The Customs Act has been put in place to ensure that the import and export of goods into and from India is regulated. Certain products cannot be imported or exported, while certain others require a license to import. The vast majority are however freely importable.
It is also a tool to protect the local industry from dumping [normally done by China and many East European Countries]. The various preferential trade agreements with countries that India wishes to have deeper ties are also made workable by providing lower import duties.
The increase/decrease of customs duty rates can also be used to encourage/ discourage the import of certain products in times of currency crisis. [ Higher customs duty on gold to stop the rupee decline or parts at lower duty rate than full machines to encourage domestic assembly are examples]
Developed countries use non-tariff barriers quite successfully to limit the imports from various countries on several pretexts such as tanning industry not having pollution control used by the garment exporters from Tirupur or underage children manufacturing football; in Pakistan. We understand now that customs law is not merely a taxation tool, though it can be so. On average the CG is collecting about 1,80,000 crores every year for the past few years.
The Customs Duty has used the - 3 components:
The basic duty of customs: This is the barrier to exporters outside India/ protection to Indian manufacturers which has over a period of time now come to only 10 percent for the majority of the products. Petroleum, food and other sensitive products would be having much higher barriers.
IGST on import of Goods: IGST will be levied on the goods imported into India at the GST rates levied for such goods in India. This IGST will be collected from the importer at the time of filing the Bill of Entry along with BCD.
Additional duty of customs & Special Additional Duty: In the case of goods are not covered under GST, these are levied. This is to provide a level playing field for the manufacturers in India as there is an excise duty applicable for local products. Most countries ensure that the goods exported would not suffer any duty/ tax thereby ensuring the competitiveness of the products.
Impact of Customs on GST.
- IGST is levied on imported goods at the rates specified in the GST Act as if it is a supply in India. This provides a level playing field for the manufacturers.
- Sin or luxurious goods also liable for Compensation Cess at the time of import at the rates specified in the GST Compensation Act as if it is a supply in India
- Normally no goods are eligible for IGST exemption at the time of import, unlike BCD. The concept of GST is minimum exemptions so that the tax base will increase. However certain specific exemptions of IGST were given in order to avoid double taxation, to encourage the exports & make in India.
- The basic customs duty paid is not eligible for Credit. [ no set-off available]
- IGST paid at the time of import is eligible for set off.
- Compensation Cess paid at the time of import will be given as credit if the output is also liable for Compensation Cess.
- However, in the case of goods not covered under GST, the additional duty of customs [CVD] and SAD are eligible as credit for manufacturers for the discharge of the duty of excise on their manufactured goods or those removed as such. If exporter and credit cannot be utilized then rebate/ refund options available.
- In the case of non-GST goods, if SAD were paid by a manufacturer who traded in such goods or a trader of goods then the refund of the SAD amount is available as long as the evidence of sale by charging VAT / CST is provided.
- If the component part or equipment is to be used for the manufacture of other equipment for specified defense purposes, then the manufacturer can import the same without payment of customs.
- Manufacturer exporter can procure inputs/ capital goods under various schemes without payment of customs.
- For exporters, the customs duty paid is available as a refund- directly or through the drawback scheme.
- Goods from outside India can be imported for job work without payment of customs duties.
- For projects under International competitive bidding, the exemption under Customs could be available subject to certain conditions.
- SEZ can remove goods to Domestic Tariff Area [DTA] – local area with the customer filing a bill of entry as in case of import.
- 100 percent EOUs can remove goods to DTA on the reversal of payment of proportionate reversal of BCD + applicable GST.
- Service exporters from India under “Service Exports from India scheme” eligible for importing specified goods without payment of customs.
- … a few more possible.
The importance of understanding customs for the manufacturer, trader or service provider has been touched on in this article.