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Export Promotion Council For Handicrafts [EPCH] Page 1
Ext. : 118 Email : policy@epch.com Ref. No. EPCH-3/1(7)-GST/2017-18 June 16, 2017 The Chairman, GST Council, Ministry of Finance, Government of India. North Block, New Delhi - 110001 Subject: Representation seeking redressal on concerns about likely impact of GST on exporters of
handicraft industry Sir, 1. We, Export Promotion Council for Handicrafts (hereinafter referred to as “EPCH”), is an apex
organization engaged in promotion of exports of handicrafts from the country and has 11000 member exporters on PAN India basis. Our objective is to promote the exports of handicrafts and to project India’s image abroad as a reliable supplier of high quality handicraft goods. Handicrafts is a labour intensive sector which provides employment to over 7 million artisans which includes a large number of women and people belonging to the weaker sections of the society in rural areas. Handicrafts sector has also emerged as one of the major sources of foreign exchange earnings for the country with exports of Rs. 24530.25 crores during the Financial Year 2016-17.
2. GST in India is a welcome reform and the industry is very enthusiastically waiting to enter into
GST regime.
3. The ‘Handicrafts’ has not been indicated anywhere in the GST Notification pertaining to GST rates, further, the rates announced by GST Council on different items are at 4 digit HS code level. As you may be aware the excise duty on handicrafts is currently exempted under notification no. 17/2011-CE dated 1/3/2011 (Annexure –A). Further under the VAT laws in various states, handicrafts are placed under schedule I which covers the exempted goods (Annexure –B). On going through the schedule of rates under GST indicated for various handicrafts items are on the higher sides i.e. at 12%, 18% and 28% [Tabulation of Handicrafts ITC HS Codes with GST rates at eight or four digit level (Annexure –C)]. It is requested that the rates for handicrafts items may be rationalized so that the quantum of benefit under excise and VAT exemption which was available to the handicrafts sector continues in the GST regime. Handicrafts being employment generating cottage sector should be accorded special status and rates be minimized so that livelihood of the individuals engaged in the sector is not affected.
Further, most of the exporters of handicrafts work on borrowed capital. The process of payment of GST first and claiming the refund at later stage would result in the blocking of the funds for the small exporters engaged in the sector.
Export Promotion Council For Handicrafts [EPCH] Page 2
4. Job work:-
The entire production process of the handicrafts is outside the four walls of the factories of the exporters. Since, this is a cottage sector, the process of manufacturing is not limited under one roof, the process of production is spread to minimum 7 and up to 15 stages of production at the artisan (job worker) premises who are located at the different places. Average earning of such job workers may be less than Rs. 10,000/- per Month. All these persons are not registered under GST law. As per GST law the registered person will have to pay tax on reverse charge basis from these job workers. As a result the exporter or manufacturer will prefer to pass the work to the job worker who is registered under GST act to avoid payment of GST under reverse charge resulting lakhs of small job workers on the verge of unemployment.
The new GST act does not provide any relief to the sector particularly with respect to the provision contained in the Section 9 (4) with regard to the Reverse charge in case of supplies from un-registered persons.
We would strongly recommend that suitable exemption should be given to such small job
workers from GST on reverse charge basis to safe guard their interest. We understand GST rate on job work is 18% , however GST rates for textiles job worker has been reduced to 5%, it is requested that the job worker engaged in handicrafts sector may also be given the same benefit.
5. Stock in hand as on 30th June 2017:-
We understand from the left over stocks of previous year ITC will be allowed for only one year purchases. While most of the exporters specially dealing in wooden items having stocks for more than one year. All such stocks will be used in the manufactured of goods for export only.
We would suggest that limit of one year should be removed for exporters for allowing ITC for
stocks only for one year purchases in case of exporters. 6. Input Credit
There is no clarity as regards availment of CENVAT credit on the stock of finished goods by a handicraft manufacturer because handicraft industry avails drawback at full rate without the facility of CENVAT. Since the units are registered with Central Excise department for availing facility of self sealing of containers. Hence the transitional provisions of taking credit of by non-registered unit cannot avail the credit as per provisions of Section 140 (3) of CGST Act. Moreover, there are no transitional provisions as regards availment of cenvat credit on a particular category of goods on the ground that cenvat credit facility was not availed as full rate of drawback was claimed. Therefore, a suitable clarification needs to be issued in this regard.
