Implications of GST on Imports

I. Introduction:

Imports and exports play a crucial role in not only determining but also ascertaining the economic health of the country. Though Imports are discouraged, but no country is self-sufficient to meet its economic and consumption needs. In 2020-21, Indian imports were valued at approx. $390 billion. In this article, we shall emphasize on the documents to be maintained and proper availment of tax credits under GST.

There are two types of Imports:

1. Import of Goods

The import of goods has been defined in the IGST Act, 2017 as bringing goods into India from a place outside India. All imports shall be deemed as inter-State supplies and accordingly Integrated tax shall be levied in addition to the applicable Custom duties.

2. Import of services

Import of services has specifically been defined under IGST Act, 2017 and refers to the supply of any service where the supplier is located outside India, the recipient is located in India and the place of supply of service is in India.

II. List of Documents required for Import of Goods

• Bill of Entry

A bill of entry is a registered document issued by Custom Authority which contains complete details of goods imported. It covers details such as Invoice Details, Party Names, Assessable Value of Goods, duty amount, etc. This document is the primary document on the basis of which the importer can avail ITC.

• Commercial Invoice

A commercial invoice is the primary document issued by the exporter to the Importer. It contains information about the order, including details such as description, selling price, quantity, packaging costs, weight or volume of the goods etc., etc. The custom representative will decide to clear the shipment based on this Invoice.

• Bill of Lading or Airway Bill

Bill of lading under sea shipment or Airway bill under air shipment is carrier’s document required to be submitted with customs for clearance purpose. Bill of lading or Airway bill issued by carrier provides the details of cargo with terms of delivery.

Following are few other documents which shall be required for Import of Goods:

• Import License (IEC)
• Certificate of Insurance
• Letter of Credit or LC
• Technical Write-up or Literature (Only required for specific goods)
• Industrial License (for specific goods)
• Test Report (If any)
• RCMC Registration cum Membership Certificate
• GATT/DGFT declaration
• DEEC/DEPB/ECGC License for duty benefits

III. List of Documents required for Import of Services

• Commercial Invoice
• Tax Residency Service Certificate

Tax Residency Certificate is a certificate issued by the Tax Department to the Residents of that Country. It will help to determine country in which service provider is a resident and accordingly provisions of Double Taxable Avoidance Agreement (DTAA) can be applied. It is really important if there are withholding tax implications on the services provided. (For detailed information, please refer our article on Tax Residency Certificate)

IV. Tax On Import of Goods

Input tax credit of the integrated tax (IGST) and GST Compensation Cess paid during import is made available to the importer. In order to avail such input tax credit of IGST and GST compensation cess, an importer has to mandatorily declare GST Registration number (GSTIN) in the Bill of Entry. Once the Custom Agent (CHA) processes the Import through Customs, GST credit will automatically get reflected in GSTR 2B of Importer. The Importer can check the bill of entry status through Indian Customs Electronic Gateway (ICEGATE) website. However, it is important to compare the GST Amount between bill of entry and GSTR 2B and inform the CHA immediately in case of any discrepancies.

V. Tax On Import of Services

Importer of services will have to pay GST on reverse charge basis. Thus, the recipient of the service in India becomes liable for the payment of tax. Once the GST is paid on RCM basis the credit for the same can be availed.

VI. Important Points

• ITC should be availed of IGST only and not of Custom Duty
• It is advisable to maintain an import tracker for businesses engaged in frequent import of goods. The tracker should be reconciled with GSTR 2B as well as ICEGATE at the end of the year
• In case of imports of goods, set of import documents are required to be submitted with Authorised Dealer (AD) Bank on regular basis

VII. Conclusion

The department is issuing notices to businesses whose Import GST credits are not matching with Imports as per departments records. It is important to maintain robust documentation and detailed tracker of imports in order to provide proper explanation against such notices.

Authors:

Shreyans Dedhia

Partner | Email: shreyans.dedhia@masd.co.in

Anuj Pai

Associate Consultant | Email: anuj.pai@masd.co.in

Sutishna Dhanuki

Associate Consultant | Email: sutishna.dhanuki@masd.co.in