ELP- Interplay of Customs Law & FTP with GST

© Economic Laws Practice 2018
Interplay of Customs Law
FTP with GST
Issues & Updates
May 2018

© Economic Laws Practice 2018© Economic Laws Practice 2018
RECENT
TRENDS
Detailed scrutiny of
classification (HS Code)
at the time of clearance
Rigorous testing for compliance with
conditions for concessions/
exemptions – delayed clearances
Significant developments on Trade
Laws
SCOMET E-Waste BIS, etc
DRI issued notices to close to
300-400 exporters for
verification of adherence to
amendments pursuant to GST
Large demands raised based on
data shared by other Revenue
authorities such as Transfer Pricing,
Service Tax, etc.

Interplay
 Customs & GST
 Classification
 Valuation
 Scope and ambit of ‘India’
 Double taxation
 FTP & GST
 Amendments to align introduction of GST
 Treatment of deemed exports
 Scope of benefits – comparative analysis and impact
 Clarifications and judicial developments

Classification of Goods
 Customs Classification
 HSN Based
 General Rules of Interpretation
 GST Classification
 Follows prescription under customs law
 Additional deeming fiction – Composite & Mixed Supplies
 Issue at hand
 Customs Tariff Act provides for payment of IGST on imported goods at GST rate
applicable on indigenous transactions
 Classification concepts differ under the two laws, as noted, due to fictions under GST
 No prescription to deal with scenarios of conflicts between customs & GST
classification

Taxation of certain
service imports
 Double taxation of service imports in certain cases (eg Leases)
 Customs valuation code requires loading value of certain services on to the
transaction value of imported goods (Rule 10)
 Value of qualifying services exigible to customs duty including IGST (as a component
of customs duty)
 IGST laws per se tax these services under reverse charge mechanism
 Exemption from IGST on services extended only to royalty and license fee payments
 Double taxation in case of other services prevails – relevant cases may have
opportunities for advocacy and legislative relief
 Benefit being accorded in cases represented for – Illustratively, leasing of
Aircrafts

Deemed service
transactions
 Certain Schedule II supplies (software license, IPR etc) as service
transaction
 Software, IPR (say in content), etc could be imported into India over a physical
medium or electronically
 Customs deals with importation over physical medium as a transaction in goods
while GST treats the same as service
 Anomaly to open Pandora’s box for taxation of relevant items when imported from
outside India
 How to determine IGST rate
 Double taxation and/ or complete escapement
 Non-liability of GST may still trigger liability to pay IGST on import of
goods, for example-
 Repair and Maintenance Services undertaken outside India
 GST not payable under RCM as place of supply outside India
 However, IGST payable on repaid value of import of goods back to India

Valuation of Imports
 Loading on transaction value from customs valuation perspective as well
as deemed supplies under GST
Customs
 Related party transactions – often adjudged that relationship influences the
transaction value
Transfer Pricing
 Notional adjustments from a transfer pricing perspective also equally impact
considerations under Customs & GST
GST
 Can deemed supplies be arguably looked upon as indirect payment to reject arm’s
length nature of transaction value of imported goods
 GST treatment of adjustments made (to value) from a customs duty perspective, in
such cases

Ambit of ‘India’
 GST
 India as defined under constitution and extends up to territorial waters, exclusive
economic zone, etc
 Customs
 Import, within India, upon crossing of customs frontiers
 Zone between two India’s !!
 Customs bonded Warehouse
 Circular 46 – in-bond sales liable to IGST
 Duty Free Shops
 AAR – Transaction within India, liable to IGST
 AAR – Silent on why supply to outbound passengers not amounting to “taking outside India”
 Movement of goods between customs station (say for clearance from ICDs) – IGST
treatment? OR treatment in case of Bond-to-Bond movement of goods?
 Applicability of IGST on Merchant Trade Transactions?
 AAR- Such transaction not liable to IGST as goods do not enter India

SEZ to DTA – S.7(5)
hurdle
 SEZ Act, 2005 read with Customs Act
 BCD + IGST payable on supply of goods from SEZ to DTA [Refer Section 30 of SEZ
Act, 2005]
 IGST Act
 As per Section 7(5) of the IGST Act, the supplies made by a SEZ deemed to be as
inter state supplies.
 Accordingly, IGST payable on supply of goods from SEZ to DTA
 Also clarified by CBEC vide its Circular No. 46/2017-Cus
 Double Taxation
 IGST paid twice-once under customs and again under IGST Act
 Circular Challenged in Court-Liberty Chemtrade Pvt. Ltd. vs. Union of India [2018-
TIOL-25-HC-AHM-GST]
 AAR and Writs also pending before Courts and Authorities for clarification

Export Related Issues
GSTIN not
mentioned
• Relaxation granted in initial days to export on the basis of PAN in absence of GSTIN.
• No such relaxation granted while granting refund for the exports made during the
initial days without mentioning GSTIN.
Exports
from ICD
• Delay in granting refunds pertaining to exports made from Inland Container Depots
(ICDs) as Electronic General Manifest filed manually is not uploaded electronically on
immediate basis.
Transitional
Credit
• Circular No. 37/11/2018-GST dated 15.03.2018 clarifies that no refund of the
transitional credit will be granted under GST.
IGST Refund related issues
Transitional Credit takes color of GST credit and hence, varied treatment of transitional and
regular credit seemingly an inequitable approach

Export Related Issues
E-Way Bill
• Requirement of E-way Bill for movement of goods within two SEZs within the same
state?
Related
Party
• 25% or more shareholding required for GST Purpose
• 5% or more shareholding required for Customs Purpose
• Related party for Custom might not be the related party for GST?
Other Issues
Discrepancy
in Value
•As per Circular No. 37/11/2018-GST dated 15.03.2018, if there is any discrepancy in GST Invoice
value and Shipping Bill value, then the lowest value should be considered for refund.
•Adequate opportunity should be given to the assessee to explain the said discrepancy

Refund of IGST-
AA/EPCG/EOU
 Refund of IGST paid on export of goods and services
 Rule 96(10) of CGST Rules, denied refund of IGST paid on export of goods and
services when person claiming refund has received supplies on which the
supplier has availed the benefit of exemption of IGST & Compensation Cess
against the Advance Authorisation/EPCG/EOU.
 Results in:
 Denial of refund of IGST paid on imports under AA/EPCG/EOU during the interim
period 01.07.2017 to 12.10.2017
 Denial of refund of IGST paid on exports when exemption claimed on inputs
Denial of refund untenable, against the export policy of
Government- a clarification should be issued in this regard

E-Wallet Scheme
 Proposal laid down in 22nd meeting of GST Council
 Introduced as a permanent solution to cash blockage due to delay in IGST refunds
 E-Wallet will be credited with a notional amount as if it is an advance refund.
 Would be used by holder of AA/EPCG/EOU etc to pay GST
 Initial plan to introduce by 1st April, 2018- Now extended to October,
2018
Knowing the Technical difficulties faced while using the GST Network , such an E-
Wallet mechanism may also result in more technical issues being faced by
importer/exporters

MEIS/ SEIS
 Duty scrips cannot be used payment of GST liability and GST
compensation cess
 Rate of rewards have been revised as specified below for all commodities
and the same is made applicable for exports made with effect from
November 1, 2017 to June 30, 2018:
 From 2 % to 4 %;
 From 3 % to 5 %; and
 From 5 % to 7 %.
 The validity period of duty scrips is increased to 24 months from 18
months
 Anomalies noted in new rates when compared to past – opportunity to
represent for rectification

Advance Authorisation
Scheme
 Customs exemption – manner of effect
 BCD exemption to inputs - Status Quo
 Imports under AA for physical exports are also exempt from whole of the IGST and
Compensation Cess (otherwise payable as component of customs duty), and such
imports shall be subject to pre-import condition.
 Imports against AA for physical exports are exempted from IGST and Compensation
Cess up to 01.10.2018 only
 IGST Exemption allowed w.e.f. 13.10.2017
 Period between 01.07.2017 and 12.10.2017
 Delhi HC in Jindal Dyechem – Allowed the petition on the ground that if the exporter
has fulfilled export obligation pursuant to its advance license, then no further action
is required.
 Delhi HC in Narendra Plastic - Interim relief – Clear consignments of import
constituting inputs for fulfilment of export orders placed prior to 01.07.2017 without
payment of IGST

Key Amendments to
FTP – EOUs/ STPs
 BCD exemption - Status Quo
 EOU’s are also eligible to avail the exemption from payment of IGST and
Compensation cess on the same till 02.10.2018
 Inter-unit transfer
 Applicable GST (as of indigenous transaction) would be payable on the
transfer/supply of goods from unit of EOU/EHTP/STP/BTP to another
 DTA Clearances
 Reversal of BCD benefits
 Refund deemed export benefits
 Applicable GST payable separately

Key Amendments to
FTP – EPCG
 BCD exemption - Status Quo
 Holders eligible to avail the exemption from payment of IGST and Compensation
cess on the same till 01.10.2018 for physical exports
 IGST paid in cash
 Should ideally not trigger/ enhance EO
 Erstwhile provision in context of ‘CVD paid in cash’ deleted rather than replacement
with GST context

Deemed Exports
Various other categories of deemed exports granted under pre-
GST FTP not notified under GST – Denial of benefit to those
categories
 Vide. Notification No. 48/2017-Central Tax only the following categories
are given deemed export benefits:
 Advance Authorisation: Supply of goods by a registered person against Advance
Authorisation against an invalidation letter of AA / DFIA only when the AA is for
Procurements of inputs on pre-import condition and for physical exports
 EPCG: Supply of capital goods by a registered person against Export Promotion
Capital Goods Authorisation
 EOU: Supply of goods by a registered person to Export Oriented Unit
 PSUs: Supply of gold by a bank or Public Sector Undertaking specified in the
notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against
Advance Authorisation

What Next?
Re-evaluate all the classification &
valuation adopted for export and
import of goods
Evaluate all the export incentive
benefits availed in light of revised
drawback schedule, availability of GST
credit & added compliance
requirements
Comply with all new Trade Laws
impacting movement of goods into
and outside India
CAUTION!
 Active engagement with the
Legislator for incentivizing exports
of goods & services under the
current competitive environment
 Addressing the issue of double
taxation
 Taxability of Merchant Trade
Transactions
POLICY
INITIATIVE

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Thank You
©EconomicLawsPractice2018

ELP- Interplay of Customs Law & FTP with GST

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