7. GST on Sale of Scrips:-
a. The incentives received i.e. MEIS, SFIS etc. is merely ‘duty credit’ scrips and these are ‘intangible goods’ and is a document in lieu of ‘cash’. These scrips can be utilized exclusively for the purpose of payment of customs, excise, service tax etc. So technically these are like bank cheques which need not be subjected to GST. These will also reduce the transaction costs of the exporters.
Export Promotion Council For Handicrafts [EPCH] Page 3
b. The Government has announced that on implementation of GST effective 1st July, 2017,
export incentives such as MEIS/SEIS and all relevant reward scheme scrips issued either as per the old policy or the current policy will be eligible only for discharging payment of basic customs duty. This would mean that the demand for such scrips will now be only around 25% and the exporters returns will go down tremendously.
c. Exporters get the scripts only after about three to four months of export and sometimes even
later. The exporters calculate the costing keeping in mind that around 95% realization of these scrips and accordingly quote for the products to the buyers. With the under utility of the scrips apart from basic customs duty, the exporters will lose to the extent of 40-50% and will incur losses. It is requested that the Government may consider the utilization of these scrips against all types of GSTs.
8. GST on fair participation:-
a) EPC’s organizes Exhibitions and Trade Fairs (Reverse Buyer Seller meets) which are B2B shows with no retail sale and only orders are booked. Since the exhibitors do not sell their goods and only book orders and after the event is over bring their goods back to their own premises, it may be treated similar to the process of movement of goods (No Sale or Purchase) and may be exempted from GST. Further it is important to note that the service tax on partipation in fairs within India was exempted till March 2009 (Notification 43/2007 dated 29th November 2007) and for participation in fairs overseas is exempted [Notification No. 5/2011-service tax dated 1st March 2011 (Annexure -D)].
b) The exhibitors having registered office in one city and participate in these shows in various cities of India are required to get registered in each state where they intend to participate. As per the new GST regime (Section 2 Sub Section (20) of CGST “casual taxable person”), every participant has to register himself as a causal dealer in the state where the exhibitions is being held. It will be a cumbersome exercise for the exhibitors and will discourage the participants for participating in the Trade Fairs and Exhibitions, it may be clarified that the participant is not required to register himself/herself as a casual taxable person in the state where the exhibition is being held and he is not selling any goods in the exhibition.
9. GST on foreign agency commission earned by Buying Agents There is no clarity on Taxability under GST on ‘Intermediary Service’ based on Place of Supply of
Services as rendered by buying agents.
Buying Agents are exclusively appointed by Foreign Buyers (Principal) to look after their business interests in India. The Agent's assignment includes receiving artwork, sketches, prototypes or a full sample of the item to be developed, manufactured and shipped from India, and the service is being utilized by the foreign principal in the foreign country only. Proper clarification is required to be issued that these buying agents engaged with foreign principals are not covered under the definition of ‘intermediary services’.
Export Promotion Council For Handicrafts [EPCH] Page 4
It is requested that services rendered by buying agents should be treated as Export of Services where commission is received in foreign exchange and should be subject to zero rate GST.
Prayer: In view of the above it is submitted that in case the above issues are not resolved the increased cost of exports would render the export from India as non-competitive and severely affect the handicraft export from India. Export industry will not be able to sustain the hit and shall collapse. As this sector is labour intensive and employs artisans from remote clusters, any adverse impact on the sector give rise to employment crisis. Therefore, we humbly request your good self to take necessary action and issue the requisite clarifications in order to ensure the smooth transition of our industry into the GST regime. The copy of representations from various handicrafts associations also enclosed for your ready reference ( Annexure-E). We shall be pleased to furnish any further information, which your good self may require in this regard.
