the essay of 28 March 2018 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"
"http://www.w3.org/TR/html4/loose.dtd">
<html>
<head>
<title>Untitled Document</title>
<meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1">
</head>
<body bgcolor="#FFFFFF">
<p align="left"><font color="#663399" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2">MARCH 28, 2018 </font></strong></font></p>
<p align="center"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Is Indian Rupee <em>Convertible Foreign Exchange</em>?</strong></font></p>
<p align="center"><strong><font face="Verdana, Arial, Helvetica, sans-serif"><u><font size="2">By Vijay Kumar </font></u></font></strong></p>
<p align="center"> </p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> IGST Act mentions under Section 2(6) </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(6) "export of services" means the supply of any service when, ––</em></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>(i) the supplier of service is located in India;</em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) the recipient of service is located outside India;</font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) the place of supply of service is outside India;</font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) the payment for such service has been received by the supplier of service in <font color="#FF0000">convertible foreign exchange</font>; and</font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;</font></em></p>
</blockquote>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, as per this definition, if the payment is not received in foreign exchange, the service is not treated as export.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what is this <em><font color="#FF0000">convertible foreign exchange</font></em>? What happens if the payment is received in rupees?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Regulation 3 of the <em>Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2015</em>, stipulates</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><em>3. Duty of persons to realise foreign exchange due :-</em></strong></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A person resident in India to whom any amount of foreign exchange is due or has accrued shall, save as otherwise provided under the provisions of the Act, or the rules and regulations made thereunder, or with the general or special permission of the Reserve Bank, take all reasonable steps to realise and repatriate to India such foreign exchange, and shall in no case do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing -</font></em></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">a. that the receipt by him of the whole or part of that foreign exchange is delayed; or</font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">b. that the foreign exchange ceases in whole or in part to be receivable by him.</font></em></p>
</blockquote>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However, Regulation 4(2) stipulates:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>A person shall be deemed to have repatriated the realised foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorised dealer.</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Thus, receipt in rupees in some cases, is deemed to have satisfied the condition of receipt of foreign exchange.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the earlier Service Tax regime, this issue was agitated before the CESTAT in several cases:</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Verifone Technology India Pvt Ltd Vs Commissioner - </em><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTMzODc2" target="_blank"><em><strong>2018-TIOL-342-CESTAT-BANG</strong> </em></a><em>– </em>it was observed, " <em>it is clear that payment received in Indian rupee for which FIRC issued by the Standard Chartered Bank and the payment is routed through foreign bank, shall fulfill the condition of payment (convertible foreign exchange)".</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Nipuna Services Ltd. vs. CCE - </em><a href="https://taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=44&filename=legal/cestat/2009/2009-TIOL-709-CESTAT-BANG.htm" target="_blank"><strong><em>2009-TIOL-709-CESTAT-BANG</em></strong></a>, it was held "<em>Revenue is denying the refund for the simple reason that the appellant themselves had not directly received the payment in foreign currency. In our view, the stand of the Revenue is not sustainable. If Revenue's contention is accepted, it amounts to levying service tax on services exported. It is axiomatic that goods and services exported would not be subjected to local taxes. Denying the refund would violate this fundamental principle of taxation."</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <em>Sun-Area Real Estate Pvt. Ltd.- </em><strong><a href="https://taxindiaonline.com/RC2/caseLawDet.php?QoPmnXyZ=MTAyOTc1" target="_blank">2015-TIOL-956-CESTAT-MUM</a></strong>, the Tribunal observed,</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>I am of the view that when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange. For example, if any payment is made from India to any foreign country, it is to be made in foreign exchange and thus there is a outflow of foreign exchange but if the payment is made in Indian rupees, there is a saving of foreign exchange and if the said Indian rupees is received in India, the same is in lieu of foreign exchange which was saved at the time of repatriation of Indian rupees to foreign country. On this logic under the Foreign Exchange Management Act also it provided that if the payment in India rupees is received in India through banking channel it is deemed to be convertible foreign exchange.</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>I am of the considered view that even though the appellant received the payment in Indian rupees but the same is deemed to be convertible foreign exchange and accordingly the condition as provided under Rule 3(ii) of Export of Service Rules, 2005 stand complied with.</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This order was followed in several cases.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <a href="http://www.taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjMzODY=" target="_blank"><strong>Circular No. 5/5/2017 – GST</strong></a>, dated 11th August, 2017 (issued after GST has come into existence), the CBEC clarified as:</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Various representations have been received with respect to receipts of proceeds of supplies in Indian Rupee especially with respect to exports to Nepal, Bhutan and SEZ developer/SEZ unit. Attention is invited to Para A (v) Part-I of RBI Master Circular no. 14/2015-16 dated July 1, 2015 (updated as on November 5, 2015), which states</em></font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>"there is no restriction on invoicing of export contracts in Indian Rupees in terms of the Rules, Regulations, Notifications and Directions framed under the Foreign Exchange Management Act 1999. Further, in terms of Para 2.52 of the Foreign Trade Policy (2015-2020), all export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realized in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non-resident bank situated in any country other than a member country of Asian Clearing Union (ACU) or Nepal or Bhutan".</em></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>Accordingly, it is clarified that acceptance of LUT instead of a bond for supplies of goods to Nepal or Bhutan or SEZ developer or SEZ unit will be permissible irrespective of whether the payments are made in Indian currency or convertible foreign exchange as long as they are in accordance with applicable RBI guidelines. It may also be noted that supply of services to SEZ developer or SEZ unit will also be permissible on the same lines. The supply of services, however, to <font color="#FF0000">Nepal or Bhutan</font> will be deemed to be export of services only if the payment for such services is received by the supplier in convertible foreign exchange</em>.