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2021 (9) TMI 1416 - AAR - GSTLevy of IGST - import of footwear having a sale value not exceeding Rs. 1000 per pair - Eligibility for concessional IGST rate at 5% - HELD THAT - It is relevant to note that the GST rate on apparel and hotels was also based on price-based classification similar to footwear. However, the basis of taxation was sale value as compared to retail sale price for footwear. In the above-mentioned clarification, the transaction value is used as the basis for levying GST in both the cases, i.e., for retail sale price as well as for sale value. The transaction value in the context of sale value is the value of supply, whereas, it is the declared sale price in the context of the retail sale price. However, the differential GST rate on the basis of retail price failed to account for any discount offered by the supplier. Even if the goods were sold at the price below the threshold due to a discount offered, the seller was not able to avail concessional rate of tax as the rate was linked to the retail sale price. Therefore, there was a demand to levy tax on transaction value and not on retail sale price so that when footwear was sold at a discount on the printed price, the tax would be charged on the transaction value. IGST is imposed on the imported goods to neutralise the impact of GST being levied on domestic goods. GST is a supply-based, value-added taxation system. The levy is triggered when the goods are supplied and is charged on the basis of transaction value i.e., the value of supply. As the goods move across the supply chain, taxes are levied on the basis of the actual value of the supply. The amendment made to Sr. No. 225 of Schedule-I brought price-based differential taxation on footwear in line with the principle of GST. Therefore, if the supply value is below Rs. 1000 per pair, IGST at 5% would be applicable and if supply value is above Rs. 1000, it would attract IGST at 12%. Thus, the imported footwear of sale value of Rs. 1000 per pair are liable to Integrated Goods and Services Tax at the rate of 5%.
Issues:
1. Applicable rate of Integrated Goods and Services Tax (IGST) on import of footwear not exceeding Rs. 1000 per pair. Analysis: 1. The applicant, engaged in import and distribution of footwear, sought an advance ruling on the IGST rate applicable to footwear not exceeding Rs. 1000 per pair. IGST is to be levied as a duty of customs at the time of import, and the applicant claimed eligibility for a reduced rate of 5% under a specific notification. 2. The applicant argued that the term 'sale value' in the notification should be interpreted as transaction value, not retail sale price. They supported this with the fitment committee's recommendation and a relevant circular. The jurisdictional customs authorities were contacted for comments but did not respond. 3. During the hearing, the applicant reiterated their submissions, emphasizing that GST is based on value addition in the supply chain. They provided details of the supply chain for imported and domestically manufactured footwear, stating that both fall below Rs. 1000 per pair initially. 4. The ruling authority reviewed the case in the absence of comments from customs authorities. IGST is to be levied on imported goods as per the Customs Tariff Act, based on assessable value plus customs duty. Amendments to the notification governing IGST rates on footwear were discussed, focusing on the shift from retail sale price to sale value for determining the tax rate. 5. The concept of 'sale value' was analyzed, highlighting the need to base GST on transaction value to account for discounts offered. The 2nd amendment to the notification aimed to link the concessional GST rate to the supply value, aligning with the GST principles of value-based taxation. 6. The ruling concluded that footwear below Rs. 1000 per pair is subject to IGST at 5%, based on the value of supply. Future changes in GST rates, discussed in the 45th GST Council Meeting, may impact the ruling, with proposed adjustments scheduled for implementation in 2022. 7. The ruling affirmed the application of a 5% IGST rate on imported footwear not exceeding Rs. 1000 per pair, based on the principles of value-based taxation and the specific amendments to the notification governing IGST rates on footwear.
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