GST Structure for Importers and Exporters

CA Sandeep Manik

India is one of the fastest growing global economy and in the way to becoming the new global manufacturing hub. While manufacturing activities are on rising, we are also witnessing expansion in foreign trade both imports and exports.

IMPACT ON IMPORTS

As per the Model GST Law, GST will subsume Countervailing Duty (CVD) and Special Additional Duty (SAD), however, Basic Customs Duty will continue to do its round in the import bills. BCD has been kept outside the purview of GST and will be charged as per the current law only.

Below are some of the implications for imports and importers by virtue of GST implementation in India:

• Import as Inter-State Supply – Import into India will be considered as Inter-State supply under Model GST Law and accordingly will attract Integrated Goods and Services Tax (IGST) along with BCD and other surcharges.

• Import of Services –  Model GST law accord liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the current provision of reverse charge, wherein service receiver is required to pay tax and file return.

• Transaction Value based Valuation Principal  GST law has borrowed the concept of transaction value based valuation principal from current customs law for charging GST. This will have implication at the time of tax liability determination as currently CVD is charged on MRP valuation principle. Under the new regime IGST which subsumes CVD will be charged on transaction value. This may also require working capital restructuring. This may also reveal the margin of Service Provider which is currently not the case.

• Refund of Duty – Under the new law, tax paid during import will be available as a credit under “Import and Sale” model, whereas no such credit is available presently. Also refund of SAD which is available now, after doing specific compliance, no such restrictions are placed under GST.

• Withdrawal of Current Exemptions – The current customs import tariff is loaded with multiple exemption notifications which are likely to reviewed and possibly withdrawn or converted into a refund mechanism. This could mean change in the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may get limited to exemption from payment of BCD, while IGST may not be exempted. Withdrawal of exemptions or changing them to refund mechanism could fundamentally change the attractiveness and viability of some of the key schemes under the FTP like EOU, STP, Advance authorization etc.

Tax structure and ITC in the case of imports:

Since the import of goods/services would be deemed as the inter-state supply of goods and thus shall be subjected to the levy of IGST. However, the import of goods shall continue to attract Basic Customs Duty (BCD) in addition to IGST.

In GST model, transaction value includes any taxes, duties, fees and charges levied under any other statute. It means while calculating IGST on imports, BCD should be added to the transaction value of imports.

The manufacturer, service provider and trader of goods who imports goods/services shall be eligible to offset IGST paid on import of goods/services against his output liability. However, the credit of BCD will not be available under proposed GST law as well.

IMPACT ON EXPORTS

The supply of any service shall be treated as “export of service” when

• The supplier of service is located in India,

• The recipient of service is located outside India,

• The place of supply of service is outside India,

• The payment for such service has been received by the supplier of service in convertible foreign exchange, and

• The supplier of service and recipient of service are not merely establishments of a distinct person.

Tax structure and ITC in the case of exports:

GST shall not be charged on goods/services exported from India. In Case, the supply of goods qualifies as export out of India as per the Place of Supply Rules the transaction shall be treated as “zero-rated supply”.

The supplier shall be allowed to export the goods/services without charging any tax and can avail the CGST/SGST and IGST credits paid on inputs and input services. If he is unable to utilize the credit then he can go for refund of credits as per Central GST Act.

Check New GST Rate Chart 2017 here

Tax structure & input tax credit in case of import and export under GST: