Custom Duty

Custom Duty: Overview

Imports/Exports under GST

Custom duty is a kind of an indirect tax that is imposed on both exported and imported goods and services. The tax imposed on the import of goods is known as the import duty. Whereas, the tax imposed on the export of goods is known as the export duty. The government charges these taxes during the export or import of goods and services to raise money and/or to shield the domestic establishments from the competitors from other countries.

In the past few months, the government of India brought a major change in the tax systems of the nation. They introduced GST (Goods and Services Tax), a new tax collection system, that is a destination based tax, which implies that the consumers are liable to pay when they use any goods and services.

Earlier, the tax system was complex. Multiple taxes such as service tax, value added tax, state tax, central excise, etc. were imposed on various goods and services. Under GST, these multiple taxes have been replaced by just one tax – GST.

GST has three categories – CGST (Central Goods and Services Tax), SGST (States Goods and Services Tax) and IGST (Integrated Goods and Services Tax). Both CGST and SGST are applicable on the intra-state transactions whereas the IGST is applicable on the inter-state transactions.

The custom duty is now replaced by IGST, which means that instead of the custom duty, IGST tax is applicable (along with other applicable custom duties) on every import and export of goods and services. Let’s read further to understand it better.

GST for Importers (IGST)

The IGST Act 2017 defines the import of goods as bringing merchandises into India from anywhere outside of India. All the imports will be regarded as the inter-state supplies and integrated tax will be imposed on them along with other applicable custom duties.

Before IGST was enforced, custom duty was levied on all export and import of goods and services. Also, innumerable taxes such as countervailing duty (CVD), basic custom duty, anti-dumping duty and safeguard duty were imposed on every import of goods and services. When GST came, it shook the entire tax system by holding all indirect taxes such as central excise duty, service charges, state-level tax and introduced a single tax known as IGST (Integrated Goods and Services Tax). On the import of goods, only the integrated tax along with the basic custom duty will be chargeable.

Calculation of IGST

With the inception of IGST, it has become necessary for traders to know and understand how the tax is being calculated in the trade business. But before that one must know that the tax on goods is imposed as per the size, mass and extent of the imported and exported goods. Basis this, below is the calculation of IGST on the import of goods.

Let’s assume.

The assessable value of an imported item is Rs.1000/-
Basic Customs Duty = 10%
Integrated Tax Rate = 18%
The taxes will be calculated as follows:
Assessable Value = Rs.1000/-
Basic Customs Duty = Rs.100/-
The value to impose integrated tax = Rs.1000 + Rs.100 = Rs.1100/-
Integrated tax = 18% of Rs.1100 = Rs.198/-
Sum of Taxes = Rs.100 + Rs.198 = Rs.298/-

Also, cess as per the GST Cess Act, 2017 may also be applicable on the goods. In such a case, the cess will be collected on the value taken for imposing the integrated tax. For instance, according to the example given above, the cess will be calculated on Rs.1100/-.

Under IGST, at the time of moving of commodities from a custom station to warehouse, the importers will not be liable to pay integrated taxes. The IGST tax for imports will be received by the State where the goods or services are consumed and not by the state where they are manufactured.

Input Tax Credit

Under the GST system, a registered importer can use the IGST imposed on him as the input tax credit. The importer can use the same input tax credit to pay taxes during the outward supply of goods. However, the Basic Customs Duty (BCD) will not be obtainable as the input tax credit. Along with the input tax credit, the importer can also benefit the GST Compensation Cess before transmitting it to the ones in the supply chain. Also, it is compulsory for the importers to mention the GSTIN (GST Registration Number) in the Bill of Entry to get the input tax credit of GST Compensation Cess and IGST.

Import of Services under IGST

The import of services as per the IGST Act 2017 is the supply of a service by a service provider who is from a place outside the country but the receiver of those services is from India, and the place at which the service is being given is also within India.

According to the provisions mentioned in the Section 7(1) (b) of the CGST Act, 2017, only those imported services will be considered as a supply on the basis of the consideration and if the service is given in the course or continuance of business. In simple terms, the services that are imported without consideration will not be considered as a supply. However, the business test is not obligatory for the imported services to be deemed as a supply.

Furthermore, according to the provisions mentioned in the Schedule I of the CGST Act, 2017, the services imported by registered taxable persons from the relatives or distinct persons (as mentioned in the Section 25 of the CGST Act, 2017), in the continuance or course of a business will be considered as supply regardless of whether or not it has been made without consideration. Under GST, the import of both goods and services will be considered as the inter-state supplies and would bear the integrated tax.

Also, a person who is importing services will be liable to pay tax on reverse charge basis. However, in case of importing Online Information and Database Access or Retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier based out of India will be liable for paying the taxes. The supplier either will have to take registration or will have to assign a person in India for paying the taxes. In addition, the supply of goods and/or services to a Special Economic Zone (SEZ) developer or a unit will be considered as an inter-state supply. Such goods and services will also bear the integrated tax.

GST for Exporters

Before GST, duties were imposed even on the export of goods and services. However, as per the new tax system, the export of goods and services from India to any other place outside the country are to be treated as ‘zero-rated supplies’. This means that no GST is applicable for the exporters. The registered taxable individuals that are exporting goods or services to places outside the country can claim refund.

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