GST on transactions of import

GST on transactions of import (by way of transfer of title in Goods) before clearance of Goods from Customs or High sea sale or Sale of Goods under Customs bonded warehouse

Before we discuss the provisions of IGST Act for levy of IGST on Import of Goods or Supply of Goods by way of transfer of the title of Goods before physical clearance of the Goods from Customs frontiers of India, let us examine the provisions in this regards of earlier regime i.e. CST Act.

In CST Act there used to be a concept of sale or purchase of goods said to take place in the course of import, as per Section 5 (2) of CST Act, 1956

A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.

Section 2 (ab) of CST Act defines "crossing the customs frontiers of India" as crossing in the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.

It is very clear from the above provisions that the CST was leviable only when goods were physically cleared from the Customs, meaning thereby High-seas sales/purchase or sales/purchase from the Bonded warehouse without before clearance of goods was not taxable.

The concept of sale or purchase of goods in the course of import is not imported in GST instead Section 2 (10) of IGST Act defines ‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India; and Section 2(56) of CGST defines India” as 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.

In this definition, no reference is made to the customs frontiers of India or Indian customs area, meaning thereby the Import of Goods is complete as soon as the Goods enter the Indian territorial waters or sky etc., even if goods are not cleared physically from Customs station/warehouse.

Further, Section 7 (2) of IGST envisage 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.

Therefore, the transfer of title of goods even without physical delivery is a supply in the course of inter-state-trade and the tax on which is to be levied and collected as per Section 5 of IGST ACT.

As per proviso to section 5.(1) of IGST Act there shall be levied and collected IGST on goods imported into India 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.

In other words the IGST on import shall be levied

1. In accordance with the provisions of Section 3 of Customs Tariff Act,
2. On the value as determined under Section 14 of the Customs Act,
3. At the time as provided in section 15 of the Customs Act

Relevant provisions of Section 3 of the Customs Tariff Act and sections 12, 14 and 15 of Customs Act are reproduced in Annexure.

As per the above provisions the goods imported in India shall be liable to IGST as additional duty of Customs only at the time of clearance of Goods physically from the Customs Area/ Customs Frontiers of India on the value as determined u/s. 14 of the Customs Act which, in normal circumstances, is equal to the value mentioned in the import invoice plus other considerations and charges as specified in Customs rules. Meaning thereby,

1. The sales of goods by way of transfer of documents, though the same is covered under the definition of Supply, is not levied to tax as per proviso to Section 5 (1) of IGST Act read with relevant provisions of the Customs Tariff Act and Customs Act.

2. The price paid by the ultimate dealer in the chain who clears the goods from the Customs is irrelevant

3. The rate of IGST applicable shall be the rate prevailing at the time of filing the Bill of Entry for clearance from, as the case may be, the Customs port or Customs Bonded warehouse.

The Director (Customs), The Department of Revenue, CBEC has issued a circular No. 33-Custom dated 1/8/2017 clarifying the matter quoting the deliberation of the issue by the GST council as under :

a. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time

b. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

The clarification regarding value on which the IGST is to be charged is not in consonance with the provisions of section 14 of the Customs Act and therefore not within the authority of the Council and since the clarification regarding time of payment of IGST is in favour of the assessee, the department is bound to accept the same.

The Officer on Special Duty (ICD), The Department of Revenue, CBEC issued another circular No. 46-Customs dated 24.11.2017 clarifying

a. That the transaction of sale / transfer etc. of the warehoused goods between the importer and any other person squarely falls within the definition of “supply” as per section 7 of the Central Goods and Services Tax Act, 2017

b. The transaction shall be taxable in terms of section 9 of the CGST Act read with section 20 of the Integrated Goods and Services Tax Act, 2017

c. It may be noted that as per sub-section (2) of section 7 of the IGST Act, any supply of imported goods which takes place before they cross the customs frontiers of India, shall be treated as an inter-State supply.

d. Thus, such a transaction of sale/transfer will be subject to IGST under the IGST Act.

e. The value of such supply shall be determined in terms of section 15 of the CGST Act read with section 20 of the IGST Act and the rules made thereunder

f. It is without prejudice to the fact that customs duty (which includes BCD and applicable IGST payable under the Customs Tariff Act) will be levied and collected at the ex-bond stage.

This circular cannot be binding on the trade for the following reasons :

1. This is contrary to the provisions of Section 5of the IGST Act,
2. It has not been issued in consultation with the GST Council
3. It does not override the earlier circular No. 33 ibid

Conclusion:

No IGST is payable on transaction of Import of Goods before physical clearance as the proviso to Section 5 (1) read with section 3 of the Customs Tariff Act and Sections 12, 14 and 15 of Customs Act the IGST shall be payable by way of additional Custom duty at the time of clearance of the goods from the Customs Area or Customs Frontiers of India on the value determined under section 14 of the Customs Act at the rate applicable at the time of filing of the Bill of entry for the clearance of Goods.

