Different rates of goods for export and domestic sales

[Rajesh Kumar]

Dear Experts,

A manufacturer sales his goods in the domestic market as well as export the same. Let’s the sale value of any item is Rs. 100/- then same item being exported @ Rs. 200/-.
Now Department took the matter and being forwarded to Customs for overvaluation of goods to taking more export incentives including IGST refund.

Please guide:

1. Is there really an issue in the above said valuations?

2. Can department forward the matter to customs ?

3. Can they insist the domestic sale as undervalued and demand duty according to the rate of export?

[Amit Agrawal]

Clause (C) of rule 89 (4) of CGST Rules, 2017 reads as follows:

" “Turnover of zero-rated supply of goods" means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;]"

[Ashika Agarwal]

Recently, the Karnataka High Court had quashed Rule 89(4)(c) in the case of M/s Tonbo Imaging India Pvt Ltd. Vs UOI [2023 (4) TMI 46 - KARNATAKA HIGH COURT] by holding it to be ultra vires the provision of the GST Act, including being violative of Articles 14 and 19 of the Constitution and the provision is arbitrary, unreasonable and vague.

[Bijal Doshi]

Agree with Venugopal Sir as far as refund issue is concerned, but can department decide transaction value instead of person who is actually doing export? Valuation rules are clear on it that it should be on transaction value, so even if sold at 100 domestically while exported at 200 ( with good margin) can't it be normal business practice

[Rajesh Kumar]

Sir,

It means party was eligible only as per the calculation based on 1.5% value of the domestic value of the goods.

Accordingly, the proportionate ITC on account of excess value declared than 1.5% was not eligible and taken wrong refund on export with and without payment of duty?

[Shilpi Jain]

In case you are able to show the receipt of consideration there should be no further dispute regarding over valuing your exports

[Rajesh Kumar]

Ma’am

What about the excess claimed refund as per the above provisions on account of declaring more value than 1.5 of the domestic value for same item and same month ? They are insisting to declare that proportion of refund as wrongly taken refund and to return with interest and penalty.

All BRCs are received but some are received after 270 days. What action can they take for these late received BRCs ?

[Raghunandhaanan rvi]

Sir,

1. Transaction value is the primary basis for the valuation of export goods. ( i.e. invoice value).
2. It is evident from Export orders or Letters of Credit or contracts.
3. Duty drawback is given subject to the realization of the entire remittance of export value via BRC
4. If the shipper could realize entire export proceeds, the issue of overvaluation of goods not survive
5. It is very clear without doubt that no wide buyer will agree to the overvaluation of goods since the buyer has to suffer customs duty on such value

AI Summary

Valuation of exports: transaction value governs export pricing and may limit refund claims for over-declared exports. Difference between domestic and export prices can trigger scrutiny of export valuation and refund claims under GST. Rule 89(4)(c) sought to cap zero-rated turnover by reference to domestic value, but a High Court quashed that provision as ultra vires. Transaction value (invoice supported by contracts and export documentation) remains the primary basis for valuation and refund entitlement, contingent on realisation evidenced by BRCs; unsupported higher export declarations can lead to recovery of excess refunds, interest and penalties and may prompt customs verification.