Yours faithfully,
(O. P. Prahladka) Chairman
Encl : as Annexure above A. Notification of Central Excise B. Notification of VAT (various States) C. List of 167 ITC HS Codes D. Notification of Fair participation E. Representations of Associations
Export Promotion Council For Handicrafts [EPCH] Page 1
Ext. : 118 Email : policy@epch.com Ref. No. EPCH-3/1(7)-GST/2017-18 /206909 June 19, 2017
The Chairman, GST Council, Ministry of Finance, Government of India. North Block, New Delhi - 110001 Subject: Representation seeking redressal on concerns about likely impact of GST on exporters of handicraft
Sector Hon’ble Sir, 1. Export Promotion Council for Handicrafts is an apex organization engaged in promotion of exports of
handicrafts from the country and has 11000 member exporters on PAN India basis. Our objective is to promote the exports of handicrafts and to project India’s image abroad as a reliable supplier of high quality handicraft goods. Handicrafts is a labour intensive sector which provides employment to over 7 million artisans which includes a large number of women and people belonging to the weaker sections of the society in rural areas. Handicrafts sector has also emerged as one of the major sources of foreign exchange earnings for the country with exports of Rs. 24392.39 crores during the Financial Year 2016-17.
2. GST in India is a welcome reform and the industry is very enthusiastically waiting to enter into GST regime.
3. The term ‘Handicrafts’ has not been indicated anywhere in the GST Notification pertaining to GST rates,
further, the rates announced by GST Council on different items are at 4 digit HS code level. As you may be aware the excise duty on handicrafts is currently exempted under notification no. 17/2011-CE dated 1/3/2011 (Annexure –A). Further under the VAT laws in various states, handicrafts are placed under schedule I which covers the exempted goods (Annexure –B).
On going through the schedule of rates under GST indicated for various handicrafts items are on the higher sides i.e. at 12%, 18% and 28% [Tabulation of Handicrafts ITC HS Codes with GST rates at eight or four digit level (Annexure –C)]. For example in case of handcrafted cane furniture (9403) the applicable GST rate is 28%, however currently the product is VAT exempted in 11 states (8 NER states, West Bengal, Kerala and Andaman & Nicobar). Further, for bamboo furniture (9403) the GST rate has been reduced from 28 to 18%.
We would suggest that a flat rate of 3% GST may be made applicable for HS codes which are being used by handicrafts sector for their product categories.
Further, most of the exporters of handicrafts work on borrowed capital. The process of payment of GST first and claiming the refund at later stage would result in the blocking of the funds for the small exporters engaged in the sector.
Export Promotion Council For Handicrafts [EPCH] Page 2
4. Job work:-
The entire production process of the handicrafts is outside the four walls of the factories of the exporters. Since, this is a cottage sector, the process of manufacturing is not limited under one roof, the process of production is spread to minimum 7 and up to 15 stages of production at the artisan (job worker) premises who are located at the different places. Average earning of such job workers may be less than Rs. 10,000/- per Month. All these persons are not registered under GST law. As per GST law the registered person will have to pay tax on reverse charge basis from these job workers. As a result the exporter or manufacturer will prefer to pass the work to the job worker who is registered under GST act to avoid payment of GST under reverse charge resulting lakhs of small job workers on the verge of unemployment.
The Process of manufacturing when the raw material for exportable product is provided by an exporter (Each and every process is a specialized activity conducted by skilled artisans) is as under:-
JOB WORK FLOW CHART (Indicatve Chart for art metaware segment for Handicrafts- A product has to process through 9 hands for Job Work)
EXISTING RATES
AFTER GST
Raw Material Purchased by Exporters in the form of ingot/scrap/virgin metal after payment of VAT @5%
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Sand casting
Send for sand casting done by Artisans 0% GST (12,18,28%) Payable Under Reverse Charge
↓
After Casting
Sent for welding because each item casted in 2 or more parts and thereafter welded by karigar
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Scraping After welding another karigar have to scrap the item to make smooth finishing
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Threading After scraping item, karigar send the item to another karigar for threading
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Now semi finish item is ready to send to exporters which are not finished.
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Polishing Polish is done piece by piece and exporter will pay piece basis payment at a requisite place
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Plaiting After Polishing Exporter checks the quality and sends for plating or power coating
0% GST (12,18,28%) Payable Under Reverse Charge
↓
Packing Now item is ready for packing and it is also done on piece basis.
0% GST (12,18,28%) Payable Under Reverse Charge
However there is certain specialized work of craftsmanship like engraving, enameling which require much more additional process of manufacturing.
In case of merchant exporter, raw material purchased by karkhanedar and supplied to entire chain and there after billed accordingly to the exporter.
