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THE INSIGHT

Payment of differential Customs duty ITC of IGST component?
By V Vishwa, CA
Mar 14, 2018

HOW integrated is the integrated tax? Here we are discussing the link between 'integrated tax' under section 3(7) of Customs Tariff Act,1975 and integrated tax under Integrated Goods & Service Tax (IGST) Act.

There is a doubt regarding the link between integrated tax levied under Customs Tariff Act and IGST Act in the absence of definition of integrated tax under Customs law.

Purposive & harmonious construction leads to possible conclusion that integrated tax under customs is nothing but integrated taxes under IGST Act. As this article focuses on input side of the integrated tax, without going deep, let's touch upon the apparent reasons in favor of the purposive construction:

Proviso to section 5(1) of IGST Act reads as under:

"Provided that the 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."

The above proviso clearly shows that integrated tax levied and collected under Customs Tariff Act is integrated tax under IGST. There is presumption that words are used in Act of Parliament correctly and exactly, hence when IGST Act provides that in case of import of goods the levy and collection is under section 3 of Customs Tariff Act, 1975 and section 3(7) of Customs Tariff Act imposes integrated tax, then it certainly refers to integrated tax under IGST.

As the levy is valid& no danger exists to its collection, focus of the importers on the link(integration) is on the aspect of availability of Input Tax, which is the subject of this article.

Fortunately,irrespective of the level of integration between Customs and IGST, the importers are protected in respect of their input tax credit of integrated tax, this is because section 2(62) of the Central Goods and Services Tax Act, 2017 read with section 2(24) of IGST Act, 2017, defines 'input tax' to include integrated goods and service tax charged on import of goods and there is no reference to tax being charged under any particular Act. Relevant definition is reproduced below:

"(62) "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes-

(a ) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;"

In case, integrated tax in the section 2(62) is to be read as integrated tax under IGST Act based on section 2(58) which states that "integrated tax" means the integrated goods and services tax levied under the Integrated Goods and Services Tax Act;" then there is always relief available from opening phrases of section 2 which states that 'unless the context otherwise requires'. This is a definite case of contextual requirement to read it as tax levied under Customs Tariff Act, as the proviso to section 5(1) of IGST Act has clearly specified both levy and collection of integrated tax on import of goods is under Customs Tariff Act, hence having regard to subject and object, expression integrated tax in context of import of goods is nothing but integrated tax under Customs Tariff Act.

In nutshell, what is available as input tax credit is integrated tax paid on import of goods, there is no fetter.

Doubt may arise regarding why specific clauses in Cenvat Credit Rules, 2004 for credit of CVD was available vide Rule 3(vii) as under:

"the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) (vi) and (via)"

whereas current input tax under GST only plainly states integrated tax without reference to section 3 of Customs Tariff Act, this is because section 3(7) of Customs Tariff Act levies integrated tax itself and not a tax equal to integrated tax.

Perusal of relevant provisions of Customs Tariff Act will make this obvious:

"3 (1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article:

(7) Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable under section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (8)."

Levy under Customs Act is integrated tax itself and not any equivalent.

Bill of entry is prescribed as eligible document under Rule 36(1)(d) of CGST Rules, 2017. Table 5 of Form GSTR-2 in S.No.5A requires furnishing details of Bill of Entry No. along with port code (six digits port code followed by seven digits bill of entry number). Accordingly, there is no issue in terms of law as well as on procedures on availment of Input tax credit on integrated tax paid on import of goods vide bill of Entry.

Now, lets turn to subsequent payments of Customs Duty which are made in various instances including provisional assessment. Is the position same in case of credit of integrated tax (component) of such differential/subsequent payment of Customs Duty?

Whether credit of tax paid on subsequent payment of integrated tax on imports will go downstream electronic credit ledger and accord the same relief as the initial payment.

Here, it will be appreciated that payment as per bill of entry is paid online through ICEGATE site, whereas any subsequent payment is not through online and it is through manual challan referring the Bill of entry against which payment is made. With this background,

A. Is there an issue in terms of law in availment of credit of such input tax?

- Rule 36(3) prohibits credit in case where tax has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts. Here, we are dealing with classes of additional payment made voluntarily and thereby restriction under Rule 36(3) has no operation.

- Next issue is whether non-mention of challan in the list of eligible documents under Rule 36(1) an issue? No, since even in Cenvat Credit Rules 2004 only Bill of entry is listed in Rule 9, this is for the reason that challan through which additional payments made forms part of bill of entry. Tribunal in case of Cable Corporation of India Ltd reported at 2016-TIOL-3279-CESTAT-MUM also held challans as eligible document. Hence in terms of law, there is no issue in availment of credit on such integrated input tax.

B. Is there an issue in terms of procedures?

While there are good features in electronically operated system, it also carries certain inherent defects. Whether there are any glitches in the system availing these credits? S.No.5A in Table 5 of Form GSTR-2 requires details of bill of entry. Importer would mention the bill of entry and avail credit for initial payment, hence mentioning the same number in respect of subsequent payments will be an issue. While Bill of entry may be mentioned again, issue would arise as to what date (BE date/Challan date) & value (full value/differential value) is to be mentioned.

How the system would reconcile the data with customs site is still uncertain? It appears that data as per original Bill of Entry would be considered since subsequent payments are not done electronically, there would be a miss in the link.

Duty claimed in the returns filed against the Bill of entry would be total of initial payment and subsequent payment whereas details flowing from customs end will only show original payment leading to mismatch.

As long as reconciliation & integration of data between customs and GSTN is not insisted upon, importer would avail the input tax credit by referring to the Bill of entry again or mentioning the challan no. (instead of seven digits of bill of entry). But matching/reconciliation may not be far off (how far rests with Council), then the procedure in return could be spoke in the credit wheel.

May be we are in for concordance table for imports mapping these payments & corresponding Bill of Entry!!! (Concordance table for exports is already in place vide circular 05/2018-customs dated 23.02.2018 to tide over reconciliation issues)

Facilitation of additional payment through ICEGATE with reference to bill of entry and consolidated matching of credits in form GSTR-2 with customs data could solve the issue.

Electronic Cash Ledger for Customs Payment proposed in Budget 2018 may possibly address this procedural issue.

(Views expressed are personal.)