CHATROOM: Merchanting trade transactions must be completed within 9 months

TNC Rajagopalan answers SME queries related to GST, export and import matters

What is the time allowed for completing a merchanting trade transaction?
 

Para C.14.1.vii of the RBI FED Master Direction no.17/2016-17 dated January 1, 2016 (as amended), says that the entire merchanting trade transaction should be completed within nine months, and there shall not be any outlay of foreign exchange beyond four months. The commencement date of merchanting trade shall be the date of shipment/export leg receipt or import leg payment, whichever is first. The completion date shall be the date of shipment/export leg receipt or import leg payment, whichever is the last.
 

We execute EPC contracts that generally involve supply of goods and services and milestone payments. Against execution of such contracts abroad, can we claim the benefit of duty drawback and RoDTEP?  
 

 

For any goods exported outside India towards execution of your EPC contracts, you can get the benefits such as duty drawback and RoDTEP. Whenever you receive any milestone payment, you must inform your bank about the part of that milestone payment receipt, which should be adjusted towards each shipping bill and get the related EDPMS entries marked off.  However, the services element in executing such EPC contracts would not be eligible for such benefits.
 

We refer to Para 5.01(e) of the FTP. It says, ‘In case Integrated Tax and Compensation Cess are paid in cash on imports under EPCG, incidence of the said Integrated Tax and Compensation Cess would not be taken for computation of net duty saved provided Input Tax Credit (ITC) is not availed.’ What is the rationale behind such restriction?
 

In this instance, the government equates paying the said tax and cess and taking ITC of the same with taking the exemption of the said tax and cess. But the government has taken contrary views in many other situations.
 

Can we pay the IGST on imported goods or services from the IGST balance lying in our electronic credit ledger?

The IGST on imported goods is collected in accordance with Section 3(7) of the Customs Tariff Act, 1975. The same must be paid in cash, as Section 49(4) of the CGST Act, 2017 allows the amount available in the electronic credit ledger to be used for making any payment only towards output tax under the CGST Act, 2017 or the IGST Act, 2017. On import of services, the IGST is required to be paid under the reverse charge mechanism in accordance with the notification no.10/2017-IT (Rate) dated June 28, 2017. It is a tax on input and not on output. Section 49(4) of the CGST Act, 2017 does not allow utilization of the balance in the electronic credit ledger to pay any input tax. So, the IGST on import of services must be paid from the electronic cash ledger, which Section 49(3) of the CGST Act, 2017 read with Section 20(ix) of the IGST Act, 2017 allows. Of course, you can take ITC of the IGST paid on a reverse charge basis.