Basic Provisions of Customs Law and Taxability of Import of Goods

Basic Provisions of Customs Law and Taxability of Import of Goods

This article explains the basic provisions of the Customs Act, 1962. Which provides for levy and collection of duties on import and export of goods and the Customs Tariff Act, 1975. Basic Provisions of Customs Law and Taxability of Import of Goods are discussed.

This act provides for tariff rates, valuation provisions for levy of IGST and compensation cess, levy of countervailing duties on non-GST goods, etc. and relating to taxability of import of goods.

Taxable event

Entry/exit of goods should take place physically to levy customs duty under Customs Act, 1962 (‘CA’) implying thereby a merchant affecting the delivery of goods from Japan to Germany without bringing goods in India or taking goods out of India shall not be liable to pay customs duties.

Taxable event for imports are as follows :

 Goods are cleared for home consumption – Taxable event arises when the bill of entry for home consumption is filed.1
 Goods are cleared for warehousing and later for home consumption – Taxable event arises when the bill of entry for home consumption (i.e., ex-bond bill of entry) is filed and not when into the bond bill of entry is filed.2
 Goods are re-exported – No import duty payable. Export duty shall be payable [Section 69].

A taxable event for exports is when goods cross territorial waters of India [Section 12].

Valuation of import/export Goods

Section 14(1): ‘Transaction value at the time and place of importation’shall be taken as the value of imported/export goods. However, various adjustments are required in this transaction value as given in valuation rules.

Time and Place of importation means the time when goods are brought for being cleared for home consumption or for being removed for deposit in a warehouse (place).

Section 14(2): Notwithstanding above, tariff Value can be fixed by notification in respect of a certain class of goods.

Related Topic:
Customs Duty and Health Cess exempted under Notification 20/2020 Customs dt 09/04/2020 on Face Masks, PPE Kits, COVID-19 Testing Kits, etc.

‘Rate’ of duty and ‘relevant date’ of duty

The rate of duty: There are two Schedules given in the Customs Tariff Act, 1973 (‘CTA’) :

 First, enlist import duty rates: In it, the standard rate of duty is specified in column (4) and preferential rate (lower than standard rate) of duty is specified in column (5). Preferential rate implies imports from preferential areas as notified under section 4(3) of CTA.
 Second, enlist export duty rates.

‘Relevant date’ of ‘rate of duty’ is as follows:

(i) clearance for home consumption:
(a) vehicle/ aircraft: Date of ‘filing Bill of Entry’ (BOE) or date of ‘arrival of vehicle/aircraft’ whichever is later.
(b) vessel: Date of ‘filing Bill of Entry’ (BOE) or date of ‘entry inwards to vessel’ whichever is later.
(ii) clearance from warehouse for home consumption: Date of ‘filling of BOE’.
 In case of exports: Date of ‘let export’ order [section 16].

Example: Goods are shipped on 1st January 2018. Goods reach land mass and are being removed for deposit in the bonded warehouse on 15th January 2018. Into bond BOE is filed on 15th January 2018 and ex-bond BOE on 1st February 2018.In the present case, date of ‘Rate of Duty’ shall be as prevailing on 1st February 2018 and transaction value shall be as on 15th January 2018: Even though goods are getting cleared on 1st February 2018 but the value of goods shall be as determined on 15th January, 2018 (transaction value at time and place of importation). Time and Place of importation means the time when goods are being removed for deposit in a warehouse (place).

Levy of IGST on the import of goods

IGST shall be levied and collected when duties of customs are levied and collected on the import of goods [proviso to section 5(1) of IGST Act]. Till the goods cross customs frontier, supply shall be treated to be in course of interstate trade [section 7(2) of IGST Act]. Accordingly, on the import of goods, IGST shall be collected when the bill of entry for home consumption is filed (Same also applicable for CC, refer section 8 of GST (Compensation to States) Act).

Tax rate and valuation

Tax rate of IGST and CC shall be ‘as applicable on like article’ when supplied in India [section 3(7)/(9) of CTA].

Valuation: IGST and CC shall be charged on the aggregate of following values [section 3(8)/(10) of CTA] :

 value as per section 14(1) or (2).
 duties of customs (i.e., BCD, EC, SHEC, Social welfare surcharge (SWC)). Please note safeguard duties, dumping duties are not duties of customs and hence not includible while charging IGST/CC.

Example: In the example as given above, suppose motor vehicle was getting
imported. The following shall be tax/duty figures:

High seas sales (HSS)

HSS should not be understood literally, i.e., can be on seas/air/road, etc. These are sales in the course of import and before goods clear from customs barrier. These are not leviable to tax. BCD/IGST/CC shall be levied only when BOE for home consumption is filed. However, transaction value shall be taken to be ‘last transaction value before the goods are brought for being cleared for home consumption or for being removed for deposit in a warehouse’ on which adjustments, as required in valuation rules, shall be made.

Customs bonded warehouse sales

Goods are permitted to be sold when these are stored in the bonded warehouse [section 59]. The bonded warehouse is part of customs barrier. Sales are similar to HSS (sales in course of import).8 Deposit of goods into bonded warehouse happens after ‘place of importation’ has reached. Thus, valuation provisions should account for such sales otherwise these would go untaxed.

For example, goods reach the land mass of India and are removed for being deposit in the warehouse on 15th January 2018. Into bond, BOE is also filed on the same day. Goods are sold while the goods are in the warehouse on 20th January 2018 for Rs.1,500. As per section 14(1), value as determined on 15th January 2018 (say Rs.1,000) shall be taken for charging BCD/IGST/CC. This leads to a case where no tax is paid on the margin of Rs.500. In order to ensure that tax is also paid on Rs.500, Finance Bill (FB), 2018 states that in case of bonded warehouse sales, Value shall be taken to be last transaction value (without mentioning time
and place of importation).9 Therefore, in the above example, w.e.f. date of enactment of FB (unless there is retrospective amendment), BCD shall be charged on Rs.1,000. IGST/CC shall be charged on Rs.1,500 (No further adjustment of BCD, EC, SWC, i.e., Duties of Customs) required for calculating IGST/CC.

Circular No. 46/2017-Customs dated 24th November 2017 seeking to charge tax is without any legal backing and moreover seeks double taxation. As per law, from 1st July 2017 till enactment of FB, 2018, no IGST/CC can be collected on bonded warehouse sales (unless FB is enacted retrospectively).

Merchant trading transactions

As mentioned earlier, goods need to be physically brought into India and accordingly there is no liability of customs duty or of IGST/CC.

Reporting in return/statement

Importer (the person getting goods cleared for home consumption) needs to report the transaction in GSTR-2 or any other return/statement as required under law. HSS Seller/Warehouse Seller/SEZ sellers are not required to report such transaction anywhere in GST law (Though SEZ supplier needs to report the transaction to GSTR-1).

For example, if A is importing goods which are exported by B. During the course of import, i.e., before goods reach ‘place of importation’, A sells (i.e., HSS Seller) the goods to C (i.e., HSS Buyer) who later clears goods from customs. In this case, C shall pay taxes and report the transaction to GSTR-2.

The rate of exchange and credits availability

The rate of Exchange shall be as notified by CBEC/CBIC under section 14 of CA for all purposes. Credits of the transaction reported in GSTR-2 shall be available basis BOE which shall be verified between GSTN and Customs EDI system electronically.

These were the basic provisions of Customs Law and Taxability of Import of Goods.