Applicability of GST on Import Clearances other than Port of Importation

Goods are imported in India and normally Bill of Entry for home consumption is filed. However, there will be a cases, where one needs to study the applicability of duty.

Type of Sale Documents Applicable Rate of Duty
Importation Bill of Entry Basic Customs Duty + IGST
Sale from SEZ & FTWZ Bill of Entry Seller will file the Bill of Entry on behalf of Buyer and pay Basic Customs Duty + IGST
High Sea Sale > Commercial Invoice

> High Sea Sale Agreement

Buyer will file the Bill of Entry and pay Basic Customs Duty + IGST
Sale from Public Bonded Warehouse or Private Bonded Warehouse > Commercial Invoice from Seller to Buyer Buyer will file the Bill of Entry for Home Consumption and pay Basic Customs Duty + IGST

And also Seller will charge the IGST to the Buyer over & above IGST charged on Commercial Invoice in accordance with Board Circular No. 46/2017-Customs dated 24-11-2017

Let us analyze the legal provisions for applicability of GST in each case of sale.

> Importation : “India” has been defined u/s 2(56) of CGST Act 2017 as :

  • Section 2(56) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters
  • As per Section 7 (2), Supply of goods imported into India, till they cross customs frontier of India, shall be treated to be supply of goods in course of inter-State trade or commerce. Further as per Section 8 (1) (ii), goods imported into the territory of India till they cross the customs frontiers of India will not be treated as Intra State supply of goods.

Further, Section 3(7) of Customs Tariff Act 1975 which is reproduced below :

Any article which is imported into India shall, in addition, be liable to Integrated Tax at such rate, not exceeding forty percent. As is leviable under section 5 of the Integrated Goods & Services Tax Act 2017, on a like article on its supply in India, on the value of the imported article as determined under section (8).

In view of the above, on importation of goods and clearance from the port of importation will attract IGST over & above Basic Custom Duty.

> Sale from SEZ and FTWZ :

In accordance with Rule 11(11) of SEZ Rules 2006, SEZs are deemed to be Port and they are included in Section 7 of the Customs Act 1962 in accordance with the provisions of Section 53 of the Customs Act 1962. The said Rule is reproduced below:

“The Special Economic Zone shall be deemed to be a port, airport, inland container depot, land customs station under section 7 of the Customs Act in accordance with the provisions of section 53 from the date notified in this behalf:  

Provided that Specified Officer may designate any area or area(s) in the Special Economic Zone as an area for loading and unloading of import or export cargo:

Provided further that in case the said port, airport, inland container depot, land customs station area is to be used for loading and unloading of import or export cargo meant for Domestic Tariff Area importers and exporters also, storage for such cargo shall be in a separate enclosure and deliveries for such cargo shall be allowed by the Authorized Officer of the Special Economic Zone based on Bill of Entry, assessed by the Assistant or Deputy Commissioner of Customs having jurisdiction over the said Customs Station.

Provided also that addition or inclusion of any land to an existing Special Economic Zone, where such land contains a port, manufacturing unit, or structures in which no commercial, industrial or economic activity is in progress, then such Special Economic Zone shall not be eligible for any duty benefits  in respect of the pre- existing structures but any additions or up-gradations to such existing ports manufacturing units, or structures after their addition or inclusion in a Special Economic Zone shall be eligible for the fiscal incentives as applicable for a new infrastructure in a Special Economic Zone and also the authorized operations being carried on in such infrastructure shall be eligible for benefits as provided for under the Special Economic Zone Act and Rules.”

In view of the above, any sale from Port of Importation, airport, inland container depot, land customs station & SEZ will be required to file Bill of Entry for home consumption and pay Basic Customs Duty and IGST.

> High Sea Sale:

Let us understand important relevant definition for the purpose :

√ Important Definitions as per IGST

  • Section 2(4), “customs frontiers of India” means the limits of a customs area as defined in section 2 of the Customs Act, 1962
  • Section 2(10) ‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India

Important Definitions as per CGST Act:

  • Section 2(56) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters

Important Definitions as per Customs Act:

  • Section 2(11) “customs area” means the area of a customs station and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities
  • 2(13) “customs station” means any customs port, customs airport or land customs station;

Though GST Act does not define “crossing the customs frontiers”, Section 2(ab) of CST Act, 1956 defines it as: “crossing the customs frontiers of India” means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.

√ As per Section 7 (2), Supply of goods imported into India, till they cross customs frontier of India, shall be treated to be supply of goods in course of inter-State trade or commerce. Further as per Section 8 (1) (ii), goods imported into the territory of India till they cross the customs frontiers of India will not be treated as Intra State supply of goods.

√ In case of High Sea Sale, the sale takes place while the goods are yet on high seas i.e. before they are imported and before entering (crossing) the Customs frontiers of India itself, by way of transfer of documents of title of goods.

√ Therefore, considering the above provisions, it can be concluded that high sea sales will not be taxed since the sale takes place before the goods are imported into India and enter the customs frontier. Conditions of Section 7(2) are not satisfied.

√ Thus, if both the sections are read together, we can arrive at the following:

1. Till the time, imported goods cross the customs frontier of India, it will not be treated as import as well as inter-state supply as per Section 7(2).

