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THE INSIGHT

Applicability of duty on imported goods in the post GST regime
By Ramesh Chandra Jena
Mar 12, 2018

CUSTOMS is an integral part of Indirect Taxes. Consequent to the implementation of Goods and Services Tax in the country w.e.f. 1st July 2017, all indirect taxes have been subsumed into single tax except Customs. Customs Act and Customs Tariff was framed on the basic principles and provisions of the World Customs Organization to regulate the movement of imported goods into India and exported goods out of India. Apart from Customs provisions all imports and exports are governed under IGST Act in the post GST regime.

Meaning of Important terminology under Customs Act / IGST Act:

Section 2(10) of the IGST Act, 2017 defines "Import of goods" with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

The term ‘bringing goods' in to India means ‘physically' goods should be brought into India and "import of goods" commences when the goods cross the Customs frontiers of India, it may be land, air and territorial waters of India. Thus "import of goods' necessarily implies goods to be brought physically in India.

Section 2(4) of the IGST Act, 2017 defines "Customs frontiers of India" means the limits of a customs area as defined in section 2 of the Customs Act, 1962 (52 of 1962).

Section 2(25) of the Customs Act, 1962 defines "imported goods" means any goods bought into India from a place outside India but does not include goods which have been cleared for home consumption.

Section 2(27) of the Customs Act, defines "India" includes the territorial waters of India.

Section 2(28) of the Customs Act, defines Indian Customs Waters" means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 and includes any bay, gulf, harbor, creek or tidal river.

Section 2(56) of the CGST Act, 2017 defines "India" means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters.

Section 2(11) "Customs area" means the area of a customs station and includes any area in which import goods or export goods are ordinarily kept before clearance by Customs Authorities.

The term "importer" has not been defined in IGST Act but as per Section 2(26) of the Customs Act, "importer" in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner or any person holding himself out to be the importer.

Levy of duty on imported goods:

Any goods imported into India are chargeable to duties of Customs under Section 12 of the Customs Act, 1962 at rates specified in the Customs Tariff Act, 1975.

As per Section 12 of the Customs Act, levy of duties of customs is on the goods imported into India. Import commences when the goods cross the territorial waters and is completed when bill of entry for home consumption is filed. Taxable event occurs when bill of entry for home consumption is filed; same is also applicable for warehoused goods.

As per Section 7 (2) of the IGST Act, 2017, Supply of goods imported into the territory of India, till they cross customs frontier of India, shall be treated to be supply of goods in the course of inter-State trade or commerce. Further as per Section 8(1) (ii) of the IGST Act, 2017, goods imported into the territory of India till they cross the customs frontiers of India shall not be treated as Intra-State supply of goods.

In view of the above interpretation IGST shall be levied on imported goods once the same cross the customs frontiers of India i.e. on inter-State supply of goods.

As per Section 5(1) of the IGST Act, 2017, Integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

Though the levy of IGST is under IGST Act, its valuation is as per Customs Tariff Act and levied and collected when duties of Customs are "levied and collected".

As per Section 8 of Compensation Cess Act, compensation cess shall be levied on such intra-State supplies of goods or services or both, as provided for in section 9 of the Central Goods and Services Tax Act, and such inter-State supplies of goods or services or both as provided for in section 5 of the Integrated Goods and Services Tax Act,

Levy of Social Welfare Surcharge @ 10% as a duty of Customs on imported goods in to India, in addition to any other duties of customs or tax or cess chargeable on such goods, under Section 25(1) of the Customs Act, 1962 read with clause 108 of the Finance Bill, 2018.

The integrated tax on imported goods shall be in addition to the applicable Basic Customs Duty (BCD) which is levied as per the Customs Tariff Act. In addition, GST compensation cess may also be leviable on certain luxury and demerit goods under the Goods and Services Tax (Compensation to Sates) Cess Act, 2017 and also recently levy of Social Welfare Surcharge.

The Customs Tariff Act, 1975 has accordingly been amended to provide for levy of integrated tax, the compensation cess, Social welfare Surcharge on imported goods. Accordingly, goods which are imported into India shall, in addition to the Basic Customs duty, be liable to integrated tax at such rate as is leviable under the IGST Act, 2017 on similar article on its supply in India.

Valuation of the imported Goods :-

The value of imported goods for levy of duties of Customs shall be transaction value of such goods as determined under section 14 (1) and 14(2) of the Customs Tariff Act, 1975. As per Amendment by Finance Bill, 2018, IGST shall be charged on last transaction value ( sub-section 8A of Section 3 of the Customs Tariff Act, 1975), Compensation cess shall be charged on last transaction value (sub-section 10A of Section 3 of the Customs Tariff Act,1975) and Social welfare Surchage shall be collected as a duty of Customs @ 10% calculated on the aggregate of duties or taxes or cesses.

The applicability of Duty rate on imported goods / clearance of imported goods into India for various types of clearances and the duty structure of Customs are summarised in the Table below.

Sl.No.

Types of Transaction or Import clearances.

Documents for import clearances & filing

Applicable Customs Duties under GST.

