GST on Import

GST on Import – Input Tax Credit, IGST and Compensation Cess Calculation 

GST on Import: Goods and Service Tax (GST) is a tax that is imposed on the supply of goods and services with the main aim to restrain the stumbling effect of indirect taxes like VAT(Value Added Tax).

Imports are the trade of goods and services in the country from a foreign country for the purpose of sale, utilization, processing, and even export.

According to Article 269A of the Constitution of India, the import of goods and services is an Inter-State trade process. Hence, IGST payment, where ‘I’ stands for Integrated, is mandatory for the suppliers from outside India to import goods and services as it is an interstate supply process.

The IGST Act falls under the Customs Act,1962, and Customs Tariff Act, 1975 which allows the collection of IGST on the import of goods and services from suppliers outside India.

Along with the IGST, Basic Customs Duty is also levied on imported goods and services. In the case of luxury items and demerit goods, GST Compensation Cess is applicable.

IGST and Compensation Cess Calculation

Under the IGST Act, Assessable value with addition to customs duty determines the value of goods to impose Integrated Tax. In case of calculation of Compensation Cess, Assessable value with addition to Basic Customs Duty only. Integrated Tax paid is not included in the calculation of Cess.

IGST and Compensation Cess are liable to include along with Safeguard Duty or Anti-Dumping Duty when the imported goods are liable to Safeguard Duty or Anti-Dumping Duty.

Let us consider an example to ease the process;

PARTICULARS AMOUNT
Assessable Value 1000
Basic Custom Duty@25% 250
Education Cess@2% 5
Value for Integrated Tax 1255
Integrated Tax@15% 188.25
Value for Compensation Cess 1255
Compensation Cess @12% 150.6
Cost to Importer 1593.85

Input Tax Credit of IGST Paid

Input Tax Credit is allowed for importers for payment of IGST and Compensation. Although, Compensation Cess payment is only applicable for Compensation Cess now, according to the ITC rules. In the case of Input Tax Credit, Education Cess and Basic Custom Duty are not available.

Import as Baggage

IGST and Compensation Cess does not include Passenger Baggage. Under the Baggage Rules, 2016, 35% of Basic Customs Duty is applicable along with the reasonable Education Cess which is over Duty-free allowances.

Import of Goods by 100% EOU’s and SEZ’s

Under some conditions, EOU’s are exempted from Custom Duties, IGST, and Compensation Cess, and Duty-free import of goods are allowed. Although the IGST exemption was only available till 31st March 2018.

Under Section 3(7) of the Customs Tariff Act, 1975, an Integrated tax exemption is done for Goods imported by a unit or a developer in the Special Economic Zone for authorized operations. It is listed with vide notification No.64/2017- Customs dated 5th July 2017.

Import of Services

Import of Services should fulfill these conditions for the supply of service;

  • When the supplier is located outside India.
  • When the recipient is located in India.
  • When the Location of supply service is in India.

For the imports to be considered as supply, there is no requirement of fulfilling the Business test. According to Section 25 of the CGST Act, import of services is considered as supply (even without any consideration), when the taxable person is related to the person or distinct from the person.

Determination of the Location of Supply

Section 13 of the IGST Act holds the following provisions related to the Determination of the location of supply;

S.NO SITUATION LOCATION OF SUPPLY
1 Default Rule other than specific situations mentioned below Location of the recipient of services or  location of the supplier of services if available
2 Services supplied to be made physically available for goods which are required

Services of the recipient or the person acting on his behalf with the supplier of services which require the physical presence

Location where the services are actually performed
3 Services from a remote location by way of electronic means provided Location at the time of supply of services where the goods are situated
Above provisions which are temporarily imported into India are not applicable for repairs and are exported after repairs Above provisions which are temporarily imported into India are not applicable for repairs and are exported after repairs
4 For an immovable property services supplied directly Place where the immovable property is located or intended to be located
5 Admission to, or organisation of an event Place where the event is actually held
6 Above services provided in more than one state India
7 Above Services provided in more than one state Proportionate basis
8 Services supplied to account holders by a banking company, or a financial institution, or a non- banking financial company Location of the supplier of the services
9 Intermediary services Location of the supplier of the services
10 Services up to one month period consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels Location of the supplier of the services
11 Transportation of goods, way of mail or courier not included Place of destination of such goods
12 Passenger transportation services Place for a continuous journey where passenger embarks on the conveyance
13 Services provided on board a conveyance Conveyance for the journey for first scheduled point of departure
14 Online information and database access or retrieval (OIDAR) services Location of the recipient of the services

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