The Constitution mandates that no tax shall be levied or collected by a taxing Statute except by authority of law. While no one can be taxed by implication, a person can be subject to tax in terms of the charging section only.
This is the charging provision of the IGST Act. It provides that all inter-State supplies would be liable to IGST at rate recommended by the Council and notified subject to a ceiling rate of 40%. The provision of this section is comparable to the provision under section 9 of the CGST Act and section 7 of the UTGST Act.
The levy is on all goods or services or both except alcoholic liquor for human consumption. Further, GST may be levied in supply of petroleum crude, high spirit diesels, motor spirit (petrol), natural gas and aviation turbine fuel with effect from the date notified by the Government on the recommendations of GST Council.
GST is tax on supply and not on supplier.
Under the GST regime, Article 269A constitutionally mandates that supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce. So import of goods or services will be treated as deemed inter-State supplies and would be subject to Integrated tax. While IGST on import of services would be leviable under the IGST Act, the levy of the IGST on import of goods would be levied under the Customs Act, 1962 read with the Custom Tariff Act, 1975. The importer of services will have to pay tax on reverse charge basis. However, in respect of import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier located outside India shall be responsible for payment of taxes (IGST). Either the supplier will have to take registration or will have to appoint a person in India for payment of taxes.
Supply of goods or services or both to a Special Economic Zone developer or a unit shall be treated as inter-State supply and shall be subject to levy of integrated tax.
As a basic principle, GST law says that all supplies of goods & services made as imports into India will be treated as an inter-state supply. All inter-state supplies attract IGST. So import of goods and services into India will attract IGST. Basic custom duty and all applicable customs levy will continue to be charged.
Here the importer has to deposit IGST on reverse charge basis Except in case of OIDAR (Online Information Data Access and Retrieval) services, the supplier has to seek registration and pay taxes.
The IGST paid on imports will be available as input tax credit to the importer. This can be set off against the GST outgo on supplies made by the importer.
Importer Exporter Code (IEC): As per DGFT’s Trade Notice No. 09 dated 12.06.2017, the PAN of an entity would be used as the Import Export code (IEC). Wherever an applicant applies for IEC, the PAN of the applicant will be authorized as an IEC. The importer would only be required to declare only GSTIN (where registered under GST).
Import of goods also are determined based on the ‘ship to’ location being the place within India with a journey or originating outside India.
Exports, therefore, are always determined based on their ‘ship to’ location being a place outside India whether or not they qualify for the zero-rated benefit under section 16.
The levy of tax on supply of goods and / or services is in three parts –
(i) in the hands of the supplier and
(ii) in the hands of the recipient of goods / services under reverse charge mechanism and,
(iii) in case of specified services, in the hands of electronic commerce operator.
Proviso to section 5(1) makes a very important exception in respect of “good imported into India”.
Import of goods is defined in section 2(10) in a manner identical with the definition under Customs Act in section 2(23).
The important exception made under the proviso is the carve out from the levy under section 5 supplies involving import of goods and place such transactions under Customs Act and not under IGST Act.
In other words, goods imported into India will be liable to IGST but not under IGST Act instead under section 3(7) of Customs Tariff Act.
Taxation Laws (Amendment) Act, 2017 sweeping changes have been brought about in Customs in the wake of introduction of GST.
First significant change is that, in addition to basic customs duty levied under section 12 of Customs Act.
Second significant change in section 3 of Customs Tariff Act and sub-section 7 levies IGST on import of goods and sub-section 9 levies compensation cess when the said goods are imported into India.
Going back to the proviso to sub-section 1, the expression ‘the point at which import duties are leviable’ is very significant. Examination of the ‘point of levy’ under Customs Act reveals that goods brought into India are liable to customs duties at the time specified in section 15.
Accordingly, no duties are levied until the bill of entry for home consumption is filed.
Imported goods are defined in section 2(25) of Customs Act as:
“imported goods” means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption” Goods that have been cleared for home consumption will cease to be imported goods.
Goods which have entered India but not yet cleared for home consumption will not attract the levy of customs duty until bill of entry for home consumption is filed.
Customs Act permits goods that have entered India to be deposited in a bonded warehouse on filing ‘into-bond’ bill of entry without payment of duty. Hence, goods that have entered India will not attract liability to IGST until they reach the point – location or time – when bill of entry for home consumption is ready to be filed. In such cases, IGST is to be levied only when ex-bond bill of entry is filed or until date specified in section 15 is reached.
