Import and Export Procedures in GST

December 7th, 2017

An import is a good brought into a jurisdiction across a national border, from an external source. The party bringing in the good is called an importer. Export means sending of goods or services provided in one country to another country. The seller of such goods and services is called an exporter. The importation and exportation of goods are limited by import quotas and mandates from the custom authorities.
With the implementation of GST in India from 1st of July 2017, Indian authorities have revised procedures relating to export of goods and services from India. Amendments have been made in various Rules and Regulations relating to exports and imports, in order to align them with the new provisions of GST law.

According to the new regime, exports have been categorized as “zero rated supply” so duties or taxes paid either on inputs or input services or on final products or export goods/the input tax credit proportionate to goods and services consumed in goods exported under bond/LUT are to be refunded. There are two options for making exports – Export under bond followed by refund of Input Tax Credit (ITC) or payment of Integrated Goods & Service Tax (IGST) and then refund of the same.

Integrated Goods & Service Tax (IGST) means tax levied under the Act on the supply of any goods and / or services in the course of Inter-State trade or commerce. ITC on the other hand is the credit manufacturers receive for paying input taxes towards inputs used in the manufacture of products. If a dealer has purchased goods for resale, he is entitled to ITC. A bond or a Letter of Undertaking (LUT) is a document by which the taxpayer declares that he shall fulfill all the requirements of the GST law with regard to export. By submitting this document to the department, a tax payer can export without payment of IGST. A registered person is eligible for submission of LUT if he has received the foreign inward remittance amounting to a minimum of 10% of the export turnover and which should not be less than 1 crore in the preceding financial year.

Any export or import to and from an SEZ is “Zero Rated” import under GST and is deemed to be Interstate trade or commerce. A major question that has been raised is “How to calculate import duty after GST?” Import duty on a product will be calculated on the basis of Basic Custom Duty(BCD), Integrated Goods and Service Tax (IGST) and Compensation Cess.

Compensation Cess is a new cess applicable on some specified items. The reason being GST is a destination cum consumption based tax. Therefore, the revenue from these taxes will occur to the state where the goods are ultimately consumed. As a result, there are some losses to a few manufacturing states and benefits to the consuming state. This is because revenue goes to the treasury of the consuming states only. In order to compensate states from this kind of probable loss, this cess has been introduced to be levied on luxury items like high end cars, demerit goods including tobacco, pan masala and aerated drinks. This cess is applicable for a period of 5 years from the date of implementation of GST.

The calculation of Import Duty can be easily illustrated with the following example of hair oil imported into India. Let us assume that the assessable value of Brand X hair oil is Rs.100. Then the total import duty will be as follows:

(1) Basic Custom Duty (BCD) = 12.5% of 100……………………………………….…………………12.50
(2) IGST = 18% of ( Assessable value + BCD)
= 0.18 of (100 + 12.5)……………………………..…………….…..20.25
(3) Compensation Cess = 0% of (Assessable value + BCD)
=0% of (100 + 12.5)………………………………………………….00.00 (Nil)
(3) Total Taxes = (1) + (2) + (3)
= 12.5 + 20.25+ 0…………………………………………………….32.75
As illustrated in the example above, the total import duty to be paid is Rs. 32.75.

Other updates in the Act as follows:

  • In imports, there is no impact on the levy of BCD, Education Cess, Anti-dumping duty, Safeguard duty and the like. However, IGST replaces the Additional duties of Customs [i.e. Countervailing Duty (CVD) and Special Additional duty of Customs (SAD)]. In exports, as mentioned before, it will be treated as zero-rated supply.
  • There are seven rates prescribed for IGST – Nil, 0.25%, 3%, 5%, 12%, 18% and 28%. The actual rate applicable to an item would depend on its classification and can be referred to in Schedules notified under section 5 of the IGST Act, 2017. The rates applicable to a few of the goods of Chapter 98 are as follows:
    9801 – Project Imports – 18%
    9802 – Laboratory Chemicals – 18%
    9803 – Passenger Baggage – Nil
    9804 – Specified drugs and medicines for personal use – 5%
    9804 – Other drugs and medicines for personal use – 12%
    9804 – All other dutiable goods for personal use – 28%
  • GSTIN would be used for credit flow of IGST paid on import of goods. PAN will be the Import Export Code (IEC). In cases where GSTIN is not applicable, UIN or PAN will be accepted as IEC. In due course of time, IEC will be replaced by PAN/GSTIN.

The GST Law has simplified the export and import procedures, which was earlier tedious. The export industry in India would be able to have internationally competitive prices due to the smooth process of claiming input tax credit and the availability of input tax credit on services.

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