Taxation laws have laid down the taxes applicable on import and export of goods and services. In the current tax regime, laws of Customs duty, Excise, Service Tax and VAT lay down the tax treatment of imports and exports. In the GST regime, Excise, Service Tax and VAT will be subsumed into GST and customs duty will continue to be levied separately. Let us understand the tax implication on imports and exports under GST in comparison to the current regime.

Current Regime

Import of goods

In the current regime, a person who imports goods has to pay customs duty, countervailing duty (CVD), and special additional duty (SAD). CVD is levied at a rate equivalent to the rate of Excise on such goods, if they had been manufactured in India. SAD is equivalent to VAT on the goods in India. CVD and SAD are imposed to bring the imported product’s price to its true market price in India. If the importer uses the imported goods to manufacture dutiable goods in India or provide taxable services, CVD paid on inputs is available as tax credit. If the importer is just a trader, CVD on imports is not available as credit. SAD paid on import is eligible for refund, subject to conditions. However, no credit is given on customs duty paid and it becomes a cost for the importer.

Let us see an example to understand the levy of import duties in case of import of goods in the current regime.

Example: Manoj Apparel in Bangalore, Karnataka purchases apparel from a supplier, Oz Designs, in Sydney, Australia.

Tax calculation

Particulars Nos. Price per no. (Rs.) Amount(Rs.)
Women’s T-shirts 200 2,500 (51.68 AUD) * 5,00,000
Men’s T-shirts 100 5,000 (103.37 AUD) * 5,00,000
Total 300 - 10,00,000
Customs duty @ 10%     10,00,000