Export Promotion Council For Handicrafts [EPCH] Page 3
The new GST act does not provide any relief to the sector particularly with respect to the provision contained in the Section 9 (4) with regard to the Reverse charge in case of supplies from un-registered persons.
We would strongly recommend that suitable exemption should be given to such small job workers from
GST on reverse charge basis to safe guard their interest. We understand GST rate on job work is 18% , however GST rates for textiles job worker has been reduced to 5%, it is requested that the job worker engaged in handicrafts sector may also be given the same benefit.
5. Stock in hand as on 30th June 2017:-
It is important to note that the gestation period in case of handicrafts items is much longer and the items are sold internationally as per the trends and requirement at the buyers end, hence the stocks kept at the exporters premises are for a much longer period. We understand from the left over stocks of previous year, ITC will be allowed for only one-year purchases. While most of the exporters specially dealing in wooden items are having stocks for more than one year. All such stocks will be used in the manufacture of goods for export only. We would suggest that limit of one year should be removed for handicrafts exporters for allowing ITC for Stocks and may be extended for 3 years.
6. Sale to foreign tourist
At present the foreign tourist visiting India buy Handicraft items as a souvenir from the Handicraft shops/stores located throughout the country against the foreign credit cards or foreign exchange. They take these handicraft items along with them to the foreign destinations and are not sold anywhere in India and a declaration to this effect is taken by the store owner. The country earns a considerable size of foreign currency on sale of these items across the counter. Since there are no shipping bills for these items, hence they are not considered as exports and are not zero rated. Whereas, these items are taken by the foreign client to Overseas only and are not resold in India anywhere. Under, the previous regime these counter sales were treated as deemed export and benefit under Income Tax Act under Section 80HHC was available on these sale also. We would request that since these items which are sold across the counter have all the ingredients of export sales like they earn foreign currency, these items are taken out of India and are not resold in India, FIRC (Foreign Inward Remittance Certificate) is also issued by the bank, RBI is duly informed about all these transactions, hence these sale of handicraft items against foreign exchange should be classified as exports and should be zero rated.
7. GST on foreign agency commission earned by Buying Agents There is no clarity whether the services as rendered by the buying agents to their foreign customers
wherein the customer is located outside India and payment from them is also received in foreign currency towards export of services.
Buying Agents are exclusively appointed by Foreign Buyers (Principal) to look after their business interests in India. The Agent's assignment includes receiving artwork, sketches, prototypes or a full sample of the item to be developed, manufactured and shipped from India, and the service is being utilized by the foreign principal in the foreign country only. Proper clarification is required to be issued that services rendered by these buying agents engaged with foreign principals are treated as export of services.
It is requested that services rendered by buying agents should be treated as Export of Services where commission is received in foreign exchange and should be subject to zero rate GST.
Export Promotion Council For Handicrafts [EPCH] Page 4
8. GST on fair participation:-
a) EPC’s organizes Exhibitions and Trade Fairs (Reverse Buyer Seller meets) which are B2B shows with no retail sale and only orders are booked. Since the exhibitors do not sell their goods and only book orders and after the event is over bring their goods back to their own premises, it may be treated similar to the process of movement of goods (No Sale or Purchase) and may be exempted from GST. Further it is important to note that the service tax on partipation in fairs within India was exempted till March 2009 (Notification 43/2007 dated 29th November 2007) and for participation in fairs overseas is exempted [Notification No. 5/2011-service tax dated 1st March 2011 (Annexure -D)].
b) The exhibitors having registered office in one city and participate in these shows in various cities of India are required to get registered in each state where they intend to participate. As per the new GST regime (Section 2 Sub Section (20) of CGST “casual taxable person”), every participant has to register himself as a causal dealer in the state where the exhibitions is being held. It will be a cumbersome exercise for the exhibitors and will discourage the participants for participating in the Trade Fairs and Exhibitions, it may be clarified that the participant is not required to register himself/herself as a casual taxable person in the state where the exhibition is being held and he is not selling any goods in the exhibition.
Transitional arrangement for exhibitors of Textiles India – 2017
The exhibitors would be visiting Ahmedabad for participation before 30th June, 2017 when the present VAT would be applicable and would be returning from Ahmedabad to their destination after 2nd July, 2017 when the new GST regime would be in place. It is requested that necessary transitional arrangement can be worked out which may include endorsement of the exhibitors list by the Department so that the exhibitors do not face any problem with respect to taxation.
