Import of Goods for Builders and GST

[Manoj Kasture]

IMPORT OF GOODS, DUTIES APPLICABLE AND CREDIT  

GST has brought about big change in levies related to Imports, Exports and more importantly the Credit permissibility.

BASIC PROVISIONS OF CUSTOMS ACT, CUSTOMS TARIFF ACT, Integrated GST (IGST) and All types of Customs Duty and IGST, GST Compensation Cess:

1. Basic Customs Duty - Sec 12 of Customs Act for Levy of Basic Customs Duty (BCD)
2. Valuation of Goods for Customs Duty - Sec 14 of Customs Act
3. Additional Duty (Also called CVD) - Sec 3(1) of Customs Tariff Act 1975 – {Equal to Excise Duty}
4. Additional Duty (Part excise Duty as may be notified) - Sec 3(3) of Customs Tariff Act 1975 – Additional Duty (Part excise Duty as may be notified)
5. Sec 3(2) of Customs Tariff Act 1975 – Valuation of Goods for Duty under Sec 3(1) and Sec 3(3)
6. Special Additional Duty (SAD) – Sec 3(5) of Customs Tariff Act – {equal to VAT}
7. “Import of Goods” – Sec 2(10) of IGST Act
8. Imports are Inter State Supply - Sec 7(4) of IGST Act
9. IGST levied on Interstate Supply – Sec 5(1) of IGST Act
10. Sec 5(1) of IGST Act – Levy of IGST and Sec 3(7) of Customs Tariff Act (CTA) (wef 1^st July 17)
11. Sec 3(9) of Customs Tariff Act 1975 – Imposing GST Compensation Cess (wef 1^st July 17)
12. Credit of IGST - Sec 20 of IGST Act
13. Credit of Cess – Sec 11 of GST Compensation to Cess Act  2017
14. Sec 8B of Customs Tariff Act 1975 – Safeguard Duty
15. Sec 9A of Customs Tariff Act 1975 – Anti-Dumping Duty
16. Imports related Key Difference between Pre-GST and Post GST
17. Bill of Entry – Sec 46 of Customs Act
18. Disclosure in GST return for claiming IGST Credit on Imports

Basis of various provisions in Customs Act, Customs tariff Act and IGST Levy and the various components to be considered for Levy of that different Duties on Import are discussed below.

1. Basic Customs Duty - Sec 12 of Customs Act for Levy of Basic Customs Duty (BCD)

This is levied on all goods imported or exported from India. Duty is as per Customs Tariff Act .

Point to note:

1. BCD is applicable only on GOODS. Import of Services is not subjected to BCD.
2. BCD (Basic Customs Duty) continues in GST regime. Sec 12 of Customs Act for levy of BCD also continues in GST Regime.
3. Credit of BCD is not permitted.

2. Valuation of Goods Imported or Exported as per Sec 14 of Customs Act 1962:

Sec 14 deals with valuation of Goods imported or exported.

Transaction value is elaborated here. It means price paid or payable for goods imported or exported subject to two conditions:

1. Price is sole criteria
2. Both parties are not related

Transaction value includes commissions and brokerage, engineering, design works, royalties, licence fees, cost of transportation, insurance, loading, unloading and handline charges.

Transaction value related provisions under Customs Act continue even post 1^st July 17 and please note that in GST similar provisions for Valuation are made.  

3. Additional Duty (Also called CVD) equal to Excise - Sec 3(1) of Customs Tariff Act

This duty is equal to excise Duty and levied on all goods imported in India. This levy is also called Countervailing Duty (CVD) and post GST this CVD is applicable only on few goods. For real estate purposes, we can consider that CVD is abolished on all materials and capital goods used in construction.

CVD was creditable in pre-GST regime and continues so in post GST regime. But CVD is applicable on only few goods in GST regime and those goods are not relevant for us.

Under GST regime, Section 5 of the IGST Act, 2017 provides that 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.

4. Additional Duty equal to fraction of Excise – Sec 3(3) of Customs Tariff Act (CTA)

This is in addition to CVD and is notified by government. This is “portion of excise duty as may be notified”. Post GST, this is abolished on majority of goods.

