MARCH 28, 2020

By K Srinivasan

THERE is a misnomer that what was originally permitted under the following Notifications of Customs, by way of Customs duty and CVD exemption on these imported goods for carrying out job work/repair or reconditioning and re-export of the same to the Principals, was not continued into the GST regime from 1/7/2017 -

1. Notification No. 32/1997 Cus. Dated 01.04.1997 (Goods of foreign origin for job work as per definition of Exim Policy and as per Para 17 of SC decision in the case of Prestige Engg. (I) Ltd vs CCE, Meerut - 2002-TIOL-151-SC-CX)

2. Notification No. 153/94 dated 13.07.1994 ( Articles of foreign origin for repairs)

3. Notification No. 158/95-Cus dated 14th November 1995 (Reimport of goods of Indian origin for repairs)

The above described exemption arrangements are said to have been disturbed with reference to the Countervailing duty, now known as IGST under the GST regime, even when such goods are continued to be re-exported after due completion of the intended job work/repairs.

In this connection, the following misnomers assume relevance further -

(i) That GST is payable on the job/repair charges claimed from the foreign principal now, and

(ii) The old CVD equivalent of IGST even if paid on those imported goods brought for job work/repairs, the same would not be available as ITC, under the GST regime.

The fact of the matter is that the above customs duty exemptions were sought to be extended including IGST exemptions on such imports as per GST council meet of 3rd June 2017.

And it is also not in question whether return of such goods to the foreign principal will not be treated as export now?

First of all we need to understand what is Job-work and repair service under GST.

Job work (SAC 9988) and repairs and reconditioning (SAC 9987) are very widely defined as Manufacturing services under the GST Act. 

Now, we need to understand what is export under GST? 

As per Section 2 (5) of IGST Act, "export of goods means taking goods out of India to a place of outside India" and receipt of consideration is not a pre-condition to consider the transaction as export of goods.

Thus the return of imported goods to the foreign principal after job work/repairs or reconditioning is "export of goods", which is declared as a "zero rated supply" as per Section 16(1) of the IGST Act, if all conditions including receipt of consideration is as Foreign inward remittance.

What about GST liability on job Work/repair/re-conditioning charges claimed from foreign principal, is the next question?

With regard to GST liability, Sec.13 of IGST Act, 2017  reads as under -

13. (1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India.

(2) The place of supply of services  except  the services specified in sub-sections (3)  to (13) shall be the location of the recipient of services:  Provided  that where the location  of  the recipient of services is not available in the ordinary course  of  business, the place of supply shall be the location of the supplier of services.

(3) The place of supply of the following services shall be the location where the services are actually performed, namely:

(a) Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services:

Provided  that when such services are provided from a remote location by  way of electronic  means, the place of supply shall be the location where  goods are  situated at the time of  supply of services: 

Provided  further that nothing contained in this clause shall  apply in  the case of services supplied in respect of goods which are temporarily imported into India  for   repairs  and are exported after repairs without being put to any other use in India, than that which is required for such repairs:

(b) Services supplied to an individual"

As per the above, it is clear that the said transaction is squarely falling under first limb of clause (a) of Sub-sec.3 to Sec.13 of IGST Act, 2017 and accordingly the place of supply of service provided by the Job worker/Repairer (importer) would be the location, where such services are actually performed, i.e. the above Importer's location, which would be in taxable territory.

Hence the transaction was not to amount to export of service as one of the conditions prescribed under Section 2(6) of the IGST Act was not getting satisfied.

Hence, the Importer looked like liable to charge GST on the job/ repair/reconditioning charges claimed from the foreign principal, despite payment received in convertible foreign exchange.

To set at rest the above misnomer that prevailed over the matter of taxation of job-work/repair on imported goods meant for rework and return, a change in Sec 13(3) of IGST Act, with reference to the POS was made, in a very wide and comprehensive manner.

This change was made keeping in mind consciously the need to address the difficulty faced by Importers claiming exemption from IGST of imported goods for Job work (9988) and Repair and rework (9987) and return of the same to the Principals, brought under Customs Notifications 32/97 & 153/94, 158/95 respectively.

The wordings of the amendment is reproduced below verbatim for easy reference of the readers -

Place of Supply for temporarily imported Goods for Repair/other treatment & re-export to be the location of the recipient of service under The GST (AMENDMENT ACT) 2018.

(Amendment carried out to  IGST Act, 2017   with effect from 01.02.2019, by which the second proviso to Section 13(3)(a) had been substituted as below).

Provided further that nothing contained in this clause shall apply in the case of services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process.

This would look to the Author a natural preference to the real facts surrounding job work/repairs, against creation of a legal fiction that gave rise to the anomaly unnecessarily.

Accordingly, the place of supply of such job work services would be the location of the recipient of supply (foreign principal's location), as per Section 13(2), now which is outside the taxable territory.

Hence, with effect from 01.02.2019, Job/Rework-Importer, is not liable to pay GST on the labor charges received from the foreign principal, as the same would be covered squarely under the ambit of definition of Export as per Sec. 2(6) of the IGST Act and would be Zero rated.

It is equally possible that in the process of doing any job work/rework, there may be local procurement of goods for consumption in the job work, which in turn may have to be claimed Export benefits of Input stage taxes incurred in the course of supply for such Exports as permitted under Section 16(2)/(3) of the IGST Act.

There's also another doubt in the minds of some as to what will be the position of taxability of Job work/ Repairs/Reconditioning of the imported goods, if carried out outside the customs bond regulated by Section 65 of the Customs Act, 1962?

To this question, the answer would be that such goods would not be permitted to go outside the bond/customs supervision.

All these Customs Notifications operate conditionally upon retention of the goods imported in the bonded area, so as to remain fulfilled of the Customs duty free imports of those goods.

They are imported for the sole purpose of rework/carrying out such other operations required to be carried out on such goods in-bond and for their ultimate re-export within the time limit stipulated therein.

In conclusion, the second question of paying any duty, let alone IGST on those imported goods brought for job work/repairs, does not arise, as it is a compact in-bond manufacturing procedure prescribed under Section 65 of the Customs Act, 1962 for ultimate re-export of those goods to the original principals.

Consequently, it is needless to say that the question whether the IGST if so paid on those imported goods brought for Job wok /repairs would be available as ITC under the GST regime, does not arise at all.

This ends the two-part Article to determine the legal position of taxability of IGST on Imported goods for carrying out job-work/repairs within the inbuilt condition under the various Customs Notifications cited above to re-export such goods/Articles to the self-same foreign principals, after due completion of the intended jobs.

The import trade and industry are very happy for the timely intervention of the Government to fill some of the gaps that was noticed in the IGST legislation in the manner explained in detail, to extend its further support and commitment to the ease of doing business.

(The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.)

See Part-I