2. Since it is not inter-state supply, it cannot also be treated as intra- state supply because to get the supply treated as intra- state supply, the location of the supplier and the place of supply should be in the same State / UT.

In view of the above, all the high-seas transactions are neither inter-state supply nor intra- state supply and hence will be out of GST purview.

  • Sale from Public Bonded Warehouse or Private Bonded Warehouse
  • As per Section 2(4), “customs frontiers of India” means the limits of a customs area as defined in section 2 of the Customs Act, 1962. Further as per Section 2(11) “customs area” means the area of a customs station and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities. Also, as per Section 2(13) “customs station” means any customs port, customs airport or land customs station;
  • Considering the definition of customs frontier, customs area and customs station, it can be concluded that the Bonded warehouse is a customs area wherein the goods are kept before clearance by Customs Authorities.  It is therefore clear that when goods are stored in a Bonded Warehouse, the goods have already been imported into India.
  • As per Section 7(2), Supply of goods imported into India, till they cross customs frontier of India, shall be treated to be supply of goods in course of inter-State trade or commerce.
  • Thus, the sale from Bonded warehouse will be covered under Section 7(2) since the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities are not crossed i.e. customs frontier of India are not crossed.
  • CBEC has also taken the same view in the Circular No. 46/2017-Customs dated 24-11-2017
  • The taxability of the said transaction will be as under:
Particulars Customs Duties Valuation IGST / CGST + SGST Valuation
Filing of BOE for warehousing by A Ltd NIL Asses sable value needs to be determined in accordance with Section 14 (1) of the Customs Act, 1962 – value at the time of import should be considered which is the transaction value of such goods, i.e. the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation read with valuation rules NA NA
Sale of A Ltd to B Ltd and filing of BOE for home consumption by B Ltd BCD + IGST Value at the time of import should be considered. Since Bond to Bond Bill of Entry is already made wherein the asses sable value is already arrived at by adding landing charges, there will not be a requirement of determining the asses sable value at time of bill of entry for home consumption and the asses sable value at time of warehousing will be considered for determining asses sable value for home consumption. IGST Transaction value plus duties of customs

 

 

  • It is pertinent to note the Supreme Court Decision in case of M/s Ashoka Hotel Vs Assistant Commissioner of Commercial Taxes where in it is held that when the goods are kept in bonded warehouses, it cannot be said that goods have crossed the customs frontiers of India. The goods are not cleared from the customs till they are brought into India by crossing the customs frontier. This case is on the pretext that the duty-free shops of the appellant are beyond the customs frontiers of India and sale takes place before the goods crossed the customs frontiers of India i.e. outside India and hence outside purview of the State Tax.

Para 23:

“Looking to the aforestated legal position, it cannot be disputed that the goods sold at the duty free shops, owned by the appellant, would be said to have been sold before the goods crossed the customs frontiers of India, as it is not in dispute that the duty free shops of the appellant situated at the 13 International Airport of Bengaluru are beyond the customs frontiers of India i.e. they are not within the customs frontiers of India

Para 30:

“They again submitted that `in the course of import’ means `the transaction ought to have taken place beyond the territories of India and not within the geographical territory of India’. We do not agree with the said submission. When any transaction takes place outside the customs frontiers of India, the transaction would be said to have taken place outside India.

Though the transaction might take place within India but technically, looking to the provisions of Section 2(11) of the Customs Act and Article 286 of the Constitution, the said transaction would be said to have taken place outside India. In other words, it cannot be said that the goods are imported into the territory of India till the goods or the documents of title to the goods are brought into India. Admittedly, in the instant case, the goods had not been brought into the customs frontiers of India before the transaction of sales had taken place and, therefore, in our opinion, the transactions had taken place beyond or outside the custom frontiers of India.”

  • Section 7(2) specifically covers those cases where goods are imported into India but have not crossed the customs frontiers. Therefore, this case law will not be relevant in GST Scenario.

To conclude, when Title of property changes in the Public Bonded Warehouse and private Bonded Warehouse, there will be impact of double taxation. In other words, IGST will be paid twice and only once credit will be available. This is unfortunate but based on the law of GST as on date.

CBEC Board Circular 46/2017-Customs dated 24-11-2017 reconfirms the views, but which is not logical and legally correct till the time GST Council recommends exemption of IGST on transfer of title in the Public Bonded Warehouse / Private Bonded Warehouse.

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CMA Ashok Nawal

Founder of Bizsolindia Services Pvt. Ltd.

Central Council Member of Institute of Cost Accountants of India

Email : nawal@bizsolindia.com

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3 responses to “Applicability of GST on Import Clearances other than Port of Importation”

  1. narendra adawadkar says:

    Dear Sir,

    Detail analysis of the High Seas Sales and Sale from bonded warehouse.
    One question incase of sale from bonded warehouse the BOE will be filed by the buyer and IGST will be paid on the import value of the seller based on Bond Bill of Entry. The IGST credit against BOE should be eligible to the buyer. Secondly the seller will raise the Invoice in INR with IGST towards sale of imported material as per the agreed selling price for which also Credit should be eligible being two independent transactions. One at the time of imports related to customs for BOE and other one with GST Registered person in India. Please guide

  2. Sona says:

    In bond to bond warehouse, IGST will be paid twice but only once credit is allowed..please clarify this..

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