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What is this Nepal effect? Services to Nepal would be export only if the payment is in foreign exchange. Where will the poor Nepali get the foreign exchange when the rupee is a freely convertible currency in Nepal, and highly valued too.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Government solved this problem by <a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjM1Nzc=" target="_blank"><strong>Notification No. 42/2017-Integrated Tax (Rate)</strong></a>, dated 27th October, 2017, which prescribed nil rate of tax for <em>Supply of services having place of supply in Nepal or Bhutan, against payment in Indian Rupees </em>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This was widely welcomed in Nepal. The 'Himalayan Times' reported the very next day, "<em>Nepali traders have been exempted from paying the goods and services tax (GST) while purchasing services in India if the payment is made in the Indian currency to the Indian service providers. Ministry of Finance, India announced removal of the GST on supply of services to Nepal and Bhutan against payments made in the Indian currency. Earlier, the GST was exempted only if the service supplier received payment in convertible foreign currency. That rule had created extra burden on Nepali traders as they usually make payments to service suppliers in the Indian currency." </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This created a new doubt. Will the exporters get Input Tax Credit? The GST Council meeting on 10th November, 2017 noted this and it was reported, "<em>Exports of services to Nepal and Bhutan have already been exempted from GST. It has now been decided that such exporters will also be eligible for claiming Input Tax Credit in respect of goods or services used for effecting such exempt supply of services to Nepal and Bhutan". </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The decision of the GST Council had to be <em>notificationised </em> by the Government. This they did amending the Rules by <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjM2NjU=" target="_blank">Notification No. 55/2017-Central Tax</a></strong>, dated 15-11-2017, which inserted an explanation in Rule 43 as, "<em>Explanation - For the purposes of rule 42 and this rule, it is hereby clarified that the aggregate value of exempt supplies shall exclude the value of supply of services specified in the notification of the Government of India in the Ministry of Finance, Department of Revenue <strong><a href="https://taxindiaonline.com/RC2/notDesc.php?MpoQSrPnM=MjM1Nzc=" target="_blank">No. 42/2017-Integrated Tax (Rate)</a>,</strong> dated the 27th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number GSR 1338(E) dated the 27th October, 2017." </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The latest GST update of CBEC states, "<em>Supply of services to Nepal and Bhutan exempted from GST even if payment not received in foreign convertible currency – such suppliers to be eligible for input tax credit." </em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is it all confusing? Don't worry, have you not heard that GST is a good and simple tax! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please also see our article <a href="https://taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=32930">Taxing exports - An unintended miss </a>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And what is<font color="#FF0000"> job Work</font>? The CBEC has issued some very important clarifications on job work. "<em>job work is a <u>treatment or process</u> undertaken by a person on <u>goods belonging to another registered person</u>. Thus, the job worker is expected to work on the goods sent by the principal and whether the activity is covered within the scope of job work or not would have to be determined on the basis of facts and circumstances of each case. The job worker, in addition to the goods received from the principal, can use his own goods for providing the services of job work</em>." </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board in <strong><a href="https://taxindiaonline.com/RC2//notDesc.php?MpoQSrPnM=MjQxODY=" target="_blank">Circular No.38/12/2018</a></strong>, dated: March 26, 2018, clarifies: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• a job worker is required to obtain registration only in cases where his aggregate turnover, to be computed on all India basis, in a financial year exceeds the threshold limit regardless of whether the principal and the job worker are located in the same State or in different States. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• the supply of goods by the principal from the place of business / premises of the job worker will be regarded as supply by the principal and not by the job worker.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• the e-way bill shall be generated by the principal, wherever required, in case the job worker is unregistered.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• the principal is required to furnish the details of challans in respect of goods sent to a job worker or received from a job worker or sent from one job worker to another job worker during a quarter in FORM GST ITC-04 by the 25th day of the month.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• The job worker, as a supplier of services, is liable to pay GST if he is liable to be registered.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">• the input tax credit would be available to the principal, irrespective of the fact whether the inputs or capital goods are received by the principal and then sent to the job worker for processing, etc. or whether they are directly received at the job worker's place of business/premises, without being brought to the premises of the principal.</font></p>
</blockquote>
<p align="justify"><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif">The loophole business</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">: (<em>from Art Buchwald</em>)</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Parliament passes laws, and regulatory agencies try to enforce them. Then many of the people you see going in and out of the offices downtown have to find legal loopholes to satisfy the private sector, who would just as soon not abide by the rules.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You mean there are thousands of people who are paid to do nothing but thwart the will of Parliament?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">That's the way the town works. There's hardly alawor regulation that doesn't have a loophole in it, and it's worth millions for anyone in business to have someone find them.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But while some professionals devote themselves to finding loopholes, other firms are paid to lobby to keep the loophole open. If they do their job, it takes Parliament years to close a loop hole.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What if there are no loopholes in a law?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There are firms who specialize in creating loopholes where none exist. The best example is every time a tax reform bill comes up on the Hill, thousands of lawyers and lobbyists go to work to see that there is a loophole for their particular client to crawl through. Making loopholes for tax laws accounts for fifty percent of the loophole industry.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now, not everyone in those offices works on finding and making loopholes in the nation's laws. There are many gainfully employed inclosing loopholes that are already on the books.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">There are those who find loopholes, those who manufacture loopholes, and then there are those who are paid to close them.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Where do you find the people with the expertise to do all this?"</font></p>
</body>
</html>