CA Meidini Aggarwal (R)
An introduction of GST would certainly change the way of doing business in India due to substantial impact on the international transactions. This will not only impact the customs duty calculation, it will have impact on Foreign Trade Policy (FTP) and other allied acts such as SEZ Act.
The proposed GST model states that a supply of goods in the course of import shall be deemed to be a supply of goods in the course of inter-state trade and accordingly leviable to Integrated Goods & Service Tax (IGST). Presently, the customs duty is having three major components BCD, CVD & SAD. Under GST regime, levy of IGST on imports would subsume CVD & SAD. Also, it appears that EC & SHEC shall continue to be levied on imports of goods on BCD and other Duties under Customs Act except CVD and SAD which are going to be subsumed under GST.
Further, GST model proposed only transaction value based valuation. The concept of MRP valuation is not there under GST regime. Accordingly, there will be impact on customs duty payment on goods on which CVD is levied on MRP based valuation; since IGST would levy on transaction value. In proposed 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. If it is the case then all other customs duty such as anti-dumping duty, other additional duties shall also be added to the transaction value of imported goods while calculating the IGST on such goods. This would certainly impact the valuation, working capital and management of cross border transactions.
At present there are various exemptions available under excise law with/without condition and accordingly CVD is calculated considering those exemptions. In proposed GST model there are no such exemption would be available due to the reason of free flow of credit chain.
Additionally, under GST regime IGST paid on imported goods would be available as credit under import and sale model as compared to non-availability of CVD/SAD credit under that model except refund of SAD on complying with specific conditions. No such restriction on availment of credit has proposed under present GST model. On one hand more working capital would require under GST regime and on the other hand GST would decrease the cost of imports due to free flow of credit chain.
Under GST model, the concept of ‘sale’ shall change to the concept of ‘supply’. It would impact High Sea Sale transactions. In present tax structure, there are specific provisions which exempts the ‘High Sea sale’. As per proposed GST model no such exemption would be available and each supply would be liable to tax.
Impact on various Exemptions and Refund Mechanism under Customs Act:
To align with GST, the Customs Act/Rules and Foreign Trade Policy (FTP) needs to be reviewed including review of various exemption notifications which are presently available in customs. This may result in withdrawal of exemptions or converted into refund mechanism. Withdrawal of exemptions or refund mechanism may impact the attractiveness of Advance Authorisation, EPCG licence, duty draw back rate and duty credit scripts viz. SEIS, MEIS. There would certainly be an impact on all industry rate of duty drawback due to the fact that there shall be free flow of credit of IGST paid on imports. It may be possible that all industry rate of duty drawback would be limited to amount of BCD ingrained in export of goods.
As the view expressed is based on the understanding of the GST model so it would be equally important to wait for essential amendments in FTP, Customs Act/Rule and other allied Acts/Rules.
(Authors are associated with S S Kothari Mehta & Company)