In re Skechers South Asia Private Ltd (CAAR Mumbai)
45th GST Council meeting was held on 17.09.2021. In the meeting, GST rate changes in order to correct inverted duty structure in footwear was discussed. The fitment committee has proposed increasing the rate on footwear having sale value less than Rs 1000 to 12% from 5%. These rate changes are scheduled to be implemented with effect from 01.01.2022. Therefore, the present ruling will be valid till such changes in GST rate are implemented.
In view of the foregoing discussions, I rule that the imported footwear of sale value of Rs. 1000 per pair are liable to Integrated Goods and Service Tax at the rate of 5%.
FULL TEXT OF ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI
Mis Skechers South Asia Pvt. Ltd. has filed an application on 29.7.2021, seeking an advance ruling for the applicable rate of Integrated Goods and Services Tax (IGST) on import of footwear having a sale value not exceeding Rs.1000 per pair.
2. The applicant is a wholly-owned subsidiary of M/s Skechers USA, Inc. They are engaged in the business of import and distribution of footwear, apparel, and accessories in India. The footwear imported by the applicant is of two categories: footwear having transactional value not exceeding Rs. 1000 per pair and footwear having a transaction value exceeding Rs.1000 per pair. The present application pertains to footwear having transaction value not exceeding Rs.1000 per pair. As per proviso to section 5(1) of the Integrated Goods and Services Tax Act, 2017, IGST on imported goods is to be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975. In terms of section 3(7) of the Customs Tariff Act, 1975, an article imported into India is liable to IGST at a rate leviable under section 5 of the IGST Act, on a like article when it is supplied in India. IGST will be required to be discharged on the value of the imported article determined in terms of sections 3(8) or 3(8A) of the Customs Tariff Act, 1975, as the case may be. Therefore, IGST is to be levied and collected as a duty of customs at the time of import. The applicant stated that they are eligible for benefits of reduced rate of IGST at the rate of 5% as per Sr. No. 225 of Schedule-I of the Notification No. 1/20178-Central Tax (Rate). In the said notification, footwear of sale value not exceeding Rs. 1000 per pair attracts IGST at the rate of 5%. It is further submitted that the term ‘sale value’ referred in the notification should be understood as akin to transaction value, and not as the retail sale price. The applicant submitted that the said entry, i.e., Sr. No. 225 of Schedule I of the Notification No. 1/2017, has been amended vide Notification No. 18/2018 – Central Tax (Rate), dated 26.07.2018 and Notification No. 24/2018 -Central Tax (Rate), dated 31.12.2018, whiCh changed the determining factor for levy on footwear from the retail sale price to sale value. As per the applicant, the sale value is the transaction value, and therefore, IGST is leviable on the impugned goods at the rate of 5%. In support of this, the applicant has appended the recommendation of the fitment committee on the basis of which this amendment was made. Further, they have submitted a circular bearing F. No. 332/2017-TRU, by which it was clarified that the sale value referred to in relevant entry for readymade garments, refers to the transaction value and not to the retail sale price.
3. In their CAAR-1 application, the applicant has declared that they would import under the jurisdiction of Principal Commissioner/ Commissioner of Customs, Mumbai (Zone II and Zone III). Accordingly, their application was forwarded to the jurisdictional customs authorities for comments. However, no reply has been received to date, though reminder have also been sent.
4. The applicant was heard on 21.08.2021 in virtual mode. The applicant was represented by S/Shri. Himanshu Tiwari, Mayuresh Jambhulkar and Abhinav Kapoor. No one appeared on behalf of the Principal Commissioner/Commissioner of Customs, Mumbai (Zone II and Zone III). During the hearing, the applicant reiterated the submissions made in the application. The applicant stated that GST is not a point-based tax, rather it is a tax which applies to the value addition through the supply chain of the product. Therefore, tax base for determining tax rate is transaction value/ sale value. The applicant further submitted supply chain of imported and domestically manufactured footwear along with respective tax invoices and bill of entry. As per the submission, the sale values of imported and domestically procured footwear are comparable, and are below Rs. 1000 per pair, which attract IGST levy at 5%. As the goods move across the supply chain to distributor, they cross the threshold of Rs. 1000 per pair and become taxable at the rate of 18%.
5. I have gone through the application, the records of the personal hearing and other relevant information. In the absence of any comment from the jurisdictional Principal Commissioner/ Commissioner of Customs, on the impugned subject matter, I proceed to render an advance ruling within the statutory period of limitation as prescribed. The issue at hand is to decide whether the impugned imported goods are eligible for a concessional IGST rate at 5%. On importation, basic customs duty and integrated goods and services tax are to be levied on the said goods. The IGST Act, 2017 provides that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of the Customs Tariff Act, 1975 on the value as determined under the said Act and at the point when duties of customs are levied on the said goods under the Customs Act, 1962. Therefore, IGST is to be levied and collected as a duty of customs at the time of import. Further, the value of the goods for the purpose of levying the 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.
6. The rate of IGST applicable on the supply of goods was initially prescribed by Notification No. 1/2017- Integrated Tax (Rate), dated 28.06.2017. In this notification, goods were classified into 6 schedules based upon the IGST tax rate. The notification provided for levy of IGST at the rate of 5% and 18% on import of footwear, depending on the retail sale price of goods. Sr. No. 225 of Schedule I of the notification sets out the description of footwear leviable to IGST at the rate of 5%. This notification has been amended multiple times. The applicant has referred to two amendments i.e. Notification No. 18/2018 – Central Tax (Rate), dated 26.07.2018 and Notification No. 24/2018 -Central Tax (Rate), dated 31.12.2018. However, these notifications pertain to the Central Tax rate. The relevant notification to ascertain IGST rate on imported footwear are Notification No. 19/2018 – Integrated Tax (Rate), dated 26.07.2018 and Notification No. 25/2018 -Integrated Tax (Rate), dated 31.12.2018. Amendments to entry at Sr. No. 225 of Schedule I from the date of introduction of GST till date are summarised below:
Table 1: Summary of amendments to Sr. No. 225 of Schedule-I (IGST rate 5%)
