August 27 2017 0comment
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Customs Cess on IGST OR IGST on Customs Cess – a big anomaly in the GST law

The GST scheme in India comes with its fair share of problems. On a daily basis, various experts are highlighting problems in the existing GST law (which is in public domain) with the hopes that the same will be either rectified or clarified before the actual implementation of the GST scheme in India. With the same objective and aim this article tries to highlight one such anomaly which will arise in the calculation of customs cess (Edu. Cess and SHE cess) and IGST, on import of goods into India.

Let’s first deal with the IGST provisions, as applicable on import of goods into India. The Customs Tariff Act, 1975 was recently amended vide the Taxation Laws (Amendment) Act, 2017[1]. It was amended to provide for levy of Integrated Goods and Services Tax (IGST) on import of goods into India. Amended Section 3(7) & (8) of the Customs Tariff Act provides that this IGST component will be calculated and payable on the following value:

  • assessable value as determined under section 14 of the Customs Act;
  • duty of customs payable under section 12 of the Customs Act (viz BCD); and
  • any other sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs.

It is our understanding that as per the third clause above even customs cess, which is chargeable as customs duty, will be included in the value for calculating IGST.

The above stated provisions also provide for an exclusion list, which entails duties not be included in the value on which IGST will be calculated. This list covers only two items – IGST and compensation cess. There are no other duties / taxes which are to be excluded. Therefore, the value for determining IGST will include assessable value, BCD, customs cess, and other duties such as anti-dumping duty, safeguard duty, countervailing duty, etc.

[1] The amendment will be notified and made applicable on a date as may be specified by the government

Moving on to the provisions of the Finance Act, 2004 and Finance Act, 2007 which inter alia provides for levy and collection of Education Cess and Senior and Higher Secondary Cess (SHE Cess), collectively referred as customs cess. This customs cess is collected as a duty of customs, on import of goods into India.

This customs cess is calculated at the rate of 3%[2] on:

  • aggregate of customs duties which are levied and collected under the Customs Act, 1962 (viz BCD); and
  • any other sum chargeable on such goods under any other law for the time being in force, as an addition to, and in the same manner as, a duty of customs.

It is by virtue of the second clause above that currently customs cess is also applicable on CVD (additional duty of customs payable under section 3(1) of the Customs Tariff Act, 1975).

It is our understanding that in line with the amended Customs Tariff Act, even IGST component will be included in the value for calculating the customs cess, as IGST is also chargeable as customs duty.

The above specified statutes relating to customs cess, also provide an exclusion list of duties of customs,

cess will not be calculated. This list includes SAD (additional duty of customs payable under section 3(5) of the Customs Tariff Act, 1975), safeguard duty, anti-dumping duty, countervailing duty and education cess and SHE cess itself. This list, however, has not been amended to include IGST, for it to be excluded from the amount on which customs cess will be calculated.

Therefore, the above leads to an incongruous situation wherein for calculating customs cess, the IGST component needs to be added in the value; and for calculating IGST, the customs cess portion needs to be added in the value. This incongruous situation needs to be resolved by amending Finance Act, 2004 and Finance Act, 2007 to exclude the IGST component from the Value on which customs cess will not be calculated. This list includes SAD (additional duty of customs payable under section 3(5) of the Customs Tariff Act, 1975), safeguard duty, anti-dumping duty, countervailing duty and education cess and SHE cess itself. This list, however, has not been amended to include IGST, for it to be excluded from the amount on which customs cess will be calculated.

Therefore, the above leads to an incongruous situation wherein for calculating customs cess, the IGST component needs to be added in the value; and for calculating IGST, the customs cess portion needs to be added in the value. This incongruous situation needs to be resolved by amending Finance Act, 2004 and Finance Act, 2007 to exclude the IGST component from the value on which customs cess is to be calculated. However, till the time these statutes are not amended the said anomaly which continue creating confusion in the minds of the tax payers and also in the minds of customs authorities which in turn will result in delays in clearance of imported goods and also in unwarranted litigation.

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