Force majeure does not extend expiry dates in letters of credit: Expert

Q. Many of the letters of credit opened by foreign buyers on us for export of goods expire during the lockdown. We have made the shipments but are unable to present the documents to the bank under the letters of credit within the validity period. Can we take the plea that the force majeure situation allows us to present the documents on the first day after the lockdown ends?

Please note that no bank holiday has been declared for the duration of the lockdown. In any case, according to Article 36 of the Uniform Customs and Practices for Documentary Credits, International Chamber of Commerce (ICC) Publication number 600, known as UCP 600, “A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control. A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business.” Therefore, you have no option but to seek extension in the period for presentation of documents under the letters of credit.

Q. We are a real estate company and we sell apartments to foreign customers under contractual arrangements. This involves supply of goods and services. Consideration is discharged by our customers in foreign exchange (direct transfer/ transfer from their NRE account maintained in India to our account). Our query is: Will the above transactions be construed as service exports, vide Para 9.51(ii) of FTP2015-20; and if so, are we entitled to SEIS claims for eligible services rendered (Appendix 3D), vide Para 3.10 FTP2015-20?

Sale of apartments is not a service, although construction of apartments may involve a service element. I doubt also, whether you invoice only for various services involved. So, I find it difficult to see how sale can be covered under Para 9.54 (ii) of FTP. Also, please note that what services exported during 2019-20 will be eligible for SEIS, and what their rates will be, are not yet notified. For 2020-21, a decision on whether SEIS benefits should be granted is yet to be taken.

Q. We export goods under LUT to Nepal. How can we claim input tax paid on the raw material? We also have domestic sales of the same item. Can we adjust this amount against output tax paid on domestic sales? What is the procedure to be followed?

Exports are zero-rated and not exempt supply. So, you can take input tax credit in respect of the goods and services used, or to be used for making the zero-rated supplies in accordance with Section 16 of the CGST Act, 2017. You can utilise the credit for payment of tax on your domestic sales in accordance with Section 49 of the said CGST Act. For procedures, you may refer to Chapter V and VIII of the CGST Rules, 2017.


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