FEBRUARY 19, 2018

By K Srinivasan

THIS article is a second one of its kind on this portal.

The earlier one was an attempt to vindicate Constitutional validity of levy of Cess under GST and now the authority to levy of IGST and as well as Compensation Cess, under the Customs Acts.

It is needless to state at the very beginning that when there is Constitutional validity to levy IGST/Cess, the rest of the processes to enable the levy are after all, all about the availability of the machinery provisions in the Enactments of the respective Laws.

As far the Cess, for the benefit of readers I excerpt the relevant part of my previous article which was an aftermath of the interim order of the Delhi HC in a challenge made to the Constitutional validity of Cess under GST.

"The point to be made here is that Section 18 of the101st Constitution Amendment Act contemplates upon raising revenue and grants the sanction if not vests the power to legislate such Law as a means to raise through levy of Cess the necessary compensation avowed under it.

While Sec 18 of the Taxation Laws (Amendment) Act, 2017 is one Law that seeks to abolish cess, Compensation to States Act is another Law which creates it.

How is one Law superior or inferior to the other? They both are on the same footing. One extinguishes cess and the other created it and latter one prevails in their order of supersession.

One must not forget that entry 97 of Schedule VII is still in place to come to Government's rescue as it came when entry 92C was questioned about its retrospective validity.

It would still appear there is no paucity of powers to levy and collect taxes by the Government subject to of course Article 265 no doubt.

Since tax is distinguishable from cess, it would still appear that the levy of Cess can be done by an enactment for which there is inherent power with the Government to legislate a Compensation Act and through issue of attendant rules to specify the rates of cess and collect the same.

The period beyond which the said cess cannot be levied is, however, clearly stated in Section18 of the 101 st Act as not beyond 5 years and, therefore, one can safely harbor a view that till such time there appears to be no Constitutional bar in levying Cess for meeting out the Compensation to the States".

A further amendment in the 101 st CAA, 2016 for extending the period of Compensation Cess beyond five years, if need be, is not an impossibility, as everyone knows.

That said, let us now revert to the task on hand to vindicate the stand that IGST is a well-recognized tax under the Customs Tariff Act, 1975 unlike many think from an apparent absence of a specific definition of Integrated tax in the said Customs Tariff Act.

In fact there is a clear mention of the same in the proviso to Section 5 of the IGST Act that the 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 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

It is important to note that the IGST Act (Section 7(4) refers) adopts the definition of Imports as found in explanation inserted under Article 269A of the Constitution.The Customs Act adopts only this definition of Import in line with the said Article of the Constitution.

Section 7(2) of the IGST Act states the following:

"Supply of goods imported into the territory of India till they cross the customs frontiers of India, shall be treated as supply of goods in the course of inter-state trade or commerce".

Here, high sea sales i.e. supply in the course of import before crossing of customs frontiers is deemed to be an inter-state supply besides goods which are said to have entered Customs territory which are any way a supply in the course of inter-state trade attracting IGST.

However, it is not leviable to IGST at that time of Import because the proviso to the charging section 5 states that IGST shall be levied at the point when customs duties are levied i.e. the filing of import declarations.

Hence, there is no cause for confusion in respect of chargeability for import of goods. Only when bill of entry is filed, GST will be levied.  Any supplies before filing of such bill of entry will not be taxable .

This proviso mainly helps to avert multiple-taxation of goods while still being in the course of Import into the territory of India or while in Customs hold/bond until the final clearance is made by filing an ex-bond Bill of Entry.

The IGST Act though squarely applies only to the integrated goods and services tax levied under it, the subject matter of such levy is inter-state supplies of goods or services or both, subject to the proviso to the levying Section 5 of the said Act,already reproduced above.

The levy of all taxes therefore for Import is governed by the Customs Tariff Act,1975 while the taxability for import of goods and point of taxation is driven by the Customs Act, 1962 which states that all taxes at the time of importation will be collected when the import declarations are filed before the customs authorities for customs clearance. 

Though the question, is there really no legal provision to levy integrated tax (as defined in S.2(12) of the IGST Act) on the goods imported into India? has been reasonably answered in the foregoing paragraphs of the discussion, it is still felt some more arguments in its favor will help to set at rest the doubt once forever finally.

Let us turn to some more provisions of the Customs Act, to understand how the levy of Central Excise duty, sales tax,local taxes and other charges is being dealt with, contrasted with the levy of IGST at present in the post GST regime.

Section3. Levy of additional duty equal to excise duty, sales tax, local taxes and other charges –

(1) Any article which is imported into India shall, in addition, be liable to pay duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article :

(7) Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent as is leviable under Section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined under sub-section(8)

(8) For the purposes of calculating the integrated tax under sub-section (7) on any imported article where such tax is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in section 14 of the Customs Act, 1962, be the aggregate of - (a) the value of the imported article determined under sub- section (1) of section 14 of the Customs Act, 1962 or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and (b) any duty of customs chargeable on that article under section 12 of the Customs Act, 1962, and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs, but does not include the tax referred to in sub-section (7) or the Compensation cess referred to in sub-section(9).