9. Rate of Duty Drawback
Currently, such tax incidence on export goods is being offset by way of grant of duty drawback to exporters at the specified rates. We would request that even after implementation of GST in India, duty drawback should be allowed as an option at two rates viz. lower rate of drawback when input tax credit is availed and other rate of duty drawback when input tax credit is not availed on the same lines as available currently in the Drawback Schedule.
Further, the All Industry Rate of Duty Drawback should also be revised under GST so as to factor the increased tax cost on the procurements on account of increase in rate of taxes on input material and input services.
10. GST on Sale of Scrips:-
a. The incentives received i.e. MEIS, SFIS etc. is merely ‘duty credit’ scrips and these are ‘intangible goods’ and is a document in lieu of ‘cash’. These scrips can be utilized exclusively for the purpose of payment of customs, excise, service tax etc. So technically these are like bank cheques which need not be subjected to GST. These will also reduce the transaction costs of the exporters.
b. The Government has announced that on implementation of GST effective 1st July, 2017, export incentives such as MEIS/SEIS and all relevant reward scheme scrips issued either as per the old policy or the current policy will be eligible only for discharging payment of basic customs duty. This would mean that the demand for such scrips will now be only around 25% and the exporters returns will go down tremendously.
Export Promotion Council For Handicrafts [EPCH] Page 5
c. Exporters get the scripts only after about three to four months of export and sometimes even later. The exporters calculate the costing keeping in mind that around 95% realization of these scrips and accordingly quote for the products to the buyers. With the under utility of the scrips apart from basic customs duty, the exporters will lose to the extent of 40-50% and will incur losses. It is requested that the Government may consider the utilization of these scrips against all types of GSTs.
Prayer: In view of the above it is submitted that in case the above issues are not resolved, the increased cost of exports would render the export from India as non-competitive and severely affect the handicraft export from India. Export industry will not be able to sustain the hit and shall collapse. As this sector is labour intensive and employs artisans from remote clusters, any adverse impact on the sector give rise to employment crisis. Therefore, we humbly request your good self to take necessary action and issue the requisite clarifications in order to ensure the smooth transition of our industry into the GST regime. We shall be pleased to furnish any further information, which your good self may require in this regard.
Yours faithfully,
(O. P. Prahladka) Chairman
Encl : as Annexure above A. Notification of Central Excise B. Notification of VAT (various States) C. List of 167 ITC HS Codes D. Notification of Fair participation E. Representations of Association
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JOB WORK FLOW CHART* Raw Material Purchased by Exporters in the form of ingot/scrap/virgin metal after payment of VAT @5%
↓ Sand casting Send for sand casting done by Artisans
↓ After Casting Sent for welding because each item casted in 2 or more parts and thereafter welded by
karigar ↓
Scraping After welding another karigar have to scrap the item to make smooth finishing ↓
Threading After scraping item, karigar send the item to another karigar for threading ↓
Now semi finish item is ready to send to exporters which are not finished. ↓
Polishing Polish is done piece by piece and exporter will pay piece basis payment at a requisite place ↓
Plaiting After Polishing Exporter checks the quality and sends for plating or power coating ↓
Packing Now item is ready for packing and it is also done on piece basis. However there is certain specialized work of craftsmanship like engraving, enameling which require much more
additional process of manufacturing.
In case of merchant exporter, raw material purchased by karkhanedar and supplied to entire chain and there after billed accordingly to the exporter.
Now under the provisions of the GST act in this regard, the entire onus is on the recipients of the services i.e. exporter under Reverse charges mechanism under section 9(4) of the CGST act. Since, the handicrafts in the past was exempted under excise/VAT notification it is proposed that all such job workers should be brought under negative list and specific notification should be brought to protect the livelihood of the artisans. Impact
(i) The provisions of the Section 9(4) of CGST act in respect of reverse charges will adversely impact the present employment of the cottage sector artisans who predominantly belong to small and weaker sections of the society.
(ii) The job workers (artisans) in the chain if exempted under GST rules will be revenue neutral and there will be no adverse impact on the revenues of the Government.
