INDIA: News on Trade and Taxes

Trade war reaches Indian shores

USA recently partially revoked concessional tariffs offered under the Generalised System of Preferences (GSP) to less developed and developing countries. GSP, described as USA’s oldest and largest trade preference program (of which India was the largest beneficiary), revoked concessional customs duties offered on approximately 90 items.

It should be noted that this action was apparently product specific and not focussed on any country, but impacts India most due to the relatively high level of access to and utilisation of GSP. It would impact approximately 50 items exported, mostly by the handloom (e.g. cotton textiles and carpets) and agricultural sector (e.g. mangoes), typically by micro, small & medium enterprises.

It was therefore not surprising that the Government has immediately sought to assuage concerns of this sector by announcing liberal credit facilities.

It should also be noted that the Government has withheld imposing additional tariffs on goods imported from the USA as a response to this event; it has been reported that pending trade negotiations with the USA, approximately 30 products imported from the USA is on the radar for imposition of additional tariffs.

Credit on capital goods in transit

The GST provisions governing transitional credits allowed businesses to claim credit on inputs/ raw materials in physical transit on 1 July 2017 but omitted to cover capital goods in transit. This omission was challenged before the Gujarat High Court (HC) as being discriminatory.

The HC held that the legislature was within its capacity to not extend the benefit of transitional credits of excise duty/ CVD/ VAT paid on capital goods in-transit (i.e. on route to the claimant buyer) as on the date of introduction of GST. It also opined that such an exception created did not result in an unfair discrimination being created in the taxing statute.

The approach adopted in this ruling was surprising Also, this causes an impediment to businesses as the statutory omission to cover capital goods in transit on 1 July, 2017 (while inputs/ raw materials was expressly covered) appears inadvertent. transitions in tax regimes should ideally be tax neutral at a policy level. Also, this particular issue directly increases costs of capex in physical transit across the country on 1 July 2017 by approximately 10-20 percent. It will be interesting to see if this matter is appealed before the Supreme Court.

Restrictions on transition are reasonable

The petitioner faced glitches in electronically filing the TRAN01 Form to claim the transition of excise/ VAT credits into the GST regime. Faced with losing such credits, the petitioner challenged the (a) time limit for filing the TRAN01 Form and (b) limitation on credits to be transitioned on account of pending VAT compliances. The Gujarat HC held that in all transitions of (tax) regimes, timelines are prescribed for shift to be orderly. The prescribed time limits and restrictions were not unreasonable, and unsettling it would lead to systemic challenges.

It may be noted here that the Mumbai HC had earlier asked the government to provide administrative relief to all parties who faced glitches in electronically filing TRAN01. We are aware that the remedial steps subsequently introduced have been successful for various parties.

Anti-profiteering rulings

The National Anti-Profiteering Authority (NAPA) has recently issued similar rulings on the quick service restaurant and FMCG sectors. Here, following initial complaints made by individuals on the said businesses, no further details/ information was forthcoming from the complainants. The NAPA held that an investigation has to be based on a certain level of information on anti-profiteering. In the absence of cogent and reliable evidence, no proceedings can be held against party being investigated.

The aforesaid rulings by NAPA continue to validate the importance of businesses to scrutinise their anti-profiteering obligations.



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