GST Treatment on Diamond imported to export back for cutting and polishing

CBIC clarifies on the place of supply in relation in case of services by ports and place of supply in case of supply of various services on unpolished diamonds which are temporarily imported in to India for re export.

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The Place of Supply (‘POS’) determines the incidence of taxation under the GST law. As GST is a destination based taxation regime, determination of POS is critical to the taxability of a given transaction related to GST Treatment on Diamond imported. The determination of POS in the context of international trade assumes significance as the transaction could be subject to tax only if the POS is within the territory of India.

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GST Treatment on Diamond imported

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In this context of GST Treatment on Diamond imported, Central Board of Indirect Taxes and Customs has received several representations from trade and industry seeking clarifications in relation to the determination of POS in the following cases: –

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1. Services rendered on goods temporarily imported in India – Place of supply in case of services rendered on unpolished diamonds received from abroad, which are exported after cutting, polishing etc.
2. Services provided by Ports – Place of supply in respect of various cargo handling services provided by ports to clients

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Vide Circular No. 103/22/2019-GST dated 28 June 2019, the CBIC has provided clarifications on the same.  In the context of services by ports, the CBIC clarified that the POS should be the location of the service recipient in India (if available), else the location of the supplier should be considered.

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The summary of the Circular about GST Treatment on Diamond imported is given below:

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1. Services in relation to activities performed on unpolished diamonds which are temporarily imported into India

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The diamond polishing industry in India significantly relies on import and re-export of diamonds. Unpolished diamonds are imported into India for cutting and polishing and then in turn exported from India.  In this context, various services on the imported unpolished diamonds, such as cutting and polishing are undertaken in India.

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Clarification by CBIC:

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The CBIC has clarified the following:

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1. Cutting and polishing activity are performed on the diamonds temporarily imported into India, which are not put to any use in India.
   • The Place of supply should not be determined as per Section 13(3)(a) of the IGST Act i.e., location where services are actually performed, on account of the exception available for services in respect of temporary import of goods for subsequent export (Second proviso to Section 13(3)(a).
   • The Place of supply should be determined as per the provisions of Section 13(2) of the IGST Act, as under:
     1. Recipient - Location of Recipient (if address is available)
     2. Location of supplier (if address of Recipient is not available)

2. Services by ports

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The port authorities provide various services in relation to cargo handling. Some of the services include haulage of wagons, loading and unloading of wagons, shipment/ loading on vessels etc.

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Clarification by CBIC:

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The CBIC has clarified the following:

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1. The services are not related to an immovable property. Hence, the provisions of Section 12(3) pertaining to services in relation to an immovable property would not be applicable.
   1. In the absence of a specific provision under Section 12 and 13 of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’), the POS of these services should be determined as per the residuary provisions under Section 12(2) and Section 13(2)of the IGST Act as under:

3. Conclusion

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These clarifications by the CBIC are a welcome move and are set to reduce the scope of litigation concerning gems and jewellery and shipping industries.  By virtue of applying this Circular and determining the Place of supply of the aforementioned services as ‘Outside India’, the services may qualify as ‘export of services’ and eligible for refund, if the other conditions are also satisfied.

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For more detail read here Clarification on GST Refund related issues