Council, and potential lack of purchaser order disclosure-can lead to denial of the concessional tax rate. Remedies include amending export documents where pre existing documentary evidence permits, issuing debit notes to recover differential tax with interest, and seeking contractual allocation of tax liability; risk of penalties and judicial determination on procedural versus substantive non compliance remains.