Impact of Goods and Services Tax on Imports and Importers

Finance Minister has removed the ambiguity over a further delay in GST roll-out, by not making any announcements in his budget 2017 speech on current indirect taxes. The industry was expecting for some amendments in the direction of smoother transition, however, the government has avoided immediate change management for businesses India is one of the fastest growing global economy and in the way to becoming the new global manufacturing hub.

Latest Update

Union budget 2021 Outcome: 
Few of the items on which Customs Duty Rates are revised are as follows: -a) Reduced duty on copper scrap from 5% to 2.5% 
b) Basic and Special additional excise duty on petrol and high-speed diesel oil (both branded and unbranded) is reduced 
c) Increased duty on solar inverters from 5% to 20% – Raised duty on solar lanterns from 5% to 15% 
d) The basic customs duty on gold and silver reduced 
e) The department will rationalise duty on textile, chemicals and other products 
f) The revised rates will be applicable from 2nd February 2021 onwards.

Indian Economy and Foreign Trade

While manufacturing activities are on rising, we are also witnessing expansion in foreign trade both imports and exports We have previously covered the impact of Goods and Services Tax on the various set of industries including Logistics, Food and Restaurants, E-Commerce Marketplace Sellers to mention a few.

Continuing our agenda, we are now extending our discussion on Impact of GST on Import and Importer’s Business. As per the Model GST Law, GST will subsume Countervailing Duty (CVD) and Special Additional Duty (SAD), however, Basic Customs Duty will continue to do its round in the import bills. BCD has been kept outside the purview of GST and will be charged as per the current law only.

Below are some of the implications for imports and importers by virtue of GST implementation in India:

• Import as Inter-State Supply – Import into India will be considered as Inter-State supply under Model GST Law and accordingly will attract Integrated Goods and Services Tax (IGST) along with BCD and other surcharges.
• Import of Services –  Model GST law accord liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the current provision of reverse charge, wherein service receiver is required to pay tax and file return.
• Transaction Value based Valuation Principal – Model GST law has borrowed the concept of transaction value based valuation principal from current customs law for charging GST. This will have implication at the time of tax liability determination as currently CVD is charged on MRP valuation principle. Under the new regime IGST which subsumes CVD will be charged on transaction value. This may also require working capital restructuring. This may also reveal the margin of Service Provider which is currently not the case.
• Refund of Duty – Under the new law, tax paid during import will be available as a credit under “Import and Sale” model, whereas no such credit is available presently. Also refund of SAD which is available now, after doing specific compliance, no such restrictions are placed under GST.
• Withdrawal of Current Exemptions – The current customs import tariff is loaded with multiple exemption notifications which are likely to reviewed and possibly withdrawn or converted into a refund mechanism. This could mean change in the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may get limited to exemption from payment of BCD, while IGST may not be exempted. Withdrawal of exemptions or changing them to refund mechanism could fundamentally change the attractiveness and viability of some of the key schemes under the FTP like EOU, STP, Advance authorization etc.