5. Valuation for Duty under Sec 3(1) and 3(3) of Customs Tariff Act – Sec 3(2) of Customs Tariff Act (CTA)

CVD and Additional Duty will be applicable on the summation of the following:

1. Value of Goods imported
2. Basic Customs Duty as per Sec 12 of Customs Act

Not Included:

1. CVD as per Sec 3(1) of Customs Tariff Act
2. Part Additional Duty as per Sec 3(3) of Customs Tariff Act
3. Special Additional Duty (SAD) – Sec 3(5) of Customs Tariff Act
4. Safeguard Duty – Sec 8B of Customs Tariff Act
5. Anti-Dumping Duty – Sec 9A of Customs Tariff Act
6. IGST - Sec 3(7) of Customs Tariff Act
7. GST Compensation Cess – Sec 3(9) of Customs Tariff Act

6. Special Additional Duty (SAD) – Sec 3(5) of Customs Tariff Act

SAD equal to State Sales Tax or VAT is levied. These are notified. Post GST, the list of Goods attracting SAD is very small.

For our business, none of our materials or capital Goods would attract SAD post GST.

7. “Import of Goods” – Sec 2(10) of IGST Act

Import of Goods as per IGST Act means bringing Goods into India from place outside India.

In GST, only if Goods when being brought to India from outside India will be considered as “Import of Goods”. – Sec 2(10) of IGST Act.

8. Imports are Inter State Supply - Sec 7(4) of IGST Act

All imports are defined as interstate supply of goods.

9. IGST levied on Interstate Supply – Sec 5(1) of IGST Act

Sec 5(1) of IGST Act mentions that IGST will be levied on Interstate supply and as imports are considered interstate supply it is implied that imports attract IGST.

10. Sec 5(1) of IGST Act – Levy of IGST and Sec 3(7) of Customs Tariff Act (CTA) (wef 1^st July 17)

Interstate Supply of Goods will attract IGST – Sec 5(1) of IGST Act

All imports are interstate supply – Sec 7(5) of IGST Act

Sec 3(7) introduced in Customs Tariff Act enabling levy of IGST Act.

IGST will be applicable on the aggregate of the following:

1. Value of imported goods AND
2. Basic Customs Duty As per Sec 12 of Customs Act
3. Any additional duty payable

11. Sec 3(9) of Customs Tariff Act 1975 – Imposing GST Compensation Cess (wef 1^st July 17)

GST Compensation Cess will be applicable on any imported article if such cess is notified and applicable on the goods in India.

12. Credit of IGST - Sec 20 of IGST Act

All provisions of Credit as per CGST Act will apply for IGST.

13. Credit of Cess – Sec 11 of GST Compensation to Cess Act 2017

Credit of Cess is permitted and governed by CGST Act.

14. Key difference between pre-GST and post GST Credit Eligibility for builders:

Duty	Credit Eligibility Pre-GST	Credit Eligibility Post GST
Basic Customs Duty – Sec 12 of Customs Act	Credit Disallowed	No credit allowed
CVD – Sec 3(1) of Customs Tariff Act	Credit Allowed in 2 years	Not applicable for our materials and Capital Goods
SAD – Sec 3(5) of Customs Tariff Act	Credit Disallowed	Same as above
IGST – Sec 3(7) of Customs Tariff Act	Did not exist	Credit Allowed
GST Compensation Cess – Sec 3(9) of Customs Tariff Act	Did not exist	Credit Allowed
Whether credit on Inputs (Goods for Construction) permitted ??	NO	YES
Whether credit on Capital Goods permitted ??	To extent of CVD only	IGST Credit permitted. CVD and SAD are not applicable.

15. Bill of Entry – Sec 46 of Customs Act

Importer has to electronically submit Bill of Entry for home Consumption or Warehousing to Customs Dept. this provision remains same.

Bill of Entry is applicable in GST regime.

Bill of Entry format is modified to include GSTIN of imported and bill of Entry must be only for Home Consumption for claiming Credit.

Notification 65 under Customs is issued to modify bill of Entry and its forms.

16. GST Returns by Importer to claim Credit:

If Importer desires to claim credit of IGST and GST Compensation Cess on imported goods, then he must disclose the following in GSTR-2 at Table no 5:

1. Bill of Entry number
2. Bill of Entry date
3. Taxable value, IGST, Cess and credit claimed.

It is essential that all Builders should evaluate the option of Imports for various Goods including Capital goods.

Discussions to this article

[CA.Ankit Gulgulia]

Mr Kasture as always well Articulated !