Custom Duty

Customs duty is a form of indirect tax which is imposed at the time of both import and export of goods and services. The tax which is imposed on the import of goods and services are is known as Import duty and for export of goods and services are known as Export duty. The government levied these taxes on the export and import of goods and services for raising money and to protect the domestic establishment from competitors which are in other countries.

In the past few months, the Government of India brought a major change in the tax collection system of a nation. For this, a new concept came into existence is GST (Goods and Services Tax). It is a new tax collection system in which customer is required to pay when they are using any goods and services.

Previously tax system was quite complex as there are multiple taxes such as Central Excise, value-added tax or service tax, state tax, etc.  which were imposed on goods and services. But now GST subsumed all taxes and there is now just one tax only.

Three categories of GST are:

  • Central Goods and Services Tax
  • State Goods and Services tax
  • Integrated Goods and Services Tax

Both CGST and SGST apply to the intra-state transactions whereas the IGST applies to the inter-state transactions.Customs duty is being replaced by IGST, which means instead of Custom duty, Integrated Goods and services tax is applicable on every export and import of goods and services.

IGST Act 2017, defines the import of goods to bring merchandise to India from anywhere outside India. Imports of goods and services regarded as inter-state supplies and integrated tax that will be imposed on them with other applicable customs duties.

Before the implementation of IGST, Custom duty was levied on all importing and exporting of goods and services. Apart from custom duty, other taxes are also levied on the same as an anti-dumping duty, basic customs duty, safeguard custom duty or countervailing duty on every import of goods and services.

After introducing GST,  a drastic change that came in the entire tax system. It holds all indirect taxes such as Central Excise Duty, State level tax, Service charges and convert it into a single tax which is known as GST. On the import of goods, only the integrated tax along with the basic customs duty will be chargeable.

Calculation of IGST

After the implementation of GST, it becomes essential for traders to understand how the tax calculation in trade business takes place. One must understand that tax on goods and services imposed keeping in mind factors such as mass, size, and extent of exported and imported goods.

Calculation of IGST on imports of goods

Assessable value of an imported item is Rs 1000
Basic Customs Duty = 10%
Integrated Tax Rate = 18%
The taxes will be calculated as follows:
Assessable Value = Rs.1000/-
Basic Customs Duty = Rs.100/-
The value to impose integrated tax = Rs.1000 + Rs.100 = Rs.1100/-
Integrated tax = 18% of Rs.1100 = Rs.198/-
Sum of Taxes = Rs.100 + Rs.198 = Rs.298/-

As per the GST Cess Act, 2017, collecting of Cess is on the value taken for imposing the integrated Tax. As per the above-given example, the calculation of Cess will be on Rs 1100. Under Integrated goods and services tax, at the time of moving commodities from custom station to warehouse, importers are not liable to pay integrated tax.

All tax collection will be received by the state where goods and services are being consumed and not by the manufacturing state.

Input Tax Credit

Under the GST system of taxation, a registered importer makes use of IGST imposed on him or her as an input tax credit. The importer can make use of the input tax credit to make payment of taxes during the outward supply of goods. In input Tax credit, basic customs duty will not be obtainable.

Along with the input tax credit, the importer can also avail benefit of the GST Compensation Cess before transmitting it to the ones in the supply chain. The importers must mention the GSTIN (GST Registration Number) in the Bill of Entry to get the input tax credit of GST Compensation Cess and IGST.

Import of services under GST

The import services as per GST Act 2017 are the supply of service by a service provider who belongs outside India but receiving services from India. The place where services are being given is also within India. As per the provision mentioned under Section7(1), (b) of Central state goods and services Act, 2017, only those importing services are being considered if those services are given in the course or continuance of business.

In short, those services which are without consideration will not be considered as supply. However, the business test is not obligatory for the imported services to be deemed as a supply. As per the provision mentioned in the Schedule, I of the CGST Act,2017, services imported by registered taxable person from the relatives or distinct person in continuance of course of a business will be considered as supply regardless of whether it has been made without consideration as mentioned in Section 25 of CGST Act, 2017.

Under GST, import of goods and services will be considered as inter-state supplies and falls under the category of integrated tax. A person who is doing importing of goods and services will be liable to pay tax on reverse charge basis.

However, in case of doing importing of all online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients or suppler based out of India will be liable to make payment of taxes. The supplier either will have to take registration or assign a person in India for making payment of taxes. In addition to that, the supply of goods and services to a Special Economic Zone (SEZ) developer or unit will be considered as inter-state supply. Such goods and services will also bear the integrated tax.

GST for exporters

Before GST came into implementation, duties were also imposed on the export of goods and services. As per the new tax system, the export of goods and services takes place from India to any other place outside India is considered as ‘Zero Rated Supplies’. It means that no GST will be applicable for the exporters. The registered taxable individuals that are exporting goods or services to places outside the country can claim a refund.