GST on Unrealised export

[Ethirajan Parthasarathy]

A client of mine effected export by despacthing goods by ship. To their misfortune the ship was hijacked and goods never reached the destination. On technical grounds my client could not get any compensation from insurance company.

My query is whether the client should pay applicable out put tax on the export value or it is enough if ITC is reversed on the cost of the inputs of the goods stolen as provided under sect 17(5)(h) of the CGST Act.

If the opinion of the experts is, applicable output tax is payable, then the party is liable to pay the tax with interest to be calculated after expiry of 9 months from despatcth

If the opinion of the experts is that, only ITC on inputs is to be reversed, then it should be done based on the date of hijacking of the ship.

[Raam Srinivasan Swaminathan Kalpathi]

Respected Shri.Kasthuriji

Profuse thanks for your kind words.  To digress from the subject, I am only a recent subscriber to TMI.  I developed an interest in Service tax around 2012 and was subscribing to another website with considerable brand equity.  Whenever I had a doubt and googled a query your considered opinion and response will surface through TMI.  Your opinion had been a source of considerable use to me to advise my clients.  I was curious about this website and had been probing this over the last few years only to finally subscribe.  I am eternally grateful to you and pleased by my decision to switch from another well known website to TMI.

Also, at the ICAI classes many of the lecturers are now advising to look at a point with a 360 degree vision.  One has to not only examine GST laws but also all the related regulations to arrive at a informed decision.  

Thanks

[Ethirajan Parthasarathy]

I am really thankful to all experts for having taken lot of efforts to clarify my doubt.

I will take it forward after discussing with my client.

[KASTURI SETHI]

Sh. Raam Srinivasan Kalpathi Ji,

I am indebted to you for expressing your gratitude towards me from the core of my heart. I do not deserve such lavish appreciation.

The whole credit goes to your aptitude, zest, interest, hard work, devotion and dedication towards the profession. It is coupled with your thirst for seeking more knowledge for reaching the pinnacle of your career within a short span. It is also backed by your humility and having no-confrontation attitude.

Once again thanks a lot & regards.

[Amit Agrawal]

Dear Shri RaamSrinivasan Kalpathi Ji,

In post at Sr. No. 2 above, you had clearly stated that subject transaction, as raised by querist, is "zero rated supply". For reasons given in my earlier posts, I completely agree with you for this view.

Kindly explain how this legal position under GST law changes just because of some RBI / FEMA regulations & procedures prescribed therein.

This is more so when 'receipt of consideration in convertible foreign exchange' is NOT a condition to treat any goods as exported under GST laws (& such condition specifically exists for services to be treated as 'export'). 

Thanks. 

[Amit Agrawal]

Dear Shri RaamSrinivasan Kalpathi Ji,

I am re-drafting my queries for you for better clarity. Apology for the inconvenience!

First Issue:

In post at Sr. No. 2 above, you had categorically stated that subject transaction, as raised by querist, is "zero rated supply". For reasons given in my earlier posts, I completely agree with you for this view.

Kindly explain how this legal position under GST law changes just because of some RBI / FEMA regulations & procedures prescribed therein.

As far as I know, there is no legal basis to claim that 'One cannot report the said transaction as 'supply' under GST laws and report same as 'Goods lost in transit' under FEMA Regulations'. Same goods were indeed supplied & exported as per GST Act (a view, which you agree) and same were indeed 'Lost In Transit for FEMA'. Request you to please quote specific provisions / rules which does NOT allow such differentiation (specially when both laws operate in completely different fields with their object & purposes).

This is more so when 'receipt of consideration in convertible foreign exchange' is NOT a condition to treat any goods as exported under GST laws (& such condition specifically exists for services to be treated as 'export'). 

Second Issue:

Kindly let me have your view on my view that ' Same goods cannot be 'stolen from a tax-payer' as well as 'supplied by the tax-payer' under same law for a same tax-payer.'. For support, I have quoted Para 2(A)(ii) of the Circular no 92/11/2019 F NO 20/16/04/2018 GST date 7/3/2019. 

Reason for this clarity sought is that because differences in GST treatment and accounting records, as you pointed in earlier post of yours, equally applies for 'Goods exceeding Rs. 50,000/- given as gift to an Employee in a financial year'.

Can tax-payer's accounting treatment (as per applicable accounting standards) override legal provisions under GST? 

Thanks. 

[Amit Agrawal]

Dear Shri RaamSrinivasan Kalpathi Ji,

This is in continuation of last post above:

Under 'Second Issue' described above, kindly also consider situation of 'domestic supply' explained by me in my post at Sr. No. 18 above where I shared my view (with reasons given therein from Point A to E) that such tax-payer will be liable to pay GST against supply but need not reverse any ITC. 

Here again, this 'domestic supply' will not be shown as 'sales' in books of accounts of the tax-payer (as sale was never completed) but same will be shown as 'Goods lost in Transit' (as per applicable accounting standards). 

Do you think that such tax-payer needs to reverse ITC despite paying gst against supply against such 'domestic supply'? Can tax-payer's accounting treatment (as per applicable accounting standards) override legal provisions under GST? 

I will wait for your clarifications. 

Thanking you in anticipation! 

AI Summary

Zero-rated export supply: no output tax where goods left India; address ITC reversal risk and FEMA/EDPMS compliance.
If goods dispatched for export are regarded as taken out of India, the transaction is a zero-rated supply and no output tax is payable; in that event reversal of input tax credit for goods lost is not required. Conversely, if export completion is contested or documentary facts/doctrines of delivery and territorial limits show the goods were not exported, advisers expect ITC disallowance and accounting disclosure as inventory lost in transit. RBI/EDPMS and FEMA write-off procedures and audit/reconciliation consequences must be addressed before finalising treatment.