Import of goods by 100% EOU’s and SEZs:
Import of goods by 100% EOU’s would be governed by Notification no. 52/2003-Customs as amended by Notification no. 78/2017-Customs dated 13.10.2017. EOUs are allowed duty free import of goods (exempt from Customs duties, IGST & Compensation Cess) under the said notifications. However, exemption from IGST is only available till 31.03.2018.
Further, goods imported by SEZ also do not attract liability to IGST as the goods are ‘not yet’ liable to be assessed to customs duty. Section 53 of the SEZ Act states that:
53(1). A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations.
Goods imported by a unit or a developer in the Special Economic Zone for authorised operations are exempted from the whole of integrated tax under section 3 (7) of the Customs Tariff Act, 1975 vide Notification No. 64/2017-Customs dated 05.07.2017.
Point for Consideration:-
In view of the foregoing, proviso to section 5(1) is of paramount importance which makes way for Customs Tariff Act to take over levy of IGST on imported goods leaving IGST under IGST Act inapplicable to imported goods.
Once Customs Tariff Act applies, it attracts the levy of IGST (CTA) not before the bill of entry for home consumption is due to be filed in accordance with the provisions of Customs Act.
There are two kinds of IGST, namely:
1. IGST levied under Customs Tariff Act which we call IGST (CTA); and
2. IGST levied under IGST Act which we call IGST (GST).
Generally, there is no overlap between the two but when there is overlap, one makes way for another.
See how this overlap is resolved. Now, it becomes important to clearly identify whether imported goods are ‘treated’ as supply of services under schedule II.
Now, customs law makes way for these goods after being subject to basic customs duty applicable to import of goods under Customs law to be subject to IGST under GST law when the import is by way of ‘lease’ arrangement (operating or finance lease).
Customs notification 50/2017-Cus. dated 30 June 2017 has inserted a few entries when IGST (CTA) will NOT be levied if the goods are liable to IGST (GST) under para 1(b) or 5(f) of schedule II.
DTA sales by SEZ will NOT be liable to GST under forward charge as IGST will be paid when DTA-buyer files bill of entry in terms of Rule 48(1) of SEZ Rules.
11. Place of supply of goods imported into, or exported from India
The place of supply of goods, –
(a) imported into India shall be the location of the importer;
(b) exported from India shall be the location outside India.
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.
Exchange rate to be used (Rule 34)
Transactions undertaken in foreign currency must be translated into Indian Rupees. The rate of exchange for the determination of the value of taxable goods shall be the applicable rate of exchange as notified by the Board under section 14 of the Customs Act, 1962 and for the determination of the value of taxable services shall be the applicable rate of exchange determined as per the generally accepted accounting principles for the date of time of supply in respect of such supply in terms of section 12 or, as the case may be, section 13 of the Act.
Import of goods means as per section 2(10)
‘‘import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;
Import of goods into India would be treated as supply of goods in the course of inter-State trade/ commerce and would be liable to integrated tax under this Act.
Tax on import of goods:
This Act provides that IGST shall be levied on import of goods in terms of section 3 of the Customs Tariff Act, 1975. It implies that on such importation of goods, IGST will be payable in addition to the Basic Customs Duty (BCD). The proviso to section 5(1) of the IGST Act also clarifies that the value and point at which IGST would be payable will be determined in accordance with section 12 of the Customs Act, 1962.
The value of the imported article for the purpose of levying cess shall be assessable value plus Basic Customs Duty levied under the Act, and any sum chargeable on that goods under any law for the time being in force as an addition to, and in the same manner as, a duty of customs. The integrated tax paid shall not be added to the value for the purpose of calculating cess.
In cases where imported goods are liable to Anti-Dumping Duty or Safeguard Duty, value for calculation of IGST as well as Compensation Cess shall also include Anti-Dumping Duty amount and Safeguard duty amount.
Tax Treatment of Goods imported into India and deposited in a warehouse and sold while in warehouse before clearance from Customs
The Customs Act, 1962 provides for removal of goods from a customs station to a warehouse without payment of duty. The said Act has been amended to include ‘warehouse’ in the definition of “customs area” in order to ensure that an importer would not be required to pay the Integrated tax at the time of removal of goods from a customs station to a warehouse.
However, the transaction of sale / transfer etc. of the warehoused goods between the importer and any other person may be at a price higher than the assessable value of such goods. Such a transaction squarely falls within the definition of “supply” and shall be taxable under the IGST Act, 2017. It may be noted that as per sub-section (2) of section 7 of the IGST Act, any supply of imported goods which takes place before they cross the customs frontiers of India, shall be treated as an inter-State supply. Thus, such a transaction of sale/
transfer will be subject to IGST under the IGST Act, 2017. The value of such supply shall be determined in terms of section 15 of the CGST Act, 2017 read with section 20 of the IGST Act, 2017 and the rules made thereunder, without prejudice to the fact that customs duty (which includes BCD and applicable IGST payable under the Customs Tariff Act) will be levied and collected at the ex-bond stage.
Levi ability of Integrated Tax on High Seas Sales Transactions
‘High Sea Sales’ is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. After the High sea sale of the goods, the Customs declarations i.e. Bill of Entry etc. is filed by the person who buys the goods from the original importer during the said sale. IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.
Import of goods
We need to examine two kinds of transactions –
1. That commence outside the territory of India and are concluded also outside territory of India and
2. That commence outside India but conclude by entering the territory of India.
Company in Germany supplies goods from Germany to another company in Sri Lanka – this is not a supply in the course of inter-State trade or commerce because it commences and concludes outside the territory of India.
It would be so, even if the goods were supplied by the company in Germany from Germany to a customer incorporated in India if the goods are not ‘brought’ into India but sold in high seas to yet another company in Singapore.
In order for every supply to come within the operation of sub-section 2 to section 7 it requires that the resultant effect of the supply must cause the goods to enter the territory of India.
This Act does not enjoy extra-territorial jurisdiction and is limited to imposing tax if the goods are imported into the territory of India.
In this regard Customs circular issued by the CBEC and an Advance Ruling by the Kerala Authority for Advance Ruling (AAR) is relevant. After the CGST Amendment Act 2019 as effective from 1st February 2019, goods sold before the same is cleared for customs clearance i.e. high sea sales, sale of goods when they are in the bonded warehouses before customs clearance etc. will not be treated as a supply under Schedule III read with Section 7(2) of the CGST Act 2017.
Goods have been brought into India but have not left the customs frontiers of India, that is, the limits of a customs area, any supplies that are taking place after being brought into India until they cross the customs frontiers of India even though the place of entry into India and the place that comprises the customs frontier may be in the same State will continue to be supply is in the course of inter-State trade or commerce.
Goods have been imported from France by a company incorporated and registered in Nasik which have landed at Mumbai port but during their clearance are supplied by the Nasik company to a company in Pune, this supply continues to be in the course of inter-State trade or commerce. Even though the supplier is in Nasik and the recipient is in Pune, since the goods have not yet crossed the customs frontiers of India at the time of supply. This supply comes within the operation of sub-section 2 of section 7.
A test that can be applied to determine whether the supply has been concluded before the goods crossed the customs frontiers of India or not crossed the customs frontiers of India is – who has filed a bill of entry in respect of the goods imported as required under the Customs Act.
Transactions taking place before filing of bill of entry are termed as “high sea sale” transactions under common trade practice where the original importer sells the goods to a third person before the goods are entered for customs clearance.
This supply is covered within definition of inter-State supply. Provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 in as much as in respect of imported goods provides that all duties, taxes, cess etc. shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the customs clearance purposes.
High sea sale transactions, though regarded as supply in the course of inter-State trade or commerce, are not subject to levy of IGST as the supply takes place before filing of Bill of entry and IGST in case of importation of goods can be levied at the time of filing of Bill of Entry.
Hence, IGST on high sea sale(s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time.
Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance. The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/ commission paid etc, to establish a link between the first contracted price of the goods and the last transaction.
In the above example, supply by Nasik company to recipient of Pune is high sea sale transaction and is not subject to levy of IGST(CTA). When Pune recipient files bill of entry, IGST has to be paid on the assessable value which shall include the margin charged by Nasik supplier also.
In fact, after the CGST Amendment Act 2018, all high seas transactions and merchant trading transactions will be covered by Schedule III i.e. activities which are neither supply of goods nor supply of services w.e.f. 01/02/2019
Point for Consideration:-
E.g.: If goods are imported at Mumbai port but the importer is at Delhi, the place of supply shall be Delhi;
In case of multi State registration, GSTIN mentioned on the Bill of entry would discharge the IGST on Reverse charge on import of goods even if the port is situated in separate State.
Import of Services means as per section 2(11)
(11) ‘‘import of services” means the supply of any service, where––
(i) the supplier of service is located outside India
(ii) the recipient of service is located in India and
(iii) the place of supply of service is in India
The phrase “import of service” is very broad and covers all such supplies where:
(a) The supplier is located outside India,
(b) The recipient is located in India
(c) Place of supply is in India.
Point for Consideration:-
However, the recipient will not be required to obtain a registration for that purpose.
Import of services is included in the definition of ‘supply’ in section 7(1)(b) of CGST Act. By this provision personal imports even without being in the course or furtherance of business will also attract levy of GST.
Notification 9/2017-Int.(R) dated 28 June 2017 entry 10(a ) where ‘other than commerce’ is exempted from IGST.
However, there is no such exemption in CGST notification 12/2017-CT(R) dated 28 June 2017.
Import of services which is an intra-State supply under section 13 of IGST Act would NOT be exempt from tax except for the threshold exemption under section 22 of CGST Act.
Import of services by a person from a related person or from any of
his other establishments outside India, in the course or furtherance of business.
(a) The expression ‘import of service’ has been defined to bear an Sine qua non (essential condition) of an outflow of foreign convertible currency, and therefore, excludes any form of importation of services without consideration.
Therefore, this clause is inserted to encompass such of those services, which are received from related persons / their establishments outside India. It is important for one to refer to Explanation 1 to Section 8 of the IGST Act, 2017 which deems any establishment outside India as an establishment of a distinct person. By virtue of this treatment, all services received by a person in India from its branches /
establishments located outside India would be considered to be a supply, even when made without consideration.
(b) For instance, say A Ltd is a holding company in USA and B Ltd a subsidiary in India. Many business operations are centralized in the USA such as accounting, ERP and other software, servers for the backup, legal function, etc.
For the purpose of this clause, the back-end support provided by the holding company to the subsidiary company in India shall be regarded as a supply, whether or not there is a cross charge, even if the same is not recognised in the books, or any contracts, since it is categorized as an import of service by a person from a related person without consideration, in the course of business.
Place of Supply – Supplies outside India
Place of supply of goods where the goods are imported into or exported from India will be determined in accordance with section 11 of the IGST Act.
Export of goods is defined in section 2(5) of the IGST Act and
Import of goods is defined in section 2(10) of the IGST Act.
With these definitions, which are with reference to the movement of goods and not the location of the supplier or recipient.
The place of supply in this case will be:
(a) In the case of import of goods, the location of the importer and
(b) In the case of export of goods, the location outside India where the goods are exported.
While payment in convertible foreign exchange is for services including transactions involving goods treated as services, the same is not a criterion for determining whether a supply of goods is an export of goods or import of goods.
Transactions of merchanting trade – where the goods are procured from one country and are directly dispatched without their entering into India, will not be a supply in the ‘taxable territory’ of India.
Such transactions will be included for a financial effect in the books of accounts, without invoking the levy provisions under the GST laws due to jurisdictional issues.
Another form of international supply commonly known as High Sea Sales (known as ‘HSS’) is also a transaction that transpires outside the taxable territory and accordingly, does not attract the incidence of GST.
Re-import of export goods will however, be liable to GST. It is interesting to note that ‘location of supplier or recipient’ are not relevant in this section.
‘HSS’ of imported goods is a term used to denote a transaction whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. Since all transactions entered within the territory of India for sale and purchase of goods is taxable under GST, there were doubts on the levy of GST on ‘HSS’. More so, when such ‘HSS’ were categorised as inter-State supplies.
Accordingly, the Government clarified the position of levy of GST on ‘HSS’ vide Circular No. 33/ 2017-Cus dated 01.08.2017 – that IGST on ‘HSS’ transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time.
In other words, the buyer of ‘HSS’ shall be disposing IGST on such imports and as part of Customs. Further, value addition accruing in each such ‘HSS’ shall form part of the value on which IGST is collected at the time of clearance i.e. buyer shall pay IGST on the final purchase value as per last High Sea transaction envisaging all margins earned by all persons who made ‘HSS’ of such goods.
The following Circulars are relevant to note:-
Circular No. 46/2017-Cus, dated 24.11.2017 regarding in-bond sales makes it explicitly clear that IGST is not applicable until bill of entry for home consumption is filed.
Circular No. 3/1/2018-IGST, dated 25.05.2018 regarding applicability of Integrated Goods and Services Tax (integrated tax) on goods supplied while being deposited in a customs bonded warehouse – wherein it is clarified that integrated tax shall be levied and collected at
the time of final clearance of the warehoused goods for home consumption i.e., at the time of filing the ex-bond bill of entry and the value addition accruing at each stage of supply shall form part of the value on which the integrated tax would be payable at the time of clearance of the warehoused goods for home consumption.
CGST (Amendment) Act, 2018 dated 29.08.2018 (effective from 01.02.2019) Schedule III to CGST Act, 2017 to insert following entries, namely-
These transactions will neither be treated as supply of goods nor supply of services.
