The GST Council is likely to clarify on October 7 that payment received in rupees by Indian exporters in Special Vostro accounts under the Reserve Bank of India’s (RBI) rupee trade settlement system are eligible for input tax credit (ITC). This follows complaints from some exporters that they are being denied ITC on such proceeds, sources aware of the development said.

Certain tax authorities have been citing RBI provisions to refuse input tax credit to exporters when they receive INR in line with the rupee trade settlement mechanism, sources said, adding that “in view of this, refunds of ITC are being denied to the exporters by such tax authorities, claiming that the said exporter has not realised export proceeds in convertible foreign exchange and accordingly, the conditions for qualifying as export of services under the GST Act are not fulfilled.”

The Law Committee of the GST Council concluded that as per the provisions laid down in the RBI’s July 2022 circular, and consequently, according to the terms in the Foreign Trade Policy, 2023, Indian exporters undertaking export of services can claim input tax credit when paid in INR from the Special Rupee Vostro Accounts of correspondent bank(s) of the partner trading country, opened by Authorised Dealer (AD) banks. The committee, comprising officers from the Centre and states, deliberated on this issue during two meetings held in August and September, sources said.

Rupee Vostro Accounts are used to keep a foreign entity's holdings in an Indian bank, in Indian rupees. When an Indian importer wants to make a payment to a foreign trader in rupees, the amount will be credited to this Vostro account. Similarly, when an Indian exporter has to be paid for goods and services in rupees, this Vostro account will be deducted and the amount credited to the exporter’s regular account.

On July 11, 2022, the RBI notified an additional arrangement for invoicing, payment, and settlement of exports or imports in rupees to promote growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in INR. Before putting in place this mechanism, AD banks shall require prior approval from the Foreign Exchange Department of the central bank, the notification added. Authorised dealers are institutions that have an RBI licence to sell and buy foreign currencies. Most authorised dealers are banks.

The upcoming GST Council meeting on Saturday, to be chaired by Finance Minister Nirmala Sitharaman, is expected to deliberate on a slew of issues, including rate changes for vehicles bought by visually impaired persons, and for millet powder. It is also likely to exempt extra-neutral alcohol (ENA) meant for industrial use from the current 18 percent levy for an interim period.

Source: Money Control
https://www.moneycontrol.com/news/business/gst-council-may-clarify-that-exporters-can-claim-input-tax-credit-on-inr-credited-in-special-vostro-accounts-11490531.html