1

Imported goods Clearance from the port of Import either from sea, air or land Customs stations)

Bill of Entry, Commercial Invoice, Packing List. (Bill of entry for Home Consumption shall be filed by the importer and duties payable by the importer).

(In case of clearances of imported goods from a port of import to warehouse, importer has to file an into-bond bill of entry for warehousing)

Basic Customs Duty (BCD) % as applicable + Integrated Tax (IGST) % as applicable + Social Welfare Surcharge @10%.

No duty is payable either under Customs Act or IGST Act. (For movement of imported goods from port to warehouse).

2

Clearances from the Public Warehouse appointed under Section 57 of the Customs Act, or from the Private warehouse lice censed under Section 58 of the Customs Act.

Commercial Invoice, Buyer shall file the Bill of entry for Home Consumption.

(Buyer shall pay Customs duty , IGST and SWC if applicable and Seller shall pay IGST only)

Basic Customs Duty (BCD) % as applicable + Integrated Tax (IGST) % as applicable + Social Welfare Surcharge @10%.

And also seller will charge IGST on removal from warehouse over & above IGST charged on Commercial Invoice in accordance with Board Circular No.46/2017-Customs dated 24-11-2017

3

High Sea Sales (Goods before crossing the Customs frontiers of India).

Commercial Invoice, High Sea Sale -Agreement.

Buyer will file the Bill of entry (pay the duties)

Basic Customs Duty (BCD) % as applicable + Integrated Tax (IGST) % as applicable + Social Welfare Surcharge @10%.

(IGST shall be levied only on the last transaction value at the time of clearances vide CBE& C, Circular No.33/2017-Customs dated 01.08.2017)

4

Export Oriented Units / STPI (imported goods clearances from the port of import)

Bill of Entry, Commercial Invoice, Packing List,

Bill of Entry shall be filed by the EOU/STPI.

Basic Customs Duty (BCD) % as applicable (in case of EOU's has domestic clearance in place of export Otherwise BCD Nil + Integrated Tax (IGST) % as applicable + Social Welfare Surcharge @10%.

IGST / Compensation Cess is exempt till 31.03.2018 vide Notification No. 78/2017-Customs dated 13.10.2017 and Social Welfare Surcharge is exempt vide Notification No. 13/2018-Customs dated 02.02.2018

5

Special Economic Zone / FTWZ. (Clearance from Port of importation to unit)

Bill of Entry, Commercial Invoice, Packing List.

Bill of Entry shall be filed through SEZ / FTWZ online and presented to the Customs port of importation for clearance / transshipment of goods to Unit for examination and assessment shall be carried by the authorised officer of SEZ.

Basic Customs Duty (BCD) - NIL +

Integrated Tax (IGST)- NIL +

Social Welfare Surcharge -NIL

6

Special Economic Zone / FTWZ. (Clearance from SEZ / FTWZ to Domestic Tariff Area i.e. within India )

Bill of Entry, Commercial Invoice, Packing List.

Bill of Entry shall be filed by the SEZ / FTWZ Unit on behalf of the Buyer and pay duties.

Basic Customs Duty (BCD) % as applicable + Integrated Tax (IGST) % as applicable + Social Welfare Surcharge @10%.

7

Import of Goods against Advance Authorisation / EPCG scheme.

Bill of Entry, Commercial Invoice, Packing List,

Copy of Authorisation / License issued by the DGFT,

Basic Customs Duty- NIL + Integrated Tax (IGST) NIL + Social Welfare Surcharge -NIL

IGST and Compensation Cess is exempt till 31.03.2018 vide Notification No. 79/2017-Customs dated 13.10.2017, subject to fulfillment of export obligation by physical exports. Social Welfare Surcharge is exempt vide Notification No. 13/2018-Customs dated 02.02.2018

Note to above duty Rate:

(1) Compensation Cess shall be charge on certain luxury imported goods vide Notification No. 1/2017-Compensation Cess dated 28.06.2017

(2) Clean Environmental Cess shall be charged on Coal, lignite & peat of Rupees @400 P.T vide Notification No.2/2016-C.E.C dated 01.03.2016 as amended.

(3) Exemption from Social Welfare Surcharge to specified goods vide Notification No.11/2018-Cus, dated 02.02.2018

Input tax credit paid on imported goods:

Input tax credit of the integrated tax (IGST) paid at the time of import of goods shall be available to the importer and the same can be utilized by him as Input Tax credit for payment of taxes on his outward supplies. The Basic Customs Duty (BCD) shall, however, not be available as input tax credit.

Conclusion: To sum up, any goods imported into India are chargeable to duties of Customs under section 12 of the Customs Act, 1962 at rates specified in the Customs Tariff Act, 1975. Further, under the GST regime, Article 269A constitutionally mandates that the supply of goods in the course of import into the territory of India shall be deemed to be supply of goods in the course of inter-State trade or commerce for levy of integrated tax. So import of goods will be treated as deemed inter-State supplies and would be subject to integrated tax. The levy of IGST on import of goods would be under the Customs Act, 1962 read with the Customs Tariff Act, 1975.

(The author is a Senior Tax Associate, Taxpayers Advisory Forum, Bhubaneshwar and the views expressed are strictly personal.)