Recently it is been noticed that the CBIC and DGARM has blocked various refunds of exporters due to the difference between the FOB Value of exports as reported in the Shipping Bills and the CIF Value as reported in the GST Invoices which also find a way in the Shipping Bill.
Below analysis is been done based on GST Act, Custom Act and Circular No. 125/44/2019-GST dated 18.09.2019:
1. Difference between FOB value and CIF
FOB- Free on board i.e. value of the goods at the time of board in vessel or aircraft
CIF- Cost, Insurance and Freight i.e. value of goods at the time of delivery to recipient’s port – which includes the cost of transportation and insurance.
In case of CIF the exporter incurs all the cost including freight and insurance till the product gets delivered at customer’s port and raises a single invoice for all the expenses. In turn recipient of goods pays the amount mentioned on invoice.
2. Value of supply as per GST Act:
Section 15 of CGST Act, 2017 which is made applicable to IGST Act too vide section 20 of IGST Act,2017, provides valuation under GST.
The relevant extracts are re-produced below.
“15(1) value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
(2) The value of supply shall include- – – …
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
Therefore value of supply shall be transaction value as mentioned in the invoice i.e. in case of export under CIF contract, the actual price paid by recipient of goods to the supplier, which in CIF contracts include freight and insurance.
3. Value of Supply as per Custom Act:
In respect of export, value has been defined in Customs Act, 1962 under Section 2(41) as under:-
“Value, in relation to any goods, means the value thereof determined in accordance with the provisions of sub-section (1) or sub-section (2) of section 14.”
And as per section 14(1) of the Customs Act, 1962, Valuation of goods:-
“For the purpose of the Customs Tariff Act, 1975 (51) of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf;
Therefore custom valuation shall be done at FOB value i.e. price actually paid or payable for delivery at the time and place of exportation (port).
4. GST Circular No. 125/44/2019- GST dated 18.09.2019
It has also been brought to the notice of the Board that in certain cases, where the refund of unutilized input tax credit on account of export of goods is claimed and the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act, refund claims are not being processed. The matter has been examined and it is clarified that the zero-rated supply of goods is effected under the provisions of the GST laws. An exporter, at the time of supply of goods declares that the goods are meant for export and the same is done under an invoice issued under rule 46 of the CGST Rules. The value recorded in the GST invoice should normally be the transaction value as determined under section 15 of the CGST Act read with the rules made thereunder. The same transaction value should normally be recorded in the corresponding shipping bill / bill of export. During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be taken into account while calculating the eligible amount of refund.
5. Our Comments:
1. Para 47 of the circular provides that “TRANSACTION VALUE” (As determined under Section 15 of the CGST Act) should be recorded in the GST invoice and corresponding shipping bill.
2. Section 15(2) clause (c) of CGST Act 2017 provides that Value of Supply of goods (transaction value) shall include incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services.
3. Export supplies being made on CIF and CIF value is recorded in both GST invoice and corresponding Shipping Bills and both Invoice Value i.e. CIF and FOB value are recorded in every shipping bill, therefore there is no difference in the value declared in Invoice and Shipping Bills. Hence, for the purpose of GST refunds, the CIF Value should be considered
4. Further as per the Board’s Circular No.131/1/2020-GST read with Circular No. 16/2019-Customs, the field officers should check the ITC and the report should not take more than 21 days. Hence after 21 days the exporters can ideally approach the Courts.
5. Further incase the report is clean, the refunds should start coming.
6. There will always be differences in GST Invoice Value and FOB Value as per shipping bill. This should not be a reason for GST Refund Claims being stuck up.
7. Difference in FOB and CIF Value only should not be criteria for tagging an exporter as ‘risky’. Even if the exporter is tagged as ‘risky’, the timeline of 21 days for clearance of file as per Circular 131 must be followed by field officers.
After the file is cleared by field officers, there must be a timeline for DG Systems/DGARM for clearing the file. A Custodian from DG Systems/DGARM must be made liable to report the reasons for non-clearance of files.