It must be appreciated that though the levy is on an article imported into India, its value needs to be determined comparable to like articles on its supply in India calculated at that percentage prescribed, of the value of the Imported article as determined under Sub-section(8) of the said Section 3 of the Customs Tariff Act,1975.

This does not mean that any of those Acts-concerned, governing the levy of Excise duty, sales tax, local taxes and other charges including the IGST depends on the Customs Tariff Act for the very purpose of the levy .

Further, it does not also automatically flow from the above that due to absence of specific definitions of the above taxes in the Customs Tariff Act, levy of those taxes on imported articles under subsections(1)/(7) of section 3 of the Customs Tariff Act are to be construed as levied under the authority of the Customs Tariff Act and are therefore not to be construed as those taxes per se at allas defined in those respective Acts.

The answer to a further apprehension that the term ‘integrated tax' is not defined under the Customs Tariff Act 1975 and it is well settled that the definition of a term given in one Act cannot be automatically read into another Act, is unmistakably explained in the highlighted cross-reference found in Section 3(7) of the Customs Tariff Act,1975excerpted above for a quick check by the readers themselves.

Be that as it may. The fact that they are not those taxes namely Excise duty, sales tax, local taxes and other charges including IGST when collected by the Customs Authorities does not hurt in any way its levy and the only issue that may arise is perhaps how to operationalize the same in the Input Tax Scheme.

In the ITC/Cenvat provisions as long as these tax descriptions are captured as eligible duties/taxes for availing as ITC under the ITC Scheme, there appears to be no cause for any panic as there exists amply the basic authority for the levies of the original description in the Constitution of India say 246A (1)/(2) read with 265,269A,279A and 286.

Notably, all taxes at the time of Import are further to be discharged by cash.

Cash tax Challan used to remit taxes in to the Bank including IGST at the time of Import is an eligible document for availing ITC.

It gets credited further into the electronic credit ledger automatically to entitle you to the Cash Credit.

There appears to be no bar in the eyes of the Author in terms of Section 16 or 17 of the CGST Act, from an Importer availing of the ITC of the IGST paid at the time of Import.

There is no perceivable difficulty for either the Importer or the Union in the stated circumstances in appropriating the IGST paid/collected in terms of the new GST Law as also read with the Customs Laws adequately backed by the CAA,2016.

Furthermore, the hands of the Centre are fettered by the provisions of Articles 269A(1)to(4) and 268,269,270,271 and 272 in taking the revenue collections to the Consolidated Fund of India except otherwise permitted under those Article/s referred to above or in distributing it between the Union and the States in any other manner other than prescribed therein.

An argument that although proviso to subsection (1) of Section 5 of the IGST Act stipulates levy and collection of integrated tax (as defined in section 2 (12) of that Act) in accordance with the provisions of section 3 of the Customs Tariff Act, the said section 3 ( of the Customs tariff Act) is conspicuously devoid of any corresponding provision to operationalize the same, can be clearly turned down by the above detailed discussion that it lacks holistic appreciation of the Scheme of Taxation as envisioned and embodied in the Constitutional provisions and as adumbrated in the subordinate legislations cited and explained above in great detail.

It is important to note the objective of creation of a proviso under Section 5(1)of the IGST Act. In the absence of such a proviso, one would notice that by default the valuation prescribed under Section 15 of the CGST Act will come into play once a levy in question arises on any goods whose supply is in the course of inter-state trade or commerce.

Import having been equated already to a supply in the course of inter-state trade or commerce in terms of Explanation inserted under Article 269A of the Constitution, needs to be precluded from the purview of domestic valuation for the purpose of levy of IGST. Hence, proviso to Section 5(1) ibid.

That done, it is only logical that the time and manner of collection of IGST at the time of Import of goods be aligned to the Customs Laws to harmonize the levying and collection function of Customs.

Therefore, the coming in to play a whole host of Customs Import provisions of Sections 2, 3(1)/(7)/(8) of the CTA and Sections 2(11)/ (19)/(23)/(27), Sections 12/14(1)/(2)of the CA and attendant procedures thereof to regulate levy and collection of IGST under the Customs Acts.

The conclusion that there is no Legal Provision To Levy Integrated Tax (as defined in Section 2(12) of the IGST Act) on Goods Imported into India, is apparently a fallacy accompanied by a hasty conclusion.

In the humble opinion of the Author, no way there lies any threat to the authority of law to levy taxes such as Excise duty, sales tax, local taxes and other charges such as Cess, surcharge including IGST by the Government on imports under the Customs Laws so as not to be held ultra vires the other connected Acts including the IGST Act, in any of the situations cited above.

(The author is Assistant Commissioner, GST, Chennai and the views expressed are strictly personal.)