Import and Export 14.
Chapter-1
Basic of Import and Export
1. INTRODUCTION
India is well integrated into the web of international business transactions. There
is inward as well as outward flow of goods and services between India and other
countries. The various provisions applicable on import and export supplies are
discussed in this Course in detail. First, the provisions relating to import of goods and
services have been discussed followed by discussion on provisions relating to export
of goods and services. The relevant statutory provisions have been extracted first
followed by the analysis thereof.
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2. RELEVANT DEFINITIONS
❖ Customs frontiers of India means the limits of a customs area as defined in
section 2 of the Customs Act, 1962 [Section 2(4)].
❖ Customs area means the area of a customs station or a warehouse and
includes any area in which imported goods or export goods are ordinarily
kept before clearance by Customs Authorities [Section 2(11) of the Customs
Act, 1962].
❖ Customs station means any customs port, customs airport, international
courier terminal, foreign post office or land customs station [Section 2(13) of
the Customs Act, 1962].
❖ Deemed exports means such supplies of goods as may be notified under
section 147 [Section 2(39) of the CGST Act].
❖ Export of goods with its grammatical variations and cognate expressions,
means taking goods out of India to a place outside India [Section 2(5)].
❖ Export of services means the supply of any service when, –
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of
service in convertible foreign exchange or in Indian rupees wherever
permitted by the Reserve Bank of India; and
(v) the supplier of service and the recipient of service are not merely
establishments of a distinct person in accordance with Explanation 1 in
section 8 [Section 2(6)].
❖ Fixed establishment means a place other than the place of business which
is characterized by a sufficient degree of permanence and suitable structure
in terms of human and technical resources to supply services, or to receive
and use services for its own needs [Section 2(7)].
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❖ Import of goods with its grammatical variations and cognate expressions,
means bringing goods into India from a place outside India [Section 2(10)].
❖ Import of services means the supply of any service, where –
(i) the supplier of service is located outside India;
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India [Section 2(11)].
❖ India means the territory of India as referred to in article 1 of the Constitution, its
territorial waters, seabed and sub-soil underlying such waters, continental shelf,
exclusive economic zone or any other maritime zone as referred to in the
Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime
Zones Act, 1976, and the air space above its territory and territorial waters [Section
2(56) of the CGST Act].
2
INDIA
3
[Link]. Distance from Costal Border Meaning
1 12 Nautical Miles Territorial Waters
2 24 Nautical Miles Indian Customs Water/Continental Shelf
3 200 Nautical Miles Exclusive Economic Zones
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3. IMPORT
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Meaning of import of service [Section 2(11)]
IGST Act defines import of services as supply of any service where the supplier
is located outside India, the recipient is located in India, and the place of
supply of service is in India.
Import of services
Supply of any service where
Supplier of Recipient
Place of
service is of service
supply of
located is located
service is in
outside in India,
India.
India, and
Services supplied by a
supplier located outside India
to recipient located in India
and place of supply is in India
Import of
services
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The concept discussed above has been explained by way of following
examples:
Location of Location of Place of Whether
Supplier Recipient Supply qualifies as
import of
services?
Delhi Yes
London Delhi
Paris
No
London Paris
Delhi No
Delhi Paris
London
No
London Delhi
Thus, only where the location of supplier is outside India but the location of
recipient and the place of supply is in India, the transaction shall qualify as
import of services.
‘India’ is the sum of the territory of its States and also includes its territorial
waters and Exclusive Economic Zone. This is an extended definition of ‘India’
over and above the area denoted by the expression in Article 1 of the
Constitution and is enabled by the rights of nations under the United Nations
Convention on the Law of the Seas. The definition enables taxation of services
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received from outside India into the area that is outside India as per the
definition in the Constitution but within the 200 nautical miles limit of the
Exclusive Economic Zone [Section 2(56) of the CGST Act].
The place of supply is to be determined in terms of section 13 of the IGST
Act. Section 13 provides for determination of place of supply in cases wherein
the location of the supplier of services or the recipient of services is outside
India. If the place of supply of service is in the territorial waters, the place of
supply is deemed to be in the coastal State/Union Territory where the nearest
point of the appropriate baseline is located [Section 9]. Thus, the State tax
component of the IGST accrues to such coastal State.
In addition to the place of supply being in India and the provider of service
being located outside India, the location of the recipient of service must be
in India for the transaction to qualify as import of service. This means that
the service should be received at the recipient’s place of business or fixed
establishment in India. In the absence of such a place, the usual place of
residence of the recipient is taken to be his location1.
REGISTRATION AND ITC IN CASE OF IMPORT OFGOODS
AND SERVICES
❑ Registration
Registration for importer of goods
Reverse charge provisions do not cover importers of goods. Importers are
also not listed among the categories of persons in section 24 of the CGST Act
for whom registration is compulsory. It may be noted here that it is
mandatory for the importers who are registered under GST to quote GSTIN
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in the bill of entry for the purpose of payment of IGST on import of goods as
also for availing ITC of such IGST.
Registration in case of import of exempted goods
In terms of section 23 of the CGST Act, persons engaged exclusively in the
supply of goods (import and export) that is either not liable to tax or is wholly
exempt from tax under the CGST or IGST Acts are not required to obtain
registration. In such cases, PAN (which is authorized as IEC by DGFT) of the
importer and exporter would suffice [Instruction No. 10/2017 Cus dated
06.07.2017].
Registration for importer of services
Section 24(iii) