The Chairman, GST Council, Ministry of Finance, Government ... · The Chairman, GST Council, Ministry of Finance, Government of India. North Block, New Delhi - 110001 ... March 2011

Export Promotion Council For Handicrafts [EPCH] Page 1

Ext. : 118 Email : [email protected] Ref. No. EPCH-3/1(7)-GST/2017-18 June 16, 2017 The Chairman, GST Council, Ministry of Finance, Government of India. North Block, New Delhi - 110001 Subject: Representation seeking redressal on concerns about likely impact of GST on exporters of

handicraft industry Sir, 1. We, Export Promotion Council for Handicrafts (hereinafter referred to as “EPCH”), is an apex

organization engaged in promotion of exports of handicrafts from the country and has 11000 member exporters on PAN India basis. Our objective is to promote the exports of handicrafts and to project India’s image abroad as a reliable supplier of high quality handicraft goods. Handicrafts is a labour intensive sector which provides employment to over 7 million artisans which includes a large number of women and people belonging to the weaker sections of the society in rural areas. Handicrafts sector has also emerged as one of the major sources of foreign exchange earnings for the country with exports of Rs. 24530.25 crores during the Financial Year 2016-17.

2. GST in India is a welcome reform and the industry is very enthusiastically waiting to enter into

GST regime.

3. The ‘Handicrafts’ has not been indicated anywhere in the GST Notification pertaining to GST rates, further, the rates announced by GST Council on different items are at 4 digit HS code level. As you may be aware the excise duty on handicrafts is currently exempted under notification no. 17/2011-CE dated 1/3/2011 (Annexure –A). Further under the VAT laws in various states, handicrafts are placed under schedule I which covers the exempted goods (Annexure –B). On going through the schedule of rates under GST indicated for various handicrafts items are on the higher sides i.e. at 12%, 18% and 28% [Tabulation of Handicrafts ITC HS Codes with GST rates at eight or four digit level (Annexure –C)]. It is requested that the rates for handicrafts items may be rationalized so that the quantum of benefit under excise and VAT exemption which was available to the handicrafts sector continues in the GST regime. Handicrafts being employment generating cottage sector should be accorded special status and rates be minimized so that livelihood of the individuals engaged in the sector is not affected.

Further, most of the exporters of handicrafts work on borrowed capital. The process of payment of GST first and claiming the refund at later stage would result in the blocking of the funds for the small exporters engaged in the sector.


4. Job work:-

The entire production process of the handicrafts is outside the four walls of the factories of the exporters. Since, this is a cottage sector, the process of manufacturing is not limited under one roof, the process of production is spread to minimum 7 and up to 15 stages of production at the artisan (job worker) premises who are located at the different places. Average earning of such job workers may be less than Rs. 10,000/- per Month. All these persons are not registered under GST law. As per GST law the registered person will have to pay tax on reverse charge basis from these job workers. As a result the exporter or manufacturer will prefer to pass the work to the job worker who is registered under GST act to avoid payment of GST under reverse charge resulting lakhs of small job workers on the verge of unemployment.

The new GST act does not provide any relief to the sector particularly with respect to the provision contained in the Section 9 (4) with regard to the Reverse charge in case of supplies from un-registered persons.

We would strongly recommend that suitable exemption should be given to such small job

workers from GST on reverse charge basis to safe guard their interest. We understand GST rate on job work is 18% , however GST rates for textiles job worker has been reduced to 5%, it is requested that the job worker engaged in handicrafts sector may also be given the same benefit.

5. Stock in hand as on 30th June 2017:-

We understand from the left over stocks of previous year ITC will be allowed for only one year purchases. While most of the exporters specially dealing in wooden items having stocks for more than one year. All such stocks will be used in the manufactured of goods for export only.

We would suggest that limit of one year should be removed for exporters for allowing ITC for

stocks only for one year purchases in case of exporters. 6. Input Credit

There is no clarity as regards availment of CENVAT credit on the stock of finished goods by a handicraft manufacturer because handicraft industry avails drawback at full rate without the facility of CENVAT. Since the units are registered with Central Excise department for availing facility of self sealing of containers. Hence the transitional provisions of taking credit of by non-registered unit cannot avail the credit as per provisions of Section 140 (3) of CGST Act. Moreover, there are no transitional provisions as regards availment of cenvat credit on a particular category of goods on the ground that cenvat credit facility was not availed as full rate of drawback was claimed. Therefore, a suitable clarification needs to be issued in this regard.

7. GST on Sale of Scrips:-

a. The incentives received i.e. MEIS, SFIS etc. is merely ‘duty credit’ scrips and these are ‘intangible goods’ and is a document in lieu of ‘cash’. These scrips can be utilized exclusively for the purpose of payment of customs, excise, service tax etc. So technically these are like bank cheques which need not be subjected to GST. These will also reduce the transaction costs of the exporters.


b. The Government has announced that on implementation of GST effective 1st July, 2017,

export incentives such as MEIS/SEIS and all relevant reward scheme scrips issued either as per the old policy or the current policy will be eligible only for discharging payment of basic customs duty. This would mean that the demand for such scrips will now be only around 25% and the exporters returns will go down tremendously.

c. Exporters get the scripts only after about three to four months of export and sometimes even

later. The exporters calculate the costing keeping in mind that around 95% realization of these scrips and accordingly quote for the products to the buyers. With the under utility of the scrips apart from basic customs duty, the exporters will lose to the extent of 40-50% and will incur losses. It is requested that the Government may consider the utilization of these scrips against all types of GSTs.

8. GST on fair participation:-

a) EPC’s organizes Exhibitions and Trade Fairs (Reverse Buyer Seller meets) which are B2B shows with no retail sale and only orders are booked. Since the exhibitors do not sell their goods and only book orders and after the event is over bring their goods back to their own premises, it may be treated similar to the process of movement of goods (No Sale or Purchase) and may be exempted from GST. Further it is important to note that the service tax on partipation in fairs within India was exempted till March 2009 (Notification 43/2007 dated 29th November 2007) and for participation in fairs overseas is exempted [Notification No. 5/2011-service tax dated 1st March 2011 (Annexure -D)].

b) The exhibitors having registered office in one city and participate in these shows in various cities of India are required to get registered in each state where they intend to participate. As per the new GST regime (Section 2 Sub Section (20) of CGST “casual taxable person”), every participant has to register himself as a causal dealer in the state where the exhibitions is being held. It will be a cumbersome exercise for the exhibitors and will discourage the participants for participating in the Trade Fairs and Exhibitions, it may be clarified that the participant is not required to register himself/herself as a casual taxable person in the state where the exhibition is being held and he is not selling any goods in the exhibition.

9. GST on foreign agency commission earned by Buying Agents There is no clarity on Taxability under GST on ‘Intermediary Service’ based on Place of Supply of

Services as rendered by buying agents.

Buying Agents are exclusively appointed by Foreign Buyers (Principal) to look after their business interests in India. The Agent's assignment includes receiving artwork, sketches, prototypes or a full sample of the item to be developed, manufactured and shipped from India, and the service is being utilized by the foreign principal in the foreign country only. Proper clarification is required to be issued that these buying agents engaged with foreign principals are not covered under the definition of ‘intermediary services’.


It is requested that services rendered by buying agents should be treated as Export of Services where commission is received in foreign exchange and should be subject to zero rate GST.

Prayer: In view of the above it is submitted that in case the above issues are not resolved the increased cost of exports would render the export from India as non-competitive and severely affect the handicraft export from India. Export industry will not be able to sustain the hit and shall collapse. As this sector is labour intensive and employs artisans from remote clusters, any adverse impact on the sector give rise to employment crisis. Therefore, we humbly request your good self to take necessary action and issue the requisite clarifications in order to ensure the smooth transition of our industry into the GST regime. The copy of representations from various handicrafts associations also enclosed for your ready reference ( Annexure-E). We shall be pleased to furnish any further information, which your good self may require in this regard.

Yours faithfully,

(O. P. Prahladka) Chairman

Encl : as Annexure above A. Notification of Central Excise B. Notification of VAT (various States) C. List of 167 ITC HS Codes D. Notification of Fair participation E. Representations of Associations


Ext. : 118 Email : [email protected] Ref. No. EPCH-3/1(7)-GST/2017-18 /206909 June 19, 2017

The Chairman, GST Council, Ministry of Finance, Government of India. North Block, New Delhi - 110001 Subject: Representation seeking redressal on concerns about likely impact of GST on exporters of handicraft

Sector Hon’ble Sir, 1. Export Promotion Council for Handicrafts is an apex organization engaged in promotion of exports of

handicrafts from the country and has 11000 member exporters on PAN India basis. Our objective is to promote the exports of handicrafts and to project India’s image abroad as a reliable supplier of high quality handicraft goods. Handicrafts is a labour intensive sector which provides employment to over 7 million artisans which includes a large number of women and people belonging to the weaker sections of the society in rural areas. Handicrafts sector has also emerged as one of the major sources of foreign exchange earnings for the country with exports of Rs. 24392.39 crores during the Financial Year 2016-17.

2. GST in India is a welcome reform and the industry is very enthusiastically waiting to enter into GST regime.

3. The term ‘Handicrafts’ has not been indicated anywhere in the GST Notification pertaining to GST rates,

further, the rates announced by GST Council on different items are at 4 digit HS code level. As you may be aware the excise duty on handicrafts is currently exempted under notification no. 17/2011-CE dated 1/3/2011 (Annexure –A). Further under the VAT laws in various states, handicrafts are placed under schedule I which covers the exempted goods (Annexure –B).

On going through the schedule of rates under GST indicated for various handicrafts items are on the higher sides i.e. at 12%, 18% and 28% [Tabulation of Handicrafts ITC HS Codes with GST rates at eight or four digit level (Annexure –C)]. For example in case of handcrafted cane furniture (9403) the applicable GST rate is 28%, however currently the product is VAT exempted in 11 states (8 NER states, West Bengal, Kerala and Andaman & Nicobar). Further, for bamboo furniture (9403) the GST rate has been reduced from 28 to 18%.

We would suggest that a flat rate of 3% GST may be made applicable for HS codes which are being used by handicrafts sector for their product categories.

Further, most of the exporters of handicrafts work on borrowed capital. The process of payment of GST first and claiming the refund at later stage would result in the blocking of the funds for the small exporters engaged in the sector.


4. Job work:-

The entire production process of the handicrafts is outside the four walls of the factories of the exporters. Since, this is a cottage sector, the process of manufacturing is not limited under one roof, the process of production is spread to minimum 7 and up to 15 stages of production at the artisan (job worker) premises who are located at the different places. Average earning of such job workers may be less than Rs. 10,000/- per Month. All these persons are not registered under GST law. As per GST law the registered person will have to pay tax on reverse charge basis from these job workers. As a result the exporter or manufacturer will prefer to pass the work to the job worker who is registered under GST act to avoid payment of GST under reverse charge resulting lakhs of small job workers on the verge of unemployment.

The Process of manufacturing when the raw material for exportable product is provided by an exporter (Each and every process is a specialized activity conducted by skilled artisans) is as under:-

JOB WORK FLOW CHART (Indicatve Chart for art metaware segment for Handicrafts- A product has to process through 9 hands for Job Work)

EXISTING RATES

AFTER GST

Raw Material Purchased by Exporters in the form of ingot/scrap/virgin metal after payment of VAT @5%

0% GST (12,18,28%) Payable Under Reverse Charge

↓

Sand casting

Send for sand casting done by Artisans 0% GST (12,18,28%) Payable Under Reverse Charge

↓

After Casting

Sent for welding because each item casted in 2 or more parts and thereafter welded by karigar


↓

Scraping After welding another karigar have to scrap the item to make smooth finishing


↓

Threading After scraping item, karigar send the item to another karigar for threading


↓

Now semi finish item is ready to send to exporters which are not finished.


↓

Polishing Polish is done piece by piece and exporter will pay piece basis payment at a requisite place


↓

Plaiting After Polishing Exporter checks the quality and sends for plating or power coating


↓

Packing Now item is ready for packing and it is also done on piece basis.


However there is certain specialized work of craftsmanship like engraving, enameling which require much more additional process of manufacturing.

In case of merchant exporter, raw material purchased by karkhanedar and supplied to entire chain and there after billed accordingly to the exporter.


The new GST act does not provide any relief to the sector particularly with respect to the provision contained in the Section 9 (4) with regard to the Reverse charge in case of supplies from un-registered persons.

We would strongly recommend that suitable exemption should be given to such small job workers from

GST on reverse charge basis to safe guard their interest. We understand GST rate on job work is 18% , however GST rates for textiles job worker has been reduced to 5%, it is requested that the job worker engaged in handicrafts sector may also be given the same benefit.

5. Stock in hand as on 30th June 2017:-

It is important to note that the gestation period in case of handicrafts items is much longer and the items are sold internationally as per the trends and requirement at the buyers end, hence the stocks kept at the exporters premises are for a much longer period. We understand from the left over stocks of previous year, ITC will be allowed for only one-year purchases. While most of the exporters specially dealing in wooden items are having stocks for more than one year. All such stocks will be used in the manufacture of goods for export only. We would suggest that limit of one year should be removed for handicrafts exporters for allowing ITC for Stocks and may be extended for 3 years.

6. Sale to foreign tourist

At present the foreign tourist visiting India buy Handicraft items as a souvenir from the Handicraft shops/stores located throughout the country against the foreign credit cards or foreign exchange. They take these handicraft items along with them to the foreign destinations and are not sold anywhere in India and a declaration to this effect is taken by the store owner. The country earns a considerable size of foreign currency on sale of these items across the counter. Since there are no shipping bills for these items, hence they are not considered as exports and are not zero rated. Whereas, these items are taken by the foreign client to Overseas only and are not resold in India anywhere. Under, the previous regime these counter sales were treated as deemed export and benefit under Income Tax Act under Section 80HHC was available on these sale also. We would request that since these items which are sold across the counter have all the ingredients of export sales like they earn foreign currency, these items are taken out of India and are not resold in India, FIRC (Foreign Inward Remittance Certificate) is also issued by the bank, RBI is duly informed about all these transactions, hence these sale of handicraft items against foreign exchange should be classified as exports and should be zero rated.

7. GST on foreign agency commission earned by Buying Agents There is no clarity whether the services as rendered by the buying agents to their foreign customers

wherein the customer is located outside India and payment from them is also received in foreign currency towards export of services.

Buying Agents are exclusively appointed by Foreign Buyers (Principal) to look after their business interests in India. The Agent's assignment includes receiving artwork, sketches, prototypes or a full sample of the item to be developed, manufactured and shipped from India, and the service is being utilized by the foreign principal in the foreign country only. Proper clarification is required to be issued that services rendered by these buying agents engaged with foreign principals are treated as export of services.

It is requested that services rendered by buying agents should be treated as Export of Services where commission is received in foreign exchange and should be subject to zero rate GST.


8. GST on fair participation:-

a) EPC’s organizes Exhibitions and Trade Fairs (Reverse Buyer Seller meets) which are B2B shows with no retail sale and only orders are booked. Since the exhibitors do not sell their goods and only book orders and after the event is over bring their goods back to their own premises, it may be treated similar to the process of movement of goods (No Sale or Purchase) and may be exempted from GST. Further it is important to note that the service tax on partipation in fairs within India was exempted till March 2009 (Notification 43/2007 dated 29th November 2007) and for participation in fairs overseas is exempted [Notification No. 5/2011-service tax dated 1st March 2011 (Annexure -D)].

b) The exhibitors having registered office in one city and participate in these shows in various cities of India are required to get registered in each state where they intend to participate. As per the new GST regime (Section 2 Sub Section (20) of CGST “casual taxable person”), every participant has to register himself as a causal dealer in the state where the exhibitions is being held. It will be a cumbersome exercise for the exhibitors and will discourage the participants for participating in the Trade Fairs and Exhibitions, it may be clarified that the participant is not required to register himself/herself as a casual taxable person in the state where the exhibition is being held and he is not selling any goods in the exhibition.

Transitional arrangement for exhibitors of Textiles India – 2017

The exhibitors would be visiting Ahmedabad for participation before 30th June, 2017 when the present VAT would be applicable and would be returning from Ahmedabad to their destination after 2nd July, 2017 when the new GST regime would be in place. It is requested that necessary transitional arrangement can be worked out which may include endorsement of the exhibitors list by the Department so that the exhibitors do not face any problem with respect to taxation.

9. Rate of Duty Drawback

Currently, such tax incidence on export goods is being offset by way of grant of duty drawback to exporters at the specified rates. We would request that even after implementation of GST in India, duty drawback should be allowed as an option at two rates viz. lower rate of drawback when input tax credit is availed and other rate of duty drawback when input tax credit is not availed on the same lines as available currently in the Drawback Schedule.

Further, the All Industry Rate of Duty Drawback should also be revised under GST so as to factor the increased tax cost on the procurements on account of increase in rate of taxes on input material and input services.

10. GST on Sale of Scrips:-

a. The incentives received i.e. MEIS, SFIS etc. is merely ‘duty credit’ scrips and these are ‘intangible goods’ and is a document in lieu of ‘cash’. These scrips can be utilized exclusively for the purpose of payment of customs, excise, service tax etc. So technically these are like bank cheques which need not be subjected to GST. These will also reduce the transaction costs of the exporters.

b. The Government has announced that on implementation of GST effective 1st July, 2017, export incentives such as MEIS/SEIS and all relevant reward scheme scrips issued either as per the old policy or the current policy will be eligible only for discharging payment of basic customs duty. This would mean that the demand for such scrips will now be only around 25% and the exporters returns will go down tremendously.


c. Exporters get the scripts only after about three to four months of export and sometimes even later. The exporters calculate the costing keeping in mind that around 95% realization of these scrips and accordingly quote for the products to the buyers. With the under utility of the scrips apart from basic customs duty, the exporters will lose to the extent of 40-50% and will incur losses. It is requested that the Government may consider the utilization of these scrips against all types of GSTs.

Prayer: In view of the above it is submitted that in case the above issues are not resolved, the increased cost of exports would render the export from India as non-competitive and severely affect the handicraft export from India. Export industry will not be able to sustain the hit and shall collapse. As this sector is labour intensive and employs artisans from remote clusters, any adverse impact on the sector give rise to employment crisis. Therefore, we humbly request your good self to take necessary action and issue the requisite clarifications in order to ensure the smooth transition of our industry into the GST regime. We shall be pleased to furnish any further information, which your good self may require in this regard.

Yours faithfully,

(O. P. Prahladka) Chairman

Encl : as Annexure above A. Notification of Central Excise B. Notification of VAT (various States) C. List of 167 ITC HS Codes D. Notification of Fair participation E. Representations of Association

EPCH

Ref. No. E Shri NitishJoint SecrMinistry oJeevandeeNew Delh Sub: Rep

han Dear Sir, This is fuFinance. Tsector per

As you arpromotioto promoquality hamillion arof the socexchange The new containedpersons. We have t The entirexportersprocess oworker) pthis proceunder genenclosed) The Proce(Each and

ETelFax

EPCH-3/1(7)-G

h K. Sinha retary of Finance, Deep Building, P

hi -110001

presentation ndicraft indus

rther to the The duty Drawrtaining to GS

re aware, Expn of exports ote the export

andicraft goortisans which ciety in rural earnings for

GST act doed in the Sectio

the following

re productions. Since, this iof productionpremises whoess of produneral exempt).

ess of manufad every proces

EXPORTEPCH HOUSE

: 91-11-26135256x: 91-11-2613551

GST/2017-18

epartment ofParliament St

seeking redstry

meeting withwback CommST and also so

port Promotioof handicraftsts of handicrads. Handicrafincludes a laareas. Handicthe country w

s not providon 9 (4) with

g specific subm

n process ofis a cottage se

n is spread too are located ction of hantion of Excise

acturing whess is a special

T PROME, POCKET 6 &6, Ext. 118 8,26135519

f Revenue reet

ressal on co

h Duty Drawmittee had souought the pro

on Council fors from the coafts and to pfts is a labou

arge number crafts sector with exports

e any relief t regard to th

missions:-

f the handicrector, the pro

o minimum 7at the differedicrafts and e Notification

n the raw maized activity c

MOTIO& 7, SECTOR 'C

oncerns abo

wback Commitught commen

oduction proc

r Handicraftsountry and haroject India’sr intensive seof women anhas also emeof 24,530.25

to the sectorhe Reverse ch

rafts is outsiocess of man7 and up to 1ent places. Ttherefore, p

n No. 17/201

aterial for expconducted by

ON COU', LOCAL SHO

ut likely im

ttee held onnts with respcess of any cra

(EPCH), is anas 10000 mems image abroaector which pnd people beerged as one

crores during

r particularlyharge in case

ide the four ufacturing is 15 stages of

The Governmerovided spec

11-Central Ex

portable prody skilled artisa

UNCIL FPPING CENTR

pact of GST

25th April 20pect to the issaft that invol

n apex organmber exportead as a reliabprovides empelonging to th

of the major g the Financia

y with respecof supplies f

walls of thenot limited uproduction a

ent in the pacific relief to cise dt. 1th

duct is providans) is as und

FOR HARE, VASANT KU

P

May 11, 2

T on exporte

017 at Minissues of handives job worke

ization engagrs. The object

ble supplier oployment to ohe weaker sec

sources of foal Year 2016-

ct to the profrom un-regis

e factories onder one rooat the artisanst had undersuch job wo

March 2011

ded by an expder:-

CIN U202

ANDICUNJ, NEW DE

Emailw

Page1

017

ers of

try of crafts ers.

ged in tive is f high

over 7 ctions oreign 17.

vision stered

of the of, the n (job rstood orkers (copy

porter

299DL 1986NPL023

RAFTS LHI-110070 l : [email protected] : www.epch

253

om h.in

EPCH Page2

JOB WORK FLOW CHART* Raw Material Purchased by Exporters in the form of ingot/scrap/virgin metal after payment of VAT @5%

↓ Sand casting Send for sand casting done by Artisans

↓ After Casting Sent for welding because each item casted in 2 or more parts and thereafter welded by

karigar ↓

Scraping After welding another karigar have to scrap the item to make smooth finishing ↓

Threading After scraping item, karigar send the item to another karigar for threading ↓

Now semi finish item is ready to send to exporters which are not finished. ↓

Polishing Polish is done piece by piece and exporter will pay piece basis payment at a requisite place ↓

Plaiting After Polishing Exporter checks the quality and sends for plating or power coating ↓

Packing Now item is ready for packing and it is also done on piece basis. However there is certain specialized work of craftsmanship like engraving, enameling which require much more

additional process of manufacturing.

In case of merchant exporter, raw material purchased by karkhanedar and supplied to entire chain and there after billed accordingly to the exporter.

Now under the provisions of the GST act in this regard, the entire onus is on the recipients of the services i.e. exporter under Reverse charges mechanism under section 9(4) of the CGST act. Since, the handicrafts in the past was exempted under excise/VAT notification it is proposed that all such job workers should be brought under negative list and specific notification should be brought to protect the livelihood of the artisans. Impact

(i) The provisions of the Section 9(4) of CGST act in respect of reverse charges will adversely impact the present employment of the cottage sector artisans who predominantly belong to small and weaker sections of the society.

(ii) The job workers (artisans) in the chain if exempted under GST rules will be revenue neutral and there will be no adverse impact on the revenues of the Government.

(iii) Since, there is no input cost additionality in the whole process of the manufacturing undertaken at the artisans premises except the wages of the artisans, neither there is loss of revenue nor the chain of activity of GST will be affected at all.

EPCH Page3

Stock in hand [Section18(2)] In the case of handicrafts items, the gestation period for production is much longer for example incase of wooden handicrafts, the wooden logs are purchased and after sawing / seasoning, the same is also kept for natural seasoning for a longer period. Moreover, the production process for these items is very long. The prices for wood for house building industry makes it very expensive and therefore, exporter do arrange the wood stock so that at the time of order, there is no scarcity of raw material. This process of procurement providing timber legality/ chain of custody/ traceability is also an important requirement of the overseas countries. This ultimately makes the exporters keep the stock of wood for at least 2 years or more. Similarly, every country has different tastes and preferences for different wood species like acacia, dalbergia spp, teak, mango etc and prices of the product depends on the same. Similarly in the case of the metals particularly non-ferrous metal, India is the importer of the copper, Zinc, and scrap etc. Since LME prices of the non-ferrous metals fluctuate on day to day basis, therefore exporters have to maintain proper stock of material in order safeguard them against any price fluctuation. Besides it takes 6 months from the day of procurement for designing of products, obtaining orders and thereafter production. Moreover, these metals are imported into the country in high quantities in containers with the minimum orders of 10-15 containers. Further, there is also a rejection rate of about 5-10% of the total export supplies. These rejected supplies are also kept in stocks of the exporter for many years. Impact The stock of the exporters, in case of 90% of exporters is normally for a period of over 2 years. The stocks have also to be made available to the artisans for long term export orders and orders already in pipeline. In case such stocks are not considered for input credit under Section 18(2), the entire process of the export orders will be adversely affected and will drastically bring down export of handicrafts as well as confidence amongst the overseas buyers. To maintain the continuous flow of export supplies at the same pace without affecting the export prices, it is important that this provision should be relaxed for informal sector like handicrafts sector by issuing requisite notification. Packaging material for handicrafts Handicrafts are fragile in nature and also voluminous items. The shape and size of these items sometime irregular i.e it has sharp edges and also need specialized/customized packaging besides, the buyers also do not pay for the same. The special packaging has to be developed for handicrafts exporters for each and every item. These packaging materials are normally procured for more than 2 years in stocks. When the exporter work with a buyers for longer time, a specialized packaging is developed for that buyers keeping in view the mandatory testing requirements like drop test etc. These specialized packaging are to be developed and stocked in very large quantities which some time are consumed in over 2 years. The packaging has to be unique size and also cost effective for containers for its optimum utilization as per international standards. However, no such packaging is available in the market and is specially developed within the unit.

EPCH

Pre-GST T Handicrafwomen apast, thegeneratin

(i) (ii)

However,on metal exporters Keeping isubmissio

(i) (ii)

(iii)

(iv)

Prayer: In view oeconomy,clarificatioThanking

Taxes

fts sector is and people be Governmeng cottage sec

Complete The sales t

the taxes likand 14.5% o

s. Further, han

n view the sions:-

The GST raThe advantax free unDuty drawprocuremeAll artisantherefore, exempted should not

of the above, we humblyon in order toyou,

a cottage secelonging to thnt has been ctor by offerin

exemption fotax/VAT is als

ke 2% CST andon glass) is bendicrafts expo

gnificance of

ate for handicnce licenses, nder reverse c

w back shouldents on accous should be under the seas was in t

t be applicabl

submissionsy request y

o ensure the s

ctor with ovehe weaker sec

kind enoughng the followi

or handicraftso exempt in m

d 5% entry taeing paid by torters are not

f the handicra

crafts sector sEPCG Licensecharge mechad be revised unt of increasduly recognizection 9(4), thhe past., thele on the expo

s and keepinour goodselfsmooth trans

er 7 million ctions of the h and has ping:-

s under excisemost of the S

ax on few itemthe handicraft taking bene

afts sector in

should be at zes which are anism. under GST s

se in rate of tazed and not he artisans (serefore, the orters

ng in view thf to take n

sition of our in

artisans whicsociety in rur

provided con

e (notificationStates

ms such as irfts exporters efit of CENVAT

the Indian E

zero rate supduty free at

so at to factoaxes on inputto be equate

so called job onus of pay

he role of haecessary actndustry in to

ch includes aral and semi ncessions to

n no. 52)

ron / steel anon materials

T credits.

conomy we h

plies present shou

or the increast material anded are merelyworkers) sho

ying GST und

andicrafts sections and isthe GST regim

P

a large numbrural areas. this employ

d papers, VAs purchased b

have the follo

uld continue

se tax cost od input servicy job worker

ould be comper reverse c

ctor in the Isue the reqme.

Yours faith

(Rakesh KuExecutive Dir

Page4

ber of In the yment

AT (5% by the

owing

to be

on the ces. rs and pletely harge

ndian quisite

hfully,

umar) rector

1 | P a g e

ETel:Fax

Ref. No. Shri AruHon’bleMinistryNorth BlNew Del Subject

Hon’ble

1. We, E

an acounhandhandemplpeopsectofor th

2. GST enter2017

3. Basepublireporareasas a indu Rate

4. The clustThe epreseC.E. placenotifi

e

EXPOREPCH HOUSE

: 91-11-26135256: 91-11-2613551

EPCH-3/1

un Jaitley Finance M

y of Financelock, lhi - 11000

: Represenon export

Sir,

Export Promapex organntry and hadicrafts anddicraft gooloyment to le belongin

or has alsohe country

in India is r into GST 7.

ed on the iic domain rts) the inds. This can whole. Westry for app

e of GST on

handicraft ters and thexporters oent, excise dated 1.3.2

ed under Sication and

RT PROE, POCKET 6 &6, Ext. 118 8,26135519

(7)-GST/20

Minister, e,Governme

1

ntation seeters of han

motion Counization enas 9000 med to projectods. Handover 7 mill

ng to the w emerged awith expor

a welcome regime. We

information(Model GSTdustry feelsn adversely e wish to dpropriate re

n Handicra

industry he annual tuof handicra duty on h2011. FurthSchedule 1 d Schedule

MOTIO& 7, SECTOR 'C

016-17

ent of India

eking redrendicraft in

uncil for Hagaged in p

ember expot India’s imicrafts is lion artisanweaker sectas one of trts of 21,45

reform ande understan

n about thT Law, Dras that ther affect the

draw your kedressal:

afts

is comprisurnover of

aft purchashandicraftsher, under which cov1 of some o

ON COUC', LOCAL SHO

a.

essal on codustry

andicrafts (promotion rters. Our age abroada labour

ns which intions of thethe major s7.91 crores

d the indusnd that GS

he proposeaft Rules ore may be handicraftkind attent

sed of sma such persoe handicra

s is exempt the VAT Lavers the exof the state

UNCIL OPPING CENTR

oncerns ab

(hereinafterof exportsobjective is

d as a reliabr intensivencludes a lae society insources of s during th

stry is very ST will beco

d GST lawn certain pnegative im

t industry tion to the

all level arons may be

aft from theted under aws in varixempted goes is attach

FOR HARE, VASANT K

O

bout likely

r referred ts of handis to promotble suppliee sector warge numben rural areforeign exc

he Financia

enthusiastome effectiv

w and systprocesses ampact for and also th

e following

rtisans loce well belowem for expoNotification

ious states,oods (Extrahed as Anne

CIN U20

ANDICKUNJ, NEW DE

Ema

ctober17 ,

y impact of

to as “EPCHicrafts fromte the expo

er of high quwhich proer of womeneas. Handichange ear

al Year 2015

tically waitve from 1st

tem availaband earlier them in cehe export sconcerns o

cated in vaw Rs One ort purposen No. 17/2, handicrafact of the eexure-1).

0299DL 1986NPL02

CRAFTSELHI-110070 ail : policy@epch

web : www.ep

2016

f GST

H”), is m the orts of uality ovides n and crafts

rnings 5-16.

ing to April,

ble in draft ertain sector of the

arious crore. es. At 2011-fts are excise

23253

S .com ch.in

2 | P a g e

5. We would like to bring to your kind notice that most of the exporters of handicrafts work on borrowed capital. In case the handicrafts are not exempt under GST and GST is imposed at the reported rate of 18-22%, the same will result in increased working capital requirement at the end of the exporters and additional compliance requirements at each level in the handicraft industry. Currently, the merchant exporter can avail the exemption of sales tax on the last sale or purchase of goods preceding the sale or purchase occasioning the export of goods out of the territory of India through Form H system. However, in the FAQs issued by Government on GST issues, it has been clarified that there will be no provision in GST under which the merchant exporters could purchase the goods without payment of taxes. They will have to purchase goods upon payment of tax and claim refund of the accumulated ITC.

6. This will in turn lead in additional cost of interest for the exporters which will have to be added in the price at which goods are exported. As a result, the export of handicrafts will become unviable in the competitive global market. Further making handicrafts taxable under GST will result in additional compliance requirements at each level in the handicraft industry. As explained above the handicraft industry comprises of small level artisans which operate from their homes located in remote clusters and undertaking systems based GST compliance for them will be cumbersome and costly.

7. Over the years, the government has taken various initiatives to promote the growth of the handicraft sector in India.

8. In line with the above policy of the Government, we hereby request your goodself that the existing exemptions with respect of handicrafts should continue under GST regime and nil rate of Central GST and State GST is imposed on handicrafts. This will ensure that the handicrafts are available in the Indian market at affordable prices and it will also reduce the cost of procurement of the handicraft exporters and enable them to stay competitive in the international market. Tax-Free Procurements for exporters of Handicrafts

9. As mentioned above, in case handicrafts are not exempt under GST regime, the working capital requirements of the exporters will increase significantly and the additional amount of working capital will be blocked till the time the goods are exported and refund of input tax is granted.

10. In view of the above, we hereby request your goodself that if the general exemption for handicraft is not allowed under GST then a mechanism should be developed under the GST law to enable the exporters of handicrafts to procure the goods without payment of taxes for optimization of the working capital requirements of such exporters. We feel such a mechanism is feasible under the GST system as all supplies by taxable person would be uploaded through GSTR-1 mentioning the GSTIN of buyer. The buyer accepts and confirms the receipt of such supplies in his GSTR-2. In cases where buyer is registered exporter and accepts the receipt of supplies in his GSTR-2 the seller’s liability can be shifted to the exporter’s liability as is done in reverse charge situations. The exporter in turn can be made liable to pay GST if he fails to export the said goods in the specified period.

11. This will help in reducing the working capital outflow by avoiding the process of first paying the tax and then claiming the same as refund. This will also reduce the administrative cost for the department through elimination of refund processing route.

3 | P a g e

Optimization of Working Capital Liability of exporters to pay under reverse charge

12. For optimization of working capital at the end of the exporters, suitable provisions may be incorporated under the GST law providing that no GST will be payable by the exporters under reverse charge on the supplies made to them. Otherwise in such cases, the exporters will have to pay taxes at the first stage upon receipt of the supply and thereafter claim refund of such taxes after the goods are exported. Even under service tax law, in respect of services received by the exporters on which service tax is payable under reverse charge like Goods Transport Agency service or commission agent’s service, outright exemption from service tax has been granted. Same principle should be applicable under GST as well. Further, the supplies to the exporters can be considered as ‘zero rated supplies’ allowing such suppliers to avail credits on their inputs and input services. Status of existing schemes under Customs, Foreign Trade Policy and SEZ on issues regarding GST

13. At present, benefits regrading excise duty, service tax and central sales tax on various supplies are available under the provisions of the Customs Law, Foreign Trade Policy and Special Economic Zone. Till now, there is no clarity regarding the manner in which these schemes will continue under GST.

14. For instance, there is no clarity as to whether the exemption under the Advance License and EPCG schemes will be available only with respect to the BCD element of the customs duty or whether the exemption will also be available in respect of the IGST element of the customs duty which will be levied instead of CVD and SAD under the GST regime. Similarly, various scrips like MEIS are issued to exporters which can today be utilized for making payment of CVD and SAD or excise duty in case of domestic procurements. Such scrips should be allowed to be utilized for payment of IGST also under the GST regime.

15. In order to avoid additional working capital requirements under GST, the benefits under the existing schemes should be extended to GST as well. Rate of Duty Drawback

16. As many of the small exporters particularly in case of handicraft, carpets, handlooms procure the goods from the unorganized sector which may fall below threshold limit or may fall under composition limit under GST, no credit of taxes suffered by them in their inputs and services used for such goods meant for export can be availed by the exporter. Currently, such tax incidence is being offset by way of grant of duty drawback to these exporters at the specified rates.

17. We hereby request you that even after implementation of GST in India, duty drawback should be allowed as an option at two rates viz. lower rate of drawback when input tax credit is availed and higher rate of duty drawback when input tax credit is not availed on the same lines as available currently in the Drawback Schedule.

18. Further, the All Industry Rate of Duty Drawback should also be revised under GST so as to factor the increased tax cost on the procurements on account of increase in rate of taxes on input material and input services.

4 | P a g e

Loss of credits under various situations

19. Place of supply provisions under the proposed IGST Act in majority of cases recognize the location of service recipient as the place of supply where the supply is to a registered person. However, in some cases like services relating to immovable property location of service recipient is not taken into consideration for deciding the place of supply. Thus there can be situations where the supplier and place of supply will be in the same state, but the receiver will be located in a different state. Such supplies will then be taxed as intra-state supply liable to CGST and SGST, credit of which will not be available to the receiver of service located in a different state. Illustration: Employee of exporter located in Delhi visits suppliers located in Maharashtra and uses hotel accommodation services in Maharashtra. In this case, the place of supply (POS) being in Maharashtra the hotel will charge GST as intra-state supply liable to CGST and SGST. The exporter being registered in Delhi will not be in a position to avail credit of SGST/CGST for its business in Delhi.

20. The above situations where credit gets blocked will increase the cost of operations and may thus be taken into account while fixing drawback rates. Refund Mechanism in case of Exports

21. Some of our members may claim refund of taxes paid in relation to the exported goods or on the inputs or input services used in the goods which are exported out of India as provided under Section 38 of the Model GST Law.

22. As per the said provision, 80% of the refund claim can be disbursed on provisional basis to the claimant and the balance amount is given after verification or processing of claim. From the draft refund rules and forms released in the public domain it appears that refund of credit of IGST and CGST and credit of SGST would be separately processed by two authorities. This will lead to multiple handling and duplication of refund sanctioning process creating additional procedural requirements for the claimant also.

23. It is requested that the claim with respect to all the above heads should be jointly decided and disbursed by Central Government by adopting settlement route with state governments with respect to SGST portion of refund claim. The refund claim should not be administered by dual authorities.

24. Further, as the past experience of industry in claiming refunds from departments is not good, it is requested that in built procedural mechanism should be created in the system for keeping accountability of any delay in refunds on the concerned officers. The procedural provisions should not be allowed to be used as a tool for delaying the refunds. Job work procedure

25. It is our understanding that goods can be sent to job workers without payment of GST on such goods and the processed goods can further be transferred to other job workers in the same way and finally the finished goods meant for export can be received by the exporter. In this process neither the job worker nor the principal (exporter) would be required to pay any GST if the special procedure as provided for in the Act (Section 43A of Model GST Act) is followed. The referred section provides that the Commissioner may permit the above procedure by a special order. In this

5 | P a g e

process, there can be situations where multiple jurisdictional commissioners would be involved from both CGST and SGST perspective. In this regard it is prayed that to avoid multiple permission requirements the provision should allow for taking a one-time permission (valid for a defined period) from a single authority only.

26. However, there is no clarity whether job worker would be required to charge GST on its supply when above procedure is followed. Thus suitable provision may be made to hold that the job workers would not be required to pay any GST with respect to their value addition (attributable to goods or services or both from its account) when such procedure is followed. Job worker may be given an option to charge GST on its value addition to enable him to utilize the credit available with him.

GST on sale of scrips

27. Various types of scrips like MEIS are issued by the Government of India against the

export of goods. Such scrips are transferable and the exporters can sell the same. Such sale of scrips are either exempted from VAT in States or are subjected to lower rate of VAT (4%). No other indirect tax is applicable on such sale of scrips.

28. Under GST, new Tax rates might be applicable at the time of sale of such scrips. It is therefore requested that such scrips being issued as an incentive to the exporter should be considered as zero rated supplies only. Issuance of scrips by Government should not be treated as supply under GST. It can be covered under Schedule IV Entry 4 (d) which says that the Government shall not be regarded as taxable person with respect to services provided regarding currency, coinage, legal tender, foreign exchange etc.

29. Further the transfer of such scrips should also not be considered as supply. Even if the same is treated as a supply it should attract lower rate of GST as presently only sales tax/VAT at lower rate is payable on the same.

Utilization of scrips

30. The utilization of the scrips issued to exporters is also an important matter. It is

understood that under GST the MEIS scrips will only be eligible for payment of basic customs duty as against their current utilization for payment of basic/additional /excise /service tax, which will hurt the exporters as usability of scrip will be restricted. Government should consider their utilization against all types of GSTs.

31. Stock in hand before GST, what shall happen to the opening stock?

The left over stock from previous years ITC shall be allowed, only one year purchases where as it is requested that entire stocks of previous years ITC should be allowed and carried forward.

32. Purchases from un-registered dealer by the exporters, purchases tax must be exempted under section 5. In the year 01.04.2010 when “E” Form was introduced the purchases from un-register dealer was exempted and same facilities should be available in GST.

6 | P a g e

Prayer:

In view

increase

severely

sustain

artisans

employm

and issu

industry

We shal

require i

Encl: As

e

of the abov

ed cost of e

affect the

the hit an

from rem

ment crisis.

ue the requ

y into the G

ll be pleas

in this rega

s above

ve it is sub

exports wou

handicraf

nd shall co

mote clust

Therefore,

uisite clarif

GST regime.

sed for fur

ard.

bmitted tha

uld render

ft export fr

ollapse. As

ters, any

, we humbl

fications in

.

rnish any

at in case t

r the expor

rom India.

s this sect

adverse im

ly request y

n order to

further inf

the above i

rt from Ind

Export ind

tor is labou

mpact on

your goodse

ensure the

formation

issues are

dia as non-

dustry will

ur intensiv

the secto

elf to take n

e smooth t

which you

(

not resolve

-competitive

l not be ab

ve and em

or give ris

necessary a

transition o

ur goodself

Yours faith

(Dinesh KuChai

ed the

e and

ble to

mploys

se to

action

of our

f may

hfully,

umar) irman

Documents

The Chairman, GST Council, Ministry of Finance, Government ... · The Chairman, GST Council, Ministry of Finance, Government of India. North Block, New Delhi - 110001 ... March 2011