Introduction
The Directorate General of Foreign Trade (DGFT) has amended the Handbook of Procedures (HBP), 2023 to facilitate Input Tax Credit (ITC) on GST paid materials under the Advance Authorization Scheme. This amendment was issued through Public Notice No. 34/2023 on October 13, 2023.
Under the Advance Authorization Scheme, exporters can import duty-free inputs for the manufacture of export products. However, they are required to pay GST on these inputs. The amendment to the HBP now allows exporters to avail ITC on GST paid materials under the Advance Authorization Scheme.
This amendment is a welcome step for exporters, as it will help them to reduce their costs and improve their competitiveness. It will also help to simplify the export process and make it easier for exporters to comply with tax regulations.
What is the Advance Authorization Scheme?
The Advance Authorization Scheme is a government scheme that allows exporters to import duty-free inputs for the manufacture of export products. The scheme is designed to help exporters to reduce their costs and improve their competitiveness in the international market.
To avail of the Advance Authorization Scheme, exporters must obtain an advance authorization from the DGFT. The advance authorization will specify the quantity and value of inputs that the exporter can import duty-free.
What is Input Tax Credit (ITC)?
Input Tax Credit (ITC) is a mechanism that allows businesses to reduce their GST liability by offsetting the GST paid on inputs against the GST payable on their outputs. ITC can be availed on the GST paid on goods and services used in the course of business, including inputs used in the manufacture of export products.
How to Avail ITC on GST Paid Materials under the Advance Authorization Scheme
To avail ITC on GST paid materials under the Advance Authorization Scheme, exporters will need to follow the following steps:
- File a declaration with the Regional Authority (RA) concerned, indicating the amount of ITC to be availed.
- Furnish a bank guarantee to the RA to cover the amount of ITC to be availed.
- Maintain records of the GST paid on the inputs and the utilization of ITC.
The RA will verify the declaration and the bank guarantee, and then issue a certificate to the exporter. The exporter can then use this certificate to avail ITC on the GST paid materials.
Benefits of Availing ITC on GST Paid Materials under the Advance Authorization Scheme
There are several benefits of availing ITC on GST paid materials under the Advance Authorization Scheme:
- Reduced costs: ITC will help exporters to reduce their costs and improve their competitiveness in the international market.
- Simplified export process: ITC will make it easier for exporters to comply with tax regulations and simplify the export process.
- Increased cash flow: ITC will improve the cash flow of exporters, as they will not have to pay GST on the inputs used in the manufacture of export products.
Conditions for Availing ITC on GST Paid Materials under the Advance Authorization Scheme
To avail ITC on GST paid materials under the Advance Authorization Scheme, exporters must meet the following conditions:
- The inputs must be imported under a valid advance authorization.
- The inputs must be used in the manufacture of export products.
- The exporter must file a declaration with the RA concerned, indicating the amount of ITC to be availed.
- The exporter must furnish a bank guarantee to the RA to cover the amount of ITC to be availed.
- The exporter must maintain records of the GST paid on the inputs and the utilization of ITC.
Conclusion
The amendment to the HBP to facilitate ITC on GST paid materials under the Advance Authorization Scheme is a welcome step for exporters. It will help them to reduce their costs and improve their competitiveness in the international market. It will also help to simplify the export process and make it easier for exporters to comply with tax regulations.
Additional Information
Here is some additional information on the Advance Authorization Scheme and ITC on GST paid materials:
- The Advance Authorization Scheme is available to all exporters, including manufacturers, merchant exporters, and service exporters.
- The Advance Authorization Scheme can be used for the import of all types of inputs, including goods, services, and capital goods.
- ITC can be availed on GST paid on inputs used in the manufacture of export products, even if the inputs are imported under the Advance Authorization Scheme.
- Exporters can also avail ITC on GST paid on inputs used in the manufacture of export products that are supplied to domestic special economic zones (SEZs).
- Exporters who are already availing of the Advance Authorization Scheme can also avail ITC on GST paid materials, subject to the conditions mentioned above.
