Introduction

India is the fastest growing economy in the world and is just preceded to the economy of china. India has the seventh largest economy in the world. The basic tool to evaluate any country is its Balance of Payment (which includes reserves, current and capital accounts). One of the most significant factors that lead to a growth in the economy of a country is Trade (import-export). So it becomes a vital part to have a watch trade performance on both, domestic as well as international markets. Implementation of the regime would be a speculation to all the sectors of industry.

After the implementation of the GST, it would change the business structure of India and would also bring some significant changes on the impact of international trade (import-export) of goods through the change in the computation of the basic customs duty. This might bring forth a possibility of the withdrawal of various tax exemptions and amendments to the terms if the FTP (Foreign Trade Policy).

Meaning

What is Import-Export of goods?

“Export of Goods”, as defined in central GST Act, 2016,means taking out of India to a place outside India.

“Import of Goods” with its grammatical variations and cognate expressions, means bringing in India from a place outside India.

What is Import-Export of services?

The supply of any service shall be treated as an “Import of service” when,

  • The supplier of service is located outside India,
  • The recipient of service is located in India,
  • The place of supply of service is in India, and
  • The supplier of service and the recipient of service are not merely establishments of a distinct person;

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.

How will the Import-Export of goods/services be treated under GST?

Supply of goods/services in the course of import and export has been considered as Inter-State trade or commerce.

“Integrated Goods and Services Tax” (IGST) means tax levied under this Act on the supply of any goods and /or services in the course of inter-State trade or commerce.

Hence, the provisions of IGST act shall be applicable to supply of goods/services in the course of import and export.

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

export-and-import

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 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.

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.

For example, ‘X’ imported goods worth of INR 10,000 and incurred some expenses to produce the final good. 10% of basic customs duty is chargeable on the imported goods, and then manufactured goods are sold at INR 45,000 plus applicable GST.

The cost of goods was 10,000, with additional BCD of 10% of the cost which makes the cost of imported goods as 11,000 and an additional charge of 5 % (550) CGST and 7 %( 770) SGST of the cost of imported goods including BCD makes it INR 12,320.

When these imported goods are in the states for example 45,000 with CGST on the import of 5% (2,250) and SGST on the import of 7% (3,150) computes the sale value as INR 50,400.

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/she is unable to utilize the credit then, he/she can go for refund of credits as per section 38 of proposed Central GST Act, 2016
In a nutshell; imports and exports are going to be covered in IGST. Exports will be zero rated and refund of ITC shall be allowed. IGST, as well as Basic Custom Duty, shall be leviable on imports.

IMPACT ON IMPORTS

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

Some of the implications for imports and importers by the implementation of GST in India:

  • Import as the Inter-State Supply: Imports in India will be considered as Inter-State supply and accordingly will attract the Integrated Goods and Services Tax (IGST) along with BCD and the other surcharges.
  • Import of Services: liability of the payment of tax on the service receiver, services are provided by a person who is residing outside India. This is similar to the current provision of the reverse charge, where in the service receiver is required in order to pay tax and file return.
  • Transaction Value: Currently CVD is charged on the MRP valuation principle. Under the new regime, IGST include CVD and will be charged on the transaction value. This may also require working capital restructuring.
  • Refund of Duty: Under the new regime, the tax which is paid during the import will be available as a credit under the “Import and Sale” model. Also, the refund of SAD is available, after doing the specific compliance; no such restrictions are placed under GST.

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Registration and GST Return Filing. You can also use our GST software for doing end-to-end GST compliance.