Annexure:

A. Provisions of Customs Act

SECTION 12. Dutiable goods. - (1) Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, on goods imported into, or exported from, India.

(2) The provisions of sub-section (1) shall apply in respect of all goods belonging to Government as they apply in respect of goods not belonging to Government.

SECTION 14. Valuation of goods. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf :

Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf:

Provided further that the rules made in this behalf may provide for,-

(i) the circumstances in which the buyer and the seller shall be deemed to be related;

(ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case;

(iii) the manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section :

Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50.

(2) Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.

Explanation. - For the purposes of this section -

(a) "rate of exchange" means the rate of exchange -

(i) determined by the Board, or

(ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;

(b) "foreign currency" and ''Indian currency" have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).

SECTION 15. Date for determination of rate of duty and tariff valuation of imported goods. - (1 The rate of duty and tariff valuation, if any, applicable to any imported goods, shall be the rate and valuation in force, -

(a) in the case of goods entered for home consumption under section 46, on the date on which a bill of entry in respect of such goods is presented under that section];

(b) in the case of goods cleared from a warehouse under section 68, on the date on which a bill of entry for home consumption in respect of such goods is presented under that section;

Provided that if a bill of entry has been presented before the date of entry inwards of the vessel or the arrival of the aircraft 8[or the vehicle] by which the goods are imported, the bill of entry shall be deemed to have been presented on the date of such entry inwards or the arrival, as the case may be.

(2) The provisions of this section shall not apply to baggage and goods imported by post.

B. Provisions of Customs Tariff Act

Section 3 of Customs Tariff Act before amendments

(1)****************

(2) For the purpose of calculating under sub-sections (1), (3), (5), (7) and (9), the additional duty on any imported article, where such duty 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, be the aggregate of—

(i) the value of the imported article determined under sub-section ( 1) of section 14 or the tariff value of such article fixed under sub-section ( 2) of that section, as the case may be; and

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(ii) any duty of customs chargeable on that article under section 12 of the Customs Act, 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 -

(a) the duty referred to in sub-sections (1), ( 3) and (5);

(b) the safeguard duty referred to in sections 8B and 8C;

Provided that in case of an article imported into India, -

(a) in relation to which it is required, under the provisions of the "Legal Metrology Act, 2009" * or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such article; and

(b) where the like article produced or manufactured in India, or in case where such like article is not so produced or manufactured, then, the class or description of articles to which the imported article belongs, is

(i) the goods specified by notification in the Official Gazette under sub-section ( 1) of section 4A of the Central Excise Act, 1944, the value of the imported article shall be deemed to be the retail sale price declared on the imported article less such amount of abatement, if any, from such retail sale price as the Central Government may, by notification in the Official Gazette, allow in respect of such like article under sub-section ( 2) of section 4A of that Act,

(3) *************
(4) *************

(5) If the Central Government is satisfied that it is necessary in the public interest to levy on any imported article [whether on such article duty is leviable under subsection (1) or, as the case may be, sub-section (3) or not, such additional duty as would counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India, it may, by notification in the Official Gazette, direct that such imported article shall, in addition, be liable to an additional duty at a rate not exceeding four per cent. of the value of the imported article as specified in that notification.

Explanation.- In this sub-section, the expression “ sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India” means the sales tax, value added tax, local tax or other charges for the time being in force, which would be leviable on a like article if sold, purchased or transported in India or, if a like article is not so sold, purchased or transported, which would be leviable on the class or description of articles to which the imported article belongs, and where such taxes, or, as the case may be, such charges are leviable at different rates, the highest such tax or, as the case may be, such charge.

(6) For the purpose of calculating under sub-section (5), the additional duty on any imported article, the value of the imported article shall, notwithstanding anything contained in sub-section ( 2), or section 14 of the Customs Act, 1962, be the aggregate of-

(i) the value of the imported article determined under sub-section (1) of section 14 of the Customs Act, 1962 or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and

(a) the duty referred to in sub-sections (5), (7) and (9);
(b) the safeguard duty referred to in sections 8B and 8C
(c) the countervailing duty referred to in section 9; and
(d) the anti-dumping duty referred to in section 9A.

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).

(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, be the aggregate of -

(a) the value of the imported article determined under sub-section (1) of section 14 of the Customs Act, 1962 or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and

(b) any duty of customs chargeable on that article under section 12 of the Customs Act, 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).

(9) Any article which is imported into India shall, in addition, be liable to the goods and services tax compensation cess at such rate, as is leviable under section 8 of the Goods and Services Tax (Compensation to States) Cess Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section (10).

(10) For the purposes of calculating the goods and services tax compensation cess under sub-section (9) on any imported article where such cess 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, be the aggregate of—

(11) The duty or tax or cess, as the case may be, chargeable under this section shall be in addition to any other duty or tax or cess, as the case may be, imposed under this Act or under any other law for the time being in force.

(12) The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties shall, so far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section as they apply in relation to the duties leviable under that Act.".