Clarification regarding reversal of IGST on transfer of duty-free imported goods from EOU to DTA unit

[Dashrath Walkoli]

Dear sir, our company is operating two units — one as an Export Oriented Unit (EOU) functioning under Chapter 6 of the Foreign Trade Policy (FTP), 2023 read with Notification No. 52/2003-Customs, and another as a Domestic Tariff Area (DTA) unit.

The EOU has executed a Bond amounting to Rs. 10 crore for the import of duty-free raw materials required for the manufacture of final products. Subsequently, certain quantities of duty-free imported raw materials were transferred from the EOU to the DTA unit through delivery challans, as they were required for production purposes at the DTA unit.

While transferring the said materials, the applicable Customs duties (Basic Customs Duty and Social Welfare Surcharge) were duly reversed and paid through TR-6 challan. However, the Integrated GST (IGST) component exempted at the time of import was not reversed, as payment through TR-6 challan does not qualify as a valid document for availing Input Tax Credit (ITC) in terms of Rule 36 of the CGST Rules, 2017.

In view of the above, your kind clarification is requested on the following points:

1. Whether the IGST component, initially exempted at the time of import under Notification No. 52/2003-Customs, is required to be reversed when such duty-free goods are transferred from the EOU to its DTA unit; and

2. If such reversal is required, what is the prescribed procedure for effecting the reversal and for subsequently claiming ITC on the same.

AI Summary

IGST due on duty-free inputs moved from EOU to DTA; payment via Bill of Entry and shown in GST returns When duty-free imported inputs are cleared from an EOU to its DTA unit, IGST that was exempted on import ordinarily becomes payable because the movement constitutes clearance to the domestic tariff area; basic customs duties and cess aside, IGST liability should be discharged at the time of clearance by presentation of a proper Bill of Entry for home consumption and payment of tax through the customs/GST mechanisms. Payment via a TR-6 challan alone may not create entitlement to ITC under GST rules; to claim ITC the tax must be recorded in the GST electronic ledgers and reflected in GST returns with supporting customs documents (Bill of Entry, tax payment evidence) as prescribed.