(iii) Since, there is no input cost additionality in the whole process of the manufacturing undertaken at the artisans premises except the wages of the artisans, neither there is loss of revenue nor the chain of activity of GST will be affected at all.
EPCH Page3
Stock in hand [Section18(2)] In the case of handicrafts items, the gestation period for production is much longer for example incase of wooden handicrafts, the wooden logs are purchased and after sawing / seasoning, the same is also kept for natural seasoning for a longer period. Moreover, the production process for these items is very long. The prices for wood for house building industry makes it very expensive and therefore, exporter do arrange the wood stock so that at the time of order, there is no scarcity of raw material. This process of procurement providing timber legality/ chain of custody/ traceability is also an important requirement of the overseas countries. This ultimately makes the exporters keep the stock of wood for at least 2 years or more. Similarly, every country has different tastes and preferences for different wood species like acacia, dalbergia spp, teak, mango etc and prices of the product depends on the same. Similarly in the case of the metals particularly non-ferrous metal, India is the importer of the copper, Zinc, and scrap etc. Since LME prices of the non-ferrous metals fluctuate on day to day basis, therefore exporters have to maintain proper stock of material in order safeguard them against any price fluctuation. Besides it takes 6 months from the day of procurement for designing of products, obtaining orders and thereafter production. Moreover, these metals are imported into the country in high quantities in containers with the minimum orders of 10-15 containers. Further, there is also a rejection rate of about 5-10% of the total export supplies. These rejected supplies are also kept in stocks of the exporter for many years. Impact The stock of the exporters, in case of 90% of exporters is normally for a period of over 2 years. The stocks have also to be made available to the artisans for long term export orders and orders already in pipeline. In case such stocks are not considered for input credit under Section 18(2), the entire process of the export orders will be adversely affected and will drastically bring down export of handicrafts as well as confidence amongst the overseas buyers. To maintain the continuous flow of export supplies at the same pace without affecting the export prices, it is important that this provision should be relaxed for informal sector like handicrafts sector by issuing requisite notification. Packaging material for handicrafts Handicrafts are fragile in nature and also voluminous items. The shape and size of these items sometime irregular i.e it has sharp edges and also need specialized/customized packaging besides, the buyers also do not pay for the same. The special packaging has to be developed for handicrafts exporters for each and every item. These packaging materials are normally procured for more than 2 years in stocks. When the exporter work with a buyers for longer time, a specialized packaging is developed for that buyers keeping in view the mandatory testing requirements like drop test etc. These specialized packaging are to be developed and stocked in very large quantities which some time are consumed in over 2 years. The packaging has to be unique size and also cost effective for containers for its optimum utilization as per international standards. However, no such packaging is available in the market and is specially developed within the unit.
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1 | P a g e
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2 | P a g e
5. We would like to bring to your kind notice that most of the exporters of handicrafts work on borrowed capital. In case the handicrafts are not exempt under GST and GST is imposed at the reported rate of 18-22%, the same will result in increased working capital requirement at the end of the exporters and additional compliance requirements at each level in the handicraft industry. Currently, the merchant exporter can avail the exemption of sales tax on the last sale or purchase of goods preceding the sale or purchase occasioning the export of goods out of the territory of India through Form H system. However, in the FAQs issued by Government on GST issues, it has been clarified that there will be no provision in GST under which the merchant exporters could purchase the goods without payment of taxes. They will have to purchase goods upon payment of tax and claim refund of the accumulated ITC.
6. This will in turn lead in additional cost of interest for the exporters which will have to be added in the price at which goods are exported. As a result, the export of handicrafts will become unviable in the competitive global market. Further making handicrafts taxable under GST will result in additional compliance requirements at each level in the handicraft industry. As explained above the handicraft industry comprises of small level artisans which operate from their homes located in remote clusters and undertaking systems based GST compliance for them will be cumbersome and costly.
7. Over the years, the government has taken various initiatives to promote the growth of the handicraft sector in India.
8. In line with the above policy of the Government, we hereby request your goodself that the existing exemptions with respect of handicrafts should continue under GST regime and nil rate of Central GST and State GST is imposed on handicrafts. This will ensure that the handicrafts are available in the Indian market at affordable prices and it will also reduce the cost of procurement of the handicraft exporters and enable them to stay competitive in the international market. Tax-Free Procurements for exporters of Handicrafts
9. As mentioned above, in case handicrafts are not exempt under GST regime, the working capital requirements of the exporters will increase significantly and the additional amount of working capital will be blocked till the time the goods are exported and refund of input tax is granted.
