Monday, July 3, 2017

Impact of GST on Importers and Exporters

INTRODUCTION : The main objective of this article is to bring out clarity on implications of GST implementation for importers & exporters. In case of Imports, there will be no effect on levy of BCD, Education Cess, Anti Dumping Duty, Safeguard Duties etc. However, CVD & SAD shall be replaced by IGST except a few cases.
In case of Exports IGST paid on exports  or Input Tax Credit paid on exports shall be refunded.
        I.            Implication of GST for Importers
a)     Taxes to be levied :  Under GST regime, Importers would be liable to pay IGST & GST compensation cess by virtue of sub sections 7 & 9 of Section 3 of Customs Tariff Act, 1975.
b)     Time of levy : IGST & GST Compensation cess shall be levied on
                                                               i.      Cargo arriving at the Customs Station of India on or after 1st July, 2017 or
                                                             ii.      Cargo arrived prior to 1st July, 2017 but Bill of Entry is filed on or after 1st July 2017.
But in case Cargo is received after July 1, 2017 & Bill of Entry has been filed in advance by the importer, then Proper Officer may recall the bill of entry & reassess the same for levy of IGST & GST Compensation cess.
c)      Non Levy of IGST & GST Compensation Cess  Tobacco products such as Pan Masala & certain other Petroleum products have been kept outside the purview of IGST & GST compensation cess.

     II.            Calculation of Duties to be paid by Importers.
a)     Levy of IGST: IGST shall be levied on value of imported goods.

b)     Value of Imported Goods shall include :    
                                                         i.            Value of Imported Article determined u/s 14(1) of Customs Tariff Act, 1962 or Tariff value fixed u/s 14(2) of Customs Tariff Act & will also include
                                                       ii.            Any Other Duty of Customs chargeable on such article u/s 12 of Customs Act, 1962 & any other tax chargeable under any other law except GST.

Value of Imported Goods  =   Assessable Value + Basic Custom Duty + Other Tax                                                                          Chargeable under any other law other than GST.
                Accordingly, Anti Dumping Duties, Safeguard Duties, Education Cess or Higher Education        Cess shall be included in value of imported goods for calculation of GST.
                However, IGST so calculated shall not added to the value of goods for levy of GST        Compensation cess.
   III.            Changes in Import procedures under GST.
a)     GSTIN to be quoted on Bills of Entry: Under GST Regime, GSTIN no. shall be used for claiming ITC of IGST paid on import of goods. Accordingly , DGFT has advised that all importers need to quote GSTIN in their bills of entry in addition to Import Export Code.
b)     PAN to be treated as Export Import Code by DGFT: DGFT in Trade Notice No. 09 dated 12.06.2017 has stated that PAN would be the Export Import Code (IEC).
Under GST regime, while PAN is the identifier at entity level, GSTIN is the identifier at transaction level.

Modified Formats of Bill of Entry: To capture  additional details as mentioned above such as GSTIN, IGST Rate & amount, GST compensation cess & amount, Electronic as well as manual formats of Bill of Entry & Courier Bill of Entry are being updated on the website of Customs dept. i.e.

   IV.            Imports under Export Promotion Schemes & Duty payment through Duty Scrips.
a)     Exemption of Custom Duties on Exports: Custom duties shall be exempted on imports made under Export promotion schemes namely EPCG, DEEC (Advance License)& DFIA.
b)     No Exemption for IGST & Compensation Cess: IGST & GST Compensation cess need to be paid on such imports.
c)      Scrips under MEIS & SEIS not to be used for Duties on goods covered by GST.
The EXIM scrips under MEIS and SEIS can be utilized only for payment of Custom Duties or Additional Duties of Customs, on items not covered by GST, at the time of Import.
The scrips cannot be utilized for payment of IGST & Compensation Cess. Similarly, scrips cannot be used for payment of CGST, SGST or IGST for domestic procurements.

