JUNE 26, 2018

By K Srinivasan, IRS

IMPORTS have always been treated as equivalent to a transaction in the course of interstate trade and so also Exports. (Article 269A refers)

But, let us now confine our discussion to Imports, as the confusions confounding and confronting us, is only Imports with reference to their taxation under the IGST Act.

From time immemorial, as for the Constitutional provisions, Imports have always been regarded as an Interstate trade, particularly to keep away the States from its taxing jurisdiction.(Article 286 refers)

This implies that the Constitution confers upon the Centre the exclusive right of levy and collection of tax on interstate trade or commerce, including Imports. (Article 246A(2) read Article 269A, 269(1) refers)

Besides, the domestic cross border trade, the Constitution takes in its stride the Import/Export transactions as well, under the notional ambit of interstate taxable supply, though it belongs to a different genre of trade transaction. (Explanation to Article269A(1) refers)

The idea here is, the taxing jurisdiction of interstate trade or commerce including Import/Export, should remain within the powers of the Centre. (Article 246A(1) refers)

Whatever is the new problem now, post GST that there is a spate of questions and layers and layers of doubts about the taxability of Imports as an IGST transaction, independent of the process of Import having to be completed so as to attract the provisions of Customs Act and the commencement of levy under it.

There is absolutely no way IGST can be charged twice; once when the Goods are in the course of Import in the territorial waters before entering the Customs frontiers and again on clearance from the Customs Bond, a second time.

According to the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zone Act, 1976, India's territorial waters extend up to 12 nautical miles,

The Constitution of India simply has no specific provision to define Customs frontiers of India.

However, the Indian customs Act does have a definition to describe the customs frontier under Section 2(11).

Thus, Customs frontier, under Section 2(11) of the Customs Act, 1962,means the area of a customs station and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities .

The area in any Port where imported goods are ordinarily kept for clearance, i.e. for assessment, inspection/examination, verification of compliance requirements, and pending payment of Customs duty and other port charges, is commonly known as docks.

It can thus be expanded to include practically the following;

Port of entry or such other terms as Customs station, customs area, customs warehouse etc., all of them uniformly implying the requirement of the goods to be landed into the port of entry or such other place/s designated under the said Act. (Section 2(4) of the IGST Act read with Section 2(11) of the CA refers.)

The Simple problem is, even though Section 7 of the IGST Act overarches to cover under its ambit a tax of IGST on Imports even as the goods are being imported into the territory of India.

But, the Proviso to Section 5(1) of the IGST, Act limits operation of the said provision, coterminous with the commencement of Customs levies under the Indian Customs Act, which is only when the goods have entered the customs frontiers of India.

By all this, one thing is made clear, that any duty intended to be levied and collected as a countervailing measure such as the IGST, can be collected but only once and that too, strictly coinciding with the commencement of levy and collection under the Customs Act.

This is what is precisely circumscribed by the proviso to Section 5(1) ibid, to which Section 7(2)of the IGST Act surrogates for its crucial operations and survival.

The position with regard to taxation of Imports before introduction of GST, gives ample clue that even under the Customs Act, there was no provision equivalent to the provision of Section 7(2) under IGST Act, envisaging levy and collection of any countervailing tax before completion of Import while the Imported goods were still under voyage into the territorial waters of India, though.

In fact, it would be more appropriate to put it the other way around, that the Central Excise Law did not have a direct machinery provision to authorize levy and collection of CVD as it was to be done only under Section 12 of the CA read with Section 3 of the Customs Tariff Act.

It is therefore wise on the part of the Government to either disable the provisions of Section 7(2) of the IGST Act, or enable it by any other means than proviso to Section 5(1) of the IGST Act

This can be achieved either by an ordinance route or through issue of a Notification to keep the said tax from being levied and collected on the Imported goods twice, once while being on the high seas and again while deposited in the Customs port/ station/warehouse/Duty free shops in International /Domestic Airports.

When goods are bought into the Country on travel from duty free shops, analogous to regular personal baggage, subject to baggage allowance, the passengers would be liable to duties of customs and other attendant duties as at the time of baggage clearance, which includes post GST, IGST.

Goods transferred from customs bonded warehouse to duty free shops again would not result in any sale or supply in GST terms to attract any type of duty/tax.

When goods are similarly taken out on travel from the duty free shops, it amounts to Export of Goods and hence attracts no taxes, as would be expected of all Exports.

In fact, domestic travellers won't be allowed to buy goods from these duty free shops, unless Passport details of travel, accompanied by payment in foreign exchange are made.

The simple rationale is the duty free shops can sell goods if taken out of the country, by earning foreign exchange to justify the Zero rated payment of duty/tax.

As for SEZ sales to DTA, it being held equivalent to a customs bonded area, sale from SEZ to Domestic Tariff Area, will attract local taxes together with Customs duties at a reduced measure and accordingly on such basis IGST will be charged as well.

As for inter SEZ transfers, like no duties would be attracted when goods are transferred from one customs bonded storage to another, so would transfers between SEZ's not attract any duties/taxes.

CBIC Circular No. 3/1/2018-IGST dt 25/5/2018 clarifying that sale of goods while in deposit in a customs bonded warehouse, amounting to a taxable supply not just yet, should adequately take care of all the confusions created by the interpretations of Section 7 of the IGST Act, implying double taxation of IGST on Imports, twice, once while being in the course of Import and again while completion of Import.

Now that this misnomer is erased from the minds of people once and for all by the above recent Circular, there appears no scope for any further confusion on the above subject matter except one;

In case of sale of goods several times over, while being imported or while in bond, the value additions needs to be legitimately captured into the valuation of Imported Goods under Section 3(8A) of the CTA,1975, read with Section 12 of the CA, to enable charging of IGST, on the value of goods last sold.

A last word of suggestion in good faith is that the contents of the above CBIC Circular Dt. 25/5/2018 cited above may be asked to be issued as Trade/Public Notices by Commissionerates/Custom Houses, by briefly outlining the background of the issue and how it has been intended to be resolved therein.

Any further clarification, according to the Author, will only lead to more confusion than there already is.

(The author is Assistant Commissioner, GST, Chennai & Master Trainer, GST. The views expressed are strictly personal.)