10. In view of the above, we hereby request your goodself that if the general exemption for handicraft is not allowed under GST then a mechanism should be developed under the GST law to enable the exporters of handicrafts to procure the goods without payment of taxes for optimization of the working capital requirements of such exporters. We feel such a mechanism is feasible under the GST system as all supplies by taxable person would be uploaded through GSTR-1 mentioning the GSTIN of buyer. The buyer accepts and confirms the receipt of such supplies in his GSTR-2. In cases where buyer is registered exporter and accepts the receipt of supplies in his GSTR-2 the seller’s liability can be shifted to the exporter’s liability as is done in reverse charge situations. The exporter in turn can be made liable to pay GST if he fails to export the said goods in the specified period.
11. This will help in reducing the working capital outflow by avoiding the process of first paying the tax and then claiming the same as refund. This will also reduce the administrative cost for the department through elimination of refund processing route.
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Optimization of Working Capital Liability of exporters to pay under reverse charge
12. For optimization of working capital at the end of the exporters, suitable provisions may be incorporated under the GST law providing that no GST will be payable by the exporters under reverse charge on the supplies made to them. Otherwise in such cases, the exporters will have to pay taxes at the first stage upon receipt of the supply and thereafter claim refund of such taxes after the goods are exported. Even under service tax law, in respect of services received by the exporters on which service tax is payable under reverse charge like Goods Transport Agency service or commission agent’s service, outright exemption from service tax has been granted. Same principle should be applicable under GST as well. Further, the supplies to the exporters can be considered as ‘zero rated supplies’ allowing such suppliers to avail credits on their inputs and input services. Status of existing schemes under Customs, Foreign Trade Policy and SEZ on issues regarding GST
13. At present, benefits regrading excise duty, service tax and central sales tax on various supplies are available under the provisions of the Customs Law, Foreign Trade Policy and Special Economic Zone. Till now, there is no clarity regarding the manner in which these schemes will continue under GST.
14. For instance, there is no clarity as to whether the exemption under the Advance License and EPCG schemes will be available only with respect to the BCD element of the customs duty or whether the exemption will also be available in respect of the IGST element of the customs duty which will be levied instead of CVD and SAD under the GST regime. Similarly, various scrips like MEIS are issued to exporters which can today be utilized for making payment of CVD and SAD or excise duty in case of domestic procurements. Such scrips should be allowed to be utilized for payment of IGST also under the GST regime.
15. In order to avoid additional working capital requirements under GST, the benefits under the existing schemes should be extended to GST as well. Rate of Duty Drawback
16. As many of the small exporters particularly in case of handicraft, carpets, handlooms procure the goods from the unorganized sector which may fall below threshold limit or may fall under composition limit under GST, no credit of taxes suffered by them in their inputs and services used for such goods meant for export can be availed by the exporter. Currently, such tax incidence is being offset by way of grant of duty drawback to these exporters at the specified rates.
17. We hereby request you that even after implementation of GST in India, duty drawback should be allowed as an option at two rates viz. lower rate of drawback when input tax credit is availed and higher rate of duty drawback when input tax credit is not availed on the same lines as available currently in the Drawback Schedule.
18. Further, the All Industry Rate of Duty Drawback should also be revised under GST so as to factor the increased tax cost on the procurements on account of increase in rate of taxes on input material and input services.
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Loss of credits under various situations
19. Place of supply provisions under the proposed IGST Act in majority of cases recognize the location of service recipient as the place of supply where the supply is to a registered person. However, in some cases like services relating to immovable property location of service recipient is not taken into consideration for deciding the place of supply. Thus there can be situations where the supplier and place of supply will be in the same state, but the receiver will be located in a different state. Such supplies will then be taxed as intra-state supply liable to CGST and SGST, credit of which will not be available to the receiver of service located in a different state. Illustration: Employee of exporter located in Delhi visits suppliers located in Maharashtra and uses hotel accommodation services in Maharashtra. In this case, the place of supply (POS) being in Maharashtra the hotel will charge GST as intra-state supply liable to CGST and SGST. The exporter being registered in Delhi will not be in a position to avail credit of SGST/CGST for its business in Delhi.
