Applicability of IGST and Goods and Service Tax Compensation Cess on imports under Duty Exemption Schemes

Introduction:

Prior to the introduction of GST import under Advance Authorisation/EPCG Authorisation was exempt from payment of Additional customs duty (levied in lieu of Excise Duty). With the implementation of GST there was a change and IGST and Goods and Service Tax Compensation cess as applicable had to be paid on imports made under Advance Authorisation/EPCG authorisation. This resulted in exporters importing under Advance Authorisation/EPCG Authorisation having to pay GST and Goods and Service Tax Compensation cess as applicable at the time of imports. This resulted in blockage of working capital.

GST Council Recommendations:

Responding to the representations made by the exporters who faced difficulties on account of blockage of working capital the GST Council at its 22^nd Meeting held on 6^th October recommended immediate relief to exporters  by extending exemption from GST and Goods and Service Tax Compensation cess in respect of imports under the Advance Authorization (AA) / Export Promotion Capital Goods (EPCG) from abroad as well as domestic suppliers. The GST Council recommended that the holders of AA / EPCG and EOUs would not have to pay IGST, Cess etc. on imports and Also, domestic supplies to holders of AA / EPCG and EOUs would be treated as deemed exports under Section 147 of CGST/SGST Act and refund of tax paid on such supplies given to the supplier.

Customs notification 79/2017 dated 13^th October, 2017 and DGFT’s Notification no.33/2015-2020 contain provisions regarding exemption from GST on imports made under the Duty exemption Schemes.

DGFT Notification 33/2015-2020:

As per the DGFT notification Para 4.14 of the Foreign Trade Policy containing provisions regarding duties exempt on imports under Advance Authorisation is amended to read as under:

“Details of Duties exempted: 

Imports under Advance Authorisation are exempted from payment of Basic Customs Duty, Additional Customs Duty, Education Cess, Anti-dumping Duty, Countervailing Duty, Safeguard Duty, Transition Product Specific Safeguard Duty, wherever applicable. Import against supplies covered under paragraph 7.02 (c),(d) and (g) of FTP will not be exempted from payment of applicable Anti-dumping Duty, Countervailing Duty, Safeguard Duty and Transition Product Specific Safeguard Duty, if any. However, imports under Advance Authorization For physical exports are also exempt from whole of the integrated tax and Compensation Cess leviable under sub-section(7) and sub-section (9) respectively, of section 3 of the Customs Tariff Act,1975 (51of1975), as may be provided in the notification issued by Department of Revenue, and such imports shall be subject to pre-import condition.”

DGFT notification amends Para 5.01(a) of the FTP containing provisions regarding EPCG Authorisation to read as under: 

“5.01(a) EPCG Scheme allows import of capital goods for pre-production, production and post-production at Zero customs duty. Capital goods imported under EPCG scheme for physical exports are also exempt from whole of the Integrated Tax and Compensation Cess leviable thereon under the sub- section(7) and subsection(9) respectively, of section 3 of the Customs Tariff Act,1975(51of 1975), as may be prescribed in the notification issued under Department of Revenue. Alternatively, the Authorisation holder may also procure Capital Goods from indigenous sources in accordance with provisions of paragraph 5.07 of FTP.” 

Customs Exemption Notification 79/2017

The customs notification no.79/2017 dt. 13^th October 2017 has amended Customs notification no. 16/2015 applicable for imports under EPCG authorisations and Customs notification no.18/2015 applicable for imports under Advance Authorisation.

As per this amendment the Customs exemption notification 16/2015 is amended as under:

“(a) in the opening paragraph, after clause (ii), the following shall be inserted, namely:

“(iii) the whole of integrated tax and the goods and services tax compensation cess leviable thereon under sub-section (7) and sub-section (9) of section 3 of the said Customs Tariff Act: 

Provided that the exemption from integrated tax and the goods and services tax compensation cess shall be available up to the 31st March, 2018.”; 

(b) in the Explanation C (II), for the words “However, the following categories of supplies, shall also be counted towards fulfilment of export obligation:”,the words “However, in authorisations where exemption from integrated tax and goods and service tax compensation cess is not availed, the following categories of supplies, shall also be counted towards fulfilment of export obligation:” shall be substituted.

Customs notification no.18/2015 applicable for imports under EPCG authorisations has been amended as under:

“In the said notification , in the opening paragraph,- (a) for the words, brackets, figures and letters “from the whole of the additional duty leviable theron under sub-sections (1), (3) and (5) of section 3, safeguard duty leviable thereon under section 8B and anti-dumping duty leviable thereon under section 9A”, the words, brackets, figures and letters “from the whole of the additional duty leviable thereon under sub-sections (1), (3) and (5) of section 3, integrated tax leviable thereon under sub-section (7) of section 3, goods and services tax compensation cess leviable thereon under sub-section (9) of section 3, safeguard duty leviable thereon under section 8B, countervailing duty leviable thereon under section 9 and anti-dumping duty leviable thereon under section 9A” shall be substituted; 

(b) in condition (viii), after the proviso, the following proviso shall be inserted, namely:-

“Provided further that notwithstanding anything contained hereinabove for the said authorisations where the exemption from integrated tax and the goods and services tax compensation cess leviable thereon under sub-section (7) and sub-section (9) of section 3 of the said Customs Tariff Act, has been availed, the export obligation shall be fulfilled by physical exports only”; 

(c) after condition (xi), the following conditions shall be inserted, namely:

-“(xii) that the exemption from integrated tax and the goods and services tax compensation cess leviable thereon under sub-section (7) and sub-section (9) of section 3 of the said Customs Tariff Act shall be subject to pre-import condition; 

(xiii) that the exemption from integrated tax and the goods and services tax compensation cess leviable thereon under sub-section(7) and sub-section (9) of section 3 of the said Customs Tariff Act shall be available up to the 31st March, 2018.” 

Summary:

The DGFT notification 33/2015-2020 amending the provisions of the Foreign Trade Policy is subject to the notification of the Department of Revenue. The Customs Exemption Notification No.79/2017 exempts imports under Advance Authorisation and EPCG authorisation only for Physical exports and not for deemed exports under the Foreign Trade Policy. Further the exemption from integrated tax and Goods and Service tax compensation cess leviable under sub-section (7) and sub-section (9)of the Section 3 of the Customs Tariff Act is available only upto 31^st March, 2018.

About the Author: S.Bhuvaneswari is a CA, CPA(USA), DIIT(ICAI) and currently working as Sr.General Manager (Finance) in Renewsys India Private Limited.