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GST on Import of goods

Section 2(10) of IGST Act: Meaning of "Import of Services"

Import of goods' with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

Under the GST regime, Article 269A constitutionally mandates that 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.

So, import of goods or services will be treated as deemed inter-State supplies and would be subject to Integrated tax.

While IGST on import of services would be leviable under the IGST Act, the levy of the IGST on import of goods would be levied under the Customs Act, 1962 read with the Custom Tariff Act, 1975. The importer of services will have to pay tax on reverse charge basis.

The Customs Tariff Act, 1975 has accordingly been amended to provide for levy of integrated tax and the compensation cess on imported goods.

Accordingly, any 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 a like article on its supply in India.

Further, the value of the goods for the purpose of levying Integrated tax shall be assessable value plus Customs Duty levied under the Act, and any other duty chargeable on the said goods under any law for the time being in force as an addition to, and in the same manner as, a duty of customs.

The value of the imported article for the purpose of levying cess shall be assessable value plus Basic Customs Duty levied under the Act, and any sum chargeable on that goods under any law for the time being in force as an addition to, and in the same manner as, a duty of customs. The integrated tax paid shall not be added to the value for the purpose of calculating cess.

Ocean freight

Ocean freight is nothing but transport charges for carrying supplies over water. The situation under consideration deals with importer in India taxed for a transaction between exporter outside India and a transporter outside India for providing transportation service of goods imported India.

Here the real Service Recipient ('SR') is exporter outside India and Service Provider ('SP') is the person with responsibility to transport goods in India.

Pre-GST

In the earlier regime of indirect taxes, service tax ('ST') was made payable by the importer of goods in India in following sequence of events: -

  • The service was covered under negative list entry 66D(p)(ii);
  • Then it was removed from negative list with effect from 1-6-2016 but exemption was granted vide Entry 53 dated June 20 ,2012 in Mega Exemption Notification No. 25/2012-ST retrospectively;
  • The notification of Mega Exemption was amended to remove Entry 53 vide Notification No. 1/2017-ST, dated January 12, 2017;
  • Then introduction of Notification No. 2/2017-STand 3/2017 both dated January 12, 2017 brought liability to pay ST on agents in India, foreign liner or streamer agent and not the service provider; and
  • Amendment was brought vide Notification No. 15/2017-ST and 16/2017 both dated April 13, 2017 making liability to pay ST on importer in India.

Post GST Tax on Ocean Freight

Under GST law, tax is charged on supply of service by way of transportation of goods to custom clearance in India @ 5% vide Notification No. 8/2017-Integrated Tax (Rate) dated June 28, 2017 is charged.

Notification No. 8/2017-Integrated Tax (Rate)


Sl No

Chapter, Section or Heading

Description of Service

Rate (per cent.)

Condition

9

Heading 9965 (Goods transport services)

(ii) Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.

5

Provided that credit of input tax charged on goods (other than on ships, vessels including bulk carriers and tankers) used in supplying the service has not been taken Explanation: This condition will not apply where the supplier of service is located in non-taxable territory. [Please refer to Explanation no. (iv)]


Explanation (iv):

(iv) Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that, -

(a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and

(b) credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of clause (iv) of section 20 of the Integrated Goods and Services Tax Act, 2017 read with sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made thereunder.

Therefore, both regime, levied tax to be paid by importer of goods under reverse charge mechanism ('RCM'). Section 68(2) of Finance Act, 1994 empowered Central Government to notify the person other than SP liable to pay tax. Similarly, Section 5(3) of IGST Act, specifically states the tax would be payable under reverse charge by the 'recipient' of supply.

According to Fiancé Act, 1994, ST the provision gave power vide Section 68(2) to CG to notify person liable to pay tax. But the GST law, gives authority to CG to notify tax payable under RCM with the defect of placing liability only on the 'recipient'. The GST law defines recipient under Section 2(93) to mean person liable to pay consideration.

"Recipient" of supply of goods or services or both, means -

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,

and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.

As per notification no. 10/2017-Integrated Tax, services supplied by a person located in non-taxable territory by way of transportation of goods by a Vessel from a place outside India up to the custom station of clearance In India is covered under RCM. The same provision is drafted as under Bottom of Form

Categories of supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of integrated tax leviable under section 5 of the said Integrated Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said Table:-


Sl. No

Category of Supply of Services

Supplier of service

Recipient of Service

10

Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India

A person located in nontaxable territory

Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory.


In Service Tax regime, the valuation rules were clearly defined under Rule 6 (7CA) of Service Tax Rules, 1994. However, under GST, the valuation rules are silent with respect to this. In this relation,

The Corrigendum to Notification No. 8/2017-Integrated tax (Rate) dated 28.06.2017 vide F. No. 334/1/2017-TRU dated 30.06.2017 has to be noted.

The following insertion has been made

"Where the value of taxable service provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is not available with the person liable for paying integrated tax, the same shall be deemed to be 10 % of the CIF value (sum of cost, insurance, and freight) of imported goods."

Conclusion: RCM has to be paid on freight on Import as per above interpretation of notifications and clarifications.


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Category GST, Other Articles by - CA Neetu Agrawal 



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