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GST on Import of Goods

Introduction

At present, imports are subjected to customs duties of various kinds, and some of these are allowed as Cenvat credit (input tax credit) on the basis of the bill of entry evidencing payment of the import duties. Specifically, the amount paid as additional duty of customs under section 3(1) of the Customs Tariff Act 1975, which is equivalent to central excise duty on a like product in India, is allowed as Cenvat credit. (This duty is popularly known as CVD.) Also, the additional duty of customs under section 3(5) ibid, which is levied to counterbalance VAT / CST on sale of like products in India, is allowed as Cenvat credit in specific circumstances on the basis of the bill of entry. These credits are claimed by the importer in his relevant excise or service tax returns.

In the changes to the indirect tax system that are slated to come into effect shortly, excise duty as well as service tax will be absorbed into the Central Goods & Services Tax (CGST), VAT will become the major component of state GST (SGST), and CST on inter-state sale will become Integrated GST (IGST), which will apply to inter-state supply and not just sale. In this essay I look at the legal framework of taxation of import of goods under the new regime, the taxes that replace CVD and SAD, and the accompanying changes for the importer.

IGST on “Supply” from outside India, which is deemed as Inter-State Supply

IGST is leviable under section 5 of the Integrated Goods and Services Tax Act 2017 on inter-state supply of goods and / or services. A noteworthy feature of this Act is contained in section 7 thereof, whereby, under sub-section (2),

“Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce.”

Furthermore, the place of supply of goods imported into India is determined in terms of section 11 of the IGST Act, as follows:

“The place of supply of goods,-

  • Imported into India shall be the location of the importer;
  • Exported from India shall be the location outside India.”

Accordingly, it is considered that the supply of imported goods took place in India, and IGST will be leviable on supply of goods into India from outside India.

This deeming of imports to be inter-state supply is supported by Article 269A of the Constitution, as amended by the Constitution (101st amendment) Act, 2016:

“269A. (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation.—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.”

A marked difference is seen between the wording of Article 269A of Constitution and the IGST Act that derives its powers from the said Article. Thus, while Article 269A refers to supply of goods, or of services, or both in the course of import into the territory of India” as inter-state supply, the IGST Act applies the deeming provision to “supply of goods / services imported into the territory of India”. Does this mean that supply made after import, of goods “imported” into India, is also deemed to be an inter-state supply? Was there a reason for the change in wording? We may have to await clarity from courts of law in future litigation.

IGST levied on “Supply”, not all Imports

It may be noted that the import duties under sections 3(1) and (5) of the Customs Tariff Act, mentioned above, are at present payable on all imports unless there is a specific exemption. This includes free supplies, government imports, NGO and personal imports, and donations. However, under IGST, the levy is on “supply” of goods or services. The term “supply” is defined in the CGST Act, which is applicable to IGST as per section 2(21) of the IGST Act:

Section 2(21) of IGST Act: “supply” shall have the same meaning as assigned to it in section 7 of the Central Goods and Services Tax Act.’
Section 7 of CGST Act (relevant portion):

(1) For the purposes of this Act, the expression “supply” includes –

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

(2) It is seen from these definitions that “supply” is made for a consideration. “Supply” will thus be a subset of imports. All imports may not be leviable to IGST:

  • In the case of services, imports for a consideration will be taxable.
  • In the case of goods, goods imported for a consideration and in the course or furtherance of business will be taxable.

Value for IGST

The IGST Act further provides that the tax will be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, and that the value for taxation will be in terms of the said section. The said section 3 provides as follows:

  1. (8) For the purposes of calculating the integrated tax under sub-section (7) on any imported article where such tax is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in section 14 of the Customs Act, 1962, (52 of 1962.) be the aggregate of:-
  2. (a) the value of the imported article determined under sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962.) or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and
  3. (b) any duty of customs chargeable on that article under section 12 of the Customs Act, 1962, (52 of 1962.) and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs, but does not include the tax referred to in sub-section (7) or the cess referred to in sub-section (9).

In other words, the value of an imported article for the purpose of calculating IGST will be –

    • Transaction value or tariff value of the article, as the case may be; plus
    • Customs duties on the article; but not including
    • IGST or compensation cess on the article

Point of Taxation for IGST

The point of taxation will be in terms of section 12 of the Customs Act 1962: in other words, the IGST on imports will be levied and collected just like the basic duty of customs. Under section 12, customs duty is levied on goods “imported into” India. “Import”, in turn, is defined in section 2(23) of the Customs Act as “bringing into India from a place outside India”. Therefore the levy of IGST will be attracted only when the goods cross the frontiers of India and come into India.

IGST registration for Importers

As seen above, import is treated as an inter-state supply under the IGST Act. It follows that an importer, if not already registered under GST, will be required to obtain a registration under IGST in order to pay the tax. The IGST paid on imports will thus be entered in the GST Network and be available for matching when the importer takes input tax credit.

Compensation Cess

Imported goods are also leviable to compensation cess as levied under the GST (Compensation to States) Act 2017. The Customs Tariff Act 1975 provides as follows in its subsection (9):

the input tax credit in respect of cess on supply of goods and services leviable under section 8, shall be utilised only towards payment of said cess on supply of goods and services leviable under the said section

In terms of this, the compensation cess paid on imports (or on any other supply) can be taken as input tax credit and used only to pay compensation cess on supply made by the person.

IGST on High Seas Sales

Much has been written on the taxability of high seas sales in the GST regime. In the light of the provisions discussed above, it can be inferred that high seas sales, even if more than one such sale of the goods takes place on the high seas, will be taxable to IGST in the hands of the last purchaser, who is also the importer of the goods. This is because the levy of IGST is on “supply of goods imported into the territory of India, till they cross the customs frontiers of India”, which is treated as inter-state supply.

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Ms. Radha Arun
Consultants to Udyog Software (India) Ltd.
radha.arjuni@gmail.com

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