MAY 02, 2020

By R C Pillai

Eligible Supplies and the governing provisions

As per sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 read with clause (i) of subsection (3) and sub-section (6) of section 54 of the CGST Act and rules 89 to 96A of the Central Goods and Services Tax Rules, 2017, a registered person may-

- make zero-rated supplies of goods or services or both on payment of integrated tax and claim refund of the tax so paid, or

- make zero-rated supplies of goods or services or both under bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilized input tax credit in relation to such zero rated supplies.

As per the second proviso to sub-rule (1) of the Rule 89, the supplier needs to get the endorsements on the supply Invoices as required below.

Provided further that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the -

(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorized operations, as endorsed by the specified officer of the Zone;

(b) supplier of services along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone:

From the above it is very clear that the sine qua non or indispensable element is that the supply Invoices have to be endorsed by the proper officer of the particular SEZ zone as constituting authorized operations and goods are admitted in full for filing the refund against the supplies to SEZ units/Co-Developer/Developer. It has to be collected and refund application filed within 24 months of the relevant date as defined in the explanation after sub-section (14) of the Section 54 of the CGST Act. It will become time barred thereafter.

Challenges in obtaining the Proof of Receipt of Goods to be Endorsed by Authorized /Specified Officer

1. There are no corresponding provisions under SEZ Rules for the endorsement of Invoices till 17-09-2018.

The difficulty is that only the GST provisions required such certification by the SOs of SEZ zone till 17-09-2018. Only on 18-09-2018 an amendment was brought to sub-rule 4 of the Rule 30 of SEZ Rules vide SEZ (Amendment) Rules, 2018 which mandated the AOs/SOs to certify such supply Invoices. For the supplies made from 01-07-2017 till 17-09-2018 for the period of more than one year, many of SEZ AOs/SOs refused to certify the supplies and sign for want of this amendment. Some field officers did oblige and signed although the SEZ rules were amended only from 18-09-2018. DTA suppliers were at the mercy of the specified officers for more than a year.

This has resulted in the accumulation of GST credits as they would have procured raw materials/components upon payment of S/CGST in case of domestic procurements & IGST in case of imports. If they have supplied under LUT it would have resulted in the accumulation of GST credits i.e., buying upon payment of GST and supplying without GST. Had the supplies been made upon payment of tax through accumulated Credits u/s 16(3) (b) of the IGST Act, entire tax amount needs to be written off. Many representations sent through Industry bodies, Principal CCE levels and direct letters to the North block to bring equal provision in SEZ rules from 01-07-2017 have not yielded any result. Inclusion of the period from 01-07-2017 has to be done immediately although majority of the uncovered period i.e., up to April 18 has become time barred.

2. For the balance period i.e., the supplies effected on or after 18-09-2018 as well, the DTA suppliers are facing following difficulties in getting the Invoices duly endorsed by the SEZ Officers:-

- Minimum 2-3 attempts have to be made by the DTA supplier along with the SEZ customers

- SEZ officers at different locations raise different issues although the Invoice is as per the GST prescribed format.

- Some ask for the mentioning of Rate and amount of Tax in the Invoices made for LUT supplies

- Someone asking for the reference of LUT number on the Invoices raised under rebate scheme

- Challenges in getting the endorsements for the goods delivered on courier mode

- Shortage of field Officers and holding dual responsibilities etc.,

- Some Officers do sign with the rubber stamp but refuse to mention "goods admitted in full" whereas the GST provision requires this

-  Difficulties in getting the endorsement from the succeeding officer if the incumbent officer is transferred under whose period the goods are received

With above queries/issues one can understand the predicaments of the DTA supplier and these types of follow ups and clarifications to non-value added work increases the cost of doing the business. Very often, unfortunately the DTA suppliers do not get adequate support from their SEZ customers also in getting the endorsements on the invoices in time. They feel that very placement of orders for the supplies itself is a big favor and do not get timely support in getting the endorsements. The delay in filing refund application due to non-availability of endorsed invoices by the seller leads to blocking of working capital. The DTA supplier who supplies the goods upon payment of IGST (through Credit) is at very disadvantaged position vis-a vis the supplier under LUT because the former loses the entire tax amount and in the case of latter the ITC shall be credited back, in the event of absence of endorsed invoices.

From the above, it is clear that the provision trying to bring back "Inspector Raj" which was buried long back. When the entire GST system is working on trust based self-declaration / self-assessment with proper system based controls, making such entry checks and physical controls are blocking the speed and smoothness of operations. Above all, whenever physical checks are introduced with certain powers to the authorities that often eads to misuse of authority and delay the processes.

It may be noted that once the endorsed Invoices are collected 95% of refund work is complete. Balance 5% is only to consolidate and file the online refund application. Once we file the refunds with the endorsed Invoices, the refund processes are so smooth that it gets processed with least human inter-face especially where the claims are before the central tax authorities and I really salute the efforts put in by the Officers in clearing the refunds well within the stipulated time and on many occasions before time.

Way forward:

Under the GST regime all types of transactions and submissions are digitalized and there should not be any paper based documentation. Forms like ARE -1  / re-warehousing proof are dropped. So the requirement of endorsed Invoices by the specified officer should also be done away with. Instead, system based checks and balances should be in place.

The suggestions are given below -

1. To start with, the supply can be got verified from the GSTR1 of the DTA suppliers from the Table "6B of the B2B category" which shall clearly show the details of Invoices raised on SEZ customers with payment of Tax -Rebate and without the payment of Tax under LUT .

2. Under the proposed e-invoicing scenario, the seller will issue invoice against GST ID of the SEZ unit/developer and said invoice would be pushed to ANX-1 and accordingly same would flow to ANX-2 of the said SEZ unit/developer. If the SEZ unit/developer accepts the invoice, the same shall be sufficient proof that goods/services are received by them. In conclusion, the Government should enable portal for seller to review how many invoices SEZ unit/developer has accepted in ANX-2 and matching with SEZ portal. In such scenario, there is no need for obtaining the endorsement to apply for refund.

3. Over a period, GST & SEZ portal also could be linked for the easy verification of invoices accounted by the SEZ unit / developer to authenticate if goods/services are received in full and used for authorized operations.

The above suggested process will go a long way in filing the refund claims immediately upon filing the GSTR3B and this monthly cash flow will go a long way in helping the DTA suppliers in releasing the pressure on the blockage of working capital and help keep the cost under check under this fierce competitive environment.

[The author is Tax Director &   Head of Taxation-Lenovo Group-India and the views expressed are strictly personal.]