Pharmexcil demand imports against Advance License / Authorization should exempt all duties as prevalent during the pre-GST era
Pharmaceutical exporters are seeking clarifications on various issues related to exports after almost 20 days since Goods and Services Tax (GST) got implemented. Companies have urged the government that IGST should not be levied on the advance license goods which have been imported to India. Companies and pharma associations have repeatedly approached the government but there seems to be no breakthrough in this matter.
Pharma companies, which are exporting their product to the international market are concerned as the new tax regime will affect their working capital and reduce their competitiveness in the foreign market. At the same time they are also doubtful on whether the process of refund claimed by the government will work effectively as the entire claim process is made online.
A pharma exporter on condition of anonymity said, “There is lot of confusion among small scale exporters and lack of clarification from the government on how things should proceed. The government came up with some clarifications on June 30, a day before the implementation of GST. A clarification regarding letter of undertaking (LUT) or export under bond was released on July 7. The government could have released the clarification notice 15 days earlier to the date of GST implementation. The government should not ask us to pay Integrated Goods and Services Tax (IGST) upfront and then take a credit after five months because it is going to have an impact on our working capital. It will also reduce our competitiveness in the international market. There is also confusion on how the entire claim process will work, which is supposed to be online. On whether the IT infrastructure is ready or not, it is too early to comment, but then this is an apprehension because if this doesn’t work then working capital gets blocked.”
Explaining further, he said, “There are two major issues being faced by the exporters. Firstly, there was no need to pay excise duty as merchant exporters used to buy goods from manufacturers under LUT/bond. After GST came into effect, manufacturers will charge merchant exporters 18 per cent duty. The working capital requirement of merchant exporters is going to go very high. Secondly, on the advance license, IGST has been levied, which means we have to pay 18 per cent tax on import of goods also. If we buy any goods under advance license, we have to pay IGST. For advance license, the government should not ask exporters to pay IGST because in the API industry, the margin is just three to four per cent and trying to block 18 per cent is a huge amount of money.”
The Pharmaceuticals Export Promotion Council of India (Pharmexcil), which organised GST seminars in Hyderabad and Mumbai, just before the implementation of GST, has written to the government on 14th July, 2017 highlighting various problems being faced by the exporters after the implementation of GST.
Devang Shah, Member, Merchant Export, Pharmexcil, has urged the government to not levy GST at the time of purchase from manufacturers either by way of bond or similar provisions, as was prevalent prior to GST implementation. He said “In pre-GST era, procurement of imported raw materials and other inputs were totally exempted from payment of Basic Customs Duty (BCD), Countervailing Duty (CVD) and Special Additional Duty (SAD) against Advance License / Advance Authorization issued by DGFT. However, under post-GST era, only Basic Customs Duty (BCD) is exempted against Advance License / Advance Authorization and all imports are charged Countervailing Duty (CVD) and Special Additional Duty (SAD). Hence, it is suggested that imports against Advance License / Authorization should exempt all duties as prevalent during the pre-GST era and export cargo may also be exempted from GST as in the case of import cargo.
Indian Drug Manufacturers Association (IDMA) in its letter to the government on 10th July, 2017 has also sought a clarification on what will be taxable on which IGST has to be paid – whether on C&F/CIF value or FOB value. It further states, in the export invoice, the rate of exchange for the purpose of conversion is according to the reference rate of Reserve Bank of India whereas FOB value is based on rupee value as per the exchange rate notified by the Customs Department for drawback purposes. It is apparent that the two documents which are relevant for sanctioning refund claims are Export Invoice and the Shipping Bill. A mismatch in the value mentioned in the two documents could become an issue.
It has further suggested as on the RBI website, the rate of exchange is available only for four currencies namely USD/GBP/JY/Euro. When exporters deal in other currencies they should be allowed to take the rates from Authorised Dealer Category -1 banks.