Presently, the customs duty is having three major components
i. Basic Customs Duty (BCD),
ii. Countervailing Duty (CVD), and
iii. Special Additional Duty (SAD)
Under the GST Law, CVD and SAD will be subsumed by GST, however, BCD will continue as under the present regime and will be charged as per the current law.
EC & SHEC shall also continue to be levied on imports of goods on custom duties except CVD and SAD.
Some of the salient features of GST's impact on imports are given below.
Tax Structure under GST for Imports
Input Tax Credit
IGST - Allowed
BCD - Not Allowed
Imports to be Treated as Inter-State Supply
Supply of goods in the course of imports will be deemed to be a supply of goods in the course of inter-state trade and accordingly leviable to Integrated Goods & Service Tax (IGST) in addition to the customs duties and other charges.
Destination Based Taxation
The incidence of tax will follow the destination principle i.e. GST shall be levied where goods are to be consumed and services are to be received. The liability of payment of tax and filing of return will, therefore, akin to the provision under reverse charge mechanism, be on the service receiver, if such services are provided by a person residing outside India.
Transaction Value Based Valuation
The concept of MRP valuation under GST will be replaced by the transaction value based valuation. Consequently, the amount of CVD levied on customs duty will be effected as this is calculated on MRP under the present regime, but the same will be replaced with IGST as calculated on the transaction value. This transaction value includes any taxes, duties, fees and charges such as anti-dumping duty, safeguard duties, and other additional duties levied under any other statute. This would impact the valuation, working capital and management of such imports.
Input Tax Credit Available
IGST paid on imported goods would be available as credit under "import and sale" model without any restrictions on credit of SAD. No such credit is available under the present regime for either CVD or SAD on which credit is available only after special compliances.
Hence, these changes will significantly impact the working capital requirements under GST regime, but at the same time decrease the cost of imports as there will be a free flow of credit.
Withdrawal of Exemptions
At present there are various exemptions available and CVD is calculated considering those exemptions. To align the provisions of Customs Act or Rules and Foreign Trade Policy with GST, the various exemption notifications which are presently available in customs would not be available due free flow of the credit chain.
Filing of Return
Under GST, a monthly tax return shall be filed by an importer as opposed to the present regime of filing return under state tax law for imports and for claiming CVD.