Imports will be liable to IGST in addition to Basic Customs Duty and exports will be zero-rated with benefit of refund of attributable input tax credit, or refund of tax paid on such exports.
Taxation Amendment Act, 2017 for the necessary amendments made to Customs Tariff Act, 1975 and Central Excise Act, 1944 to enable imposition of BCD+IGST(CTA)1 on import of goods liable to GST.
In case of ‘bill to-ship to’ arrangements involving cross border trade. It is not important for the supply is ‘billed to’ a person outside India but the supply is the ‘shipped to’ a person outside India.
In fact, it is not at all relevant where the billing is done ‘to’ for the transaction to come within the operation of section 11.
As mentioned earlier, payment of foreign exchange is not a criterion that determines whether the supply is an export or not.
Reference may be had to discussion under section 16 regarding ‘supply by way of export’ which qualifies for zero-rated benefit. It is sufficient to mention here that in the export – goods shipped to a place outside India – would qualify as an export eligible for zero rated benefit for the second leg of transaction.
Exports, therefore, are always determined based on their ‘ship to’ location being a place outside India whether or not they qualify for the zero-rated benefit under section 16.
Similarly, import of goods also are determined based on the ‘ship to’ location being the place within India with a journey or originating outside India.
However, with the proviso to section 5(1) imposing GST is not under the IGST Act but under the Customs Tariff Act, as soon as the goods supplied qualify as import of goods under section 11, they attract the incidence of custom duty along with additional customs duty equivalent to IGST. It isimportant to note that the similarity in the definition of import of goods and export of goods and the dissimilarity in the treatment of GST in these cases.
Export of goods means as per section 2(5)
“export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;
Export of goods will be treated as ‘zero-rated supplies’.
Accordingly, while no tax would be payable on such supplies, the exporter will be eligible to claim the corresponding input tax credits. It is relevant to note that the input tax credits would be available to an exporter even if the supplies were exempt supplies so long as the eligibility of the input taxes is established.
Point for Consideration:-
(i) export the goods under a Letter of Undertaking, without payment of IGST and claim refund of unutilized input tax credit; or
(ii) export the goods upon payment of IGST and claim refund of such tax paid, without of course, charging this IGST to the customer. That is, to claim rebate, pay-without-charging only then will this refund be available.
Export of Services means as per section 2(6)
“export of services” means the supply of any service when, ––
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange [or in Indian rupees wherever permitted by the Reserve Bank of India”]; and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
The concept of export of services is broadly borrowed from the provisions of the erstwhile Service Tax law. But it is remarkably dissimilar to definition of export of goods.
It is for this reason the correctly identify whether supply involving goods are treated (by schedule II) as supply of services. If this ‘treatment by fiction’ is misunderstood that would lead to misapplication of the definition and claiming benefits that are not available or foregoing benefits that could have been availed.
Under the GST regime, export of service will be treated as ‘zero-rated supplies’. Accordingly, while no tax would be payable on such supplies, the exporter will be eligible to claim the corresponding input tax credits.
The point to note that the input tax credits would be available to an exporter even if supplies were exempt supplies as long as the eligibility of the input taxes as input tax credits is established.
The exporter may utilise such credits for discharge of other output taxes or alternatively, the exporter may claim a refund of such taxes.
The exporter will be eligible to claim refund under the following situations:
(a) He may export the services under a Letter of Undertaking, without payment of IGST and claim refund of unutilized input tax credit; or
(b) He may export the services upon payment of IGST and claim refund of such tax paid.
Point for Consideration:-
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons.
Therefore, where both the establishments are located in a State/ Union Territory under the same GSTIN, the establishments will not be considered as distinct persons.
Amendment made by IGST Amendment Act, 2018- Effective from 1.02.2019
In clause (6), in sub-clause (iv), after the words “foreign exchange”, the words “or in Indian rupees wherever permitted by the Reserve Bank of India” inserted. This amendment is made to consider a service to be exported even if the export proceeds are received in Indian rupees, if the same is permitted by RBI. This has been done mainly to include within export of services, services provided to Nepal and Bhutan wherein payment is received in Indian Currency
Section 13 of the IGST Act, 2017 provides for determination of place of supply in cases wherein the location of the supplier of services or the recipient of services is outside India. Thus, this section provides the place of supply in relation to international or cross-border supply of services. Place of supply of a service shall determine as to whether a service can be termed as import or export of service.
The author can be contacted for further clarification at 8882370570 or via mail at [email protected]
The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. The document is made with utmost professional caution but in no manner guarantees the content for use by any person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the matter given. The document is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this document will be accepted by us. Professional advice recommended to be sought before any action or refrainment.