20. The above situations where credit gets blocked will increase the cost of operations and may thus be taken into account while fixing drawback rates. Refund Mechanism in case of Exports
21. Some of our members may claim refund of taxes paid in relation to the exported goods or on the inputs or input services used in the goods which are exported out of India as provided under Section 38 of the Model GST Law.
22. As per the said provision, 80% of the refund claim can be disbursed on provisional basis to the claimant and the balance amount is given after verification or processing of claim. From the draft refund rules and forms released in the public domain it appears that refund of credit of IGST and CGST and credit of SGST would be separately processed by two authorities. This will lead to multiple handling and duplication of refund sanctioning process creating additional procedural requirements for the claimant also.
23. It is requested that the claim with respect to all the above heads should be jointly decided and disbursed by Central Government by adopting settlement route with state governments with respect to SGST portion of refund claim. The refund claim should not be administered by dual authorities.
24. Further, as the past experience of industry in claiming refunds from departments is not good, it is requested that in built procedural mechanism should be created in the system for keeping accountability of any delay in refunds on the concerned officers. The procedural provisions should not be allowed to be used as a tool for delaying the refunds. Job work procedure
25. It is our understanding that goods can be sent to job workers without payment of GST on such goods and the processed goods can further be transferred to other job workers in the same way and finally the finished goods meant for export can be received by the exporter. In this process neither the job worker nor the principal (exporter) would be required to pay any GST if the special procedure as provided for in the Act (Section 43A of Model GST Act) is followed. The referred section provides that the Commissioner may permit the above procedure by a special order. In this
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process, there can be situations where multiple jurisdictional commissioners would be involved from both CGST and SGST perspective. In this regard it is prayed that to avoid multiple permission requirements the provision should allow for taking a one-time permission (valid for a defined period) from a single authority only.
26. However, there is no clarity whether job worker would be required to charge GST on its supply when above procedure is followed. Thus suitable provision may be made to hold that the job workers would not be required to pay any GST with respect to their value addition (attributable to goods or services or both from its account) when such procedure is followed. Job worker may be given an option to charge GST on its value addition to enable him to utilize the credit available with him.
GST on sale of scrips
27. Various types of scrips like MEIS are issued by the Government of India against the
export of goods. Such scrips are transferable and the exporters can sell the same. Such sale of scrips are either exempted from VAT in States or are subjected to lower rate of VAT (4%). No other indirect tax is applicable on such sale of scrips.
28. Under GST, new Tax rates might be applicable at the time of sale of such scrips. It is therefore requested that such scrips being issued as an incentive to the exporter should be considered as zero rated supplies only. Issuance of scrips by Government should not be treated as supply under GST. It can be covered under Schedule IV Entry 4 (d) which says that the Government shall not be regarded as taxable person with respect to services provided regarding currency, coinage, legal tender, foreign exchange etc.
29. Further the transfer of such scrips should also not be considered as supply. Even if the same is treated as a supply it should attract lower rate of GST as presently only sales tax/VAT at lower rate is payable on the same.
Utilization of scrips
30. The utilization of the scrips issued to exporters is also an important matter. It is
understood that under GST the MEIS scrips will only be eligible for payment of basic customs duty as against their current utilization for payment of basic/additional /excise /service tax, which will hurt the exporters as usability of scrip will be restricted. Government should consider their utilization against all types of GSTs.
31. Stock in hand before GST, what shall happen to the opening stock?
The left over stock from previous years ITC shall be allowed, only one year purchases where as it is requested that entire stocks of previous years ITC should be allowed and carried forward.
32. Purchases from un-registered dealer by the exporters, purchases tax must be exempted under section 5. In the year 01.04.2010 when “E” Form was introduced the purchases from un-register dealer was exempted and same facilities should be available in GST.
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Prayer:
In view
increase
severely
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and issu
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We shal
require i
Encl: As
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ment crisis.
ue the requ
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exports wou
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s this sect
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ly request y
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ensure the
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ur goodself
Yours faith
(Dinesh KuChai
ed the
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mploys
se to
action
of our
f may
hfully,
umar) irman
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