     V.            Import of Goods by EOU's & SEZ.
a)     IGST & GST Compensation Cess need to be paid by EOU's & STP's
EOU's & STP's shall have to pay IGST &  GST Compensation Cess which can later be claimed as Input Tax Credit (ITC).
However, EOU's & STP's will continue to import goods without payment of BCD as well as other import duties.

b)     Utilization of IGST Input.
The Input of IGST paid under import of goods shall be utilized in the following manner:
                                                        i.            Utilization for payment of GST: The input credit mentioned above shall be  utilized for payment of GST on goods cleared in DTA.         
Any clearance of goods meant for export in DTA shall will attract GST besides payment of equal amount of BCD exemption alraedy availed on inputs used in such finished goods.
   VI.            Import of Goods by SEZ units.
There has been no change in SEZ scheme due to roll out of GST. Authorized operations are exempted from payment of input duties under GST.

VII.            Passenger Baggage: Full exemption of IGST has been allowed on passenger baggage. However, BCD plus education cess shall be levied @ 35% on value of baggage in excess of duty free baggage allowed under Baggage Rules, 2016.
VIII.            Input Tax Credit under Imports: ITC of IGST & GST Compensation cess shall be available to importer & other recipients in supply chain. However, no Credit of BCD will be available as was the case in earlier regime.
Following conditions need to be satisfied for claiming ITC of GST:
a)      Declaration  of GSTIN in Bill of Entry.
b)     Declaration of Provisional ID in BOE till GSTIN is allotted during transitional phase of GST.
c)      Availability of prescribed particulars in Invoice as specified by Invoice Rules.
d)     Declaration of  by such person in Form   GSTR 2.
2. Export of Goods & Services in India.
        I.            Refund of IGST paid on Exports & Exports under Bond Scheme.
IGST paid by an exporter shall be allowed as a refund to the exporter under either of the following options:
a)     Supply of Goods under Bond or Letter of Undertaking without payment of Duty & claiming refund of unutilized ITC.
                                                         i.            The exporter claiming refund of ITC shall file an application through common portal directly or indirectly through common portal notified by GST Commissioner.
                                                       ii.            Application for refund shall be filed only after the export manifest or an export report, as the case may be, is delivered under section 41 of the Customs Act, 1962 in respect of such goods.
b)     Supply of Goods & Services on payment of IGST & claim refund of such tax paid.
                                                         i.            Under this option, the shipping bill filed by an exporter shall be deemed to be an application for refund of IGST paid on the goods exported out of India &
                                                       ii.            such application shall be deemed to have been filed only when the person in charge of the conveyance carrying export goods duly :
a)     files an export manifest or an export report covering the number &
b)     the date of Shipping Bills or Bills of Export and the applicant has furnished a valid return.

     II.            Duty Drawback Scheme.
There has been very negligible changes under Duty Drawback provisions (Section 74 & 75) of Customs Act, 1962 under GST regime. Concept of All Industry Rate (AIR) & Brand Rate under Section 75 shall also continue to remain in force.
a)     Custom Duties, IGST & GST Compensation Cess to be Refunded: Duty Drawback under Section 74 shall refund Custom Duties as well as IGST & GST compensation cess on imported goods which are to be re exported. 
b)     Drawback to be limited to Custom Duties on Imported Goods: Under GST Regime, duty drawback shall be limited to custom duties on imported goods & Central Excise duty shall be refunded under duty drawback scheme only in case of inputs & fuels used for captive power generation i.e. items specified under IV th Schedule to Central Excise Act, 1944.

c)      Transitional Period of 3 months from date of GST implementation i.e. 1st July 2017.
                                                        i.            Old Scheme to be applicable for first 3 months: During this transitional period of 3 months, provisions of existing duty drawback scheme shall continue to be applicable.
                                                     ii.            Duty Drawback claim at a Higher Rate : For exports during this period exporters can claim higher drawback (AIR Rate) subject to the conditions that no IGST & CGST is claimed & no refund of IGST paid on exports is claimed & no CENVAT Credit of IGST paid is carried forward.  These higher rate of duty drawback are yet to be notified by the Govt.

                                                   iii.            Declaration by Exporter & Certificate from Jurisdictional GST Officer. These certificates will help in prevention of double neutralization of input taxes.

Contributed by team GST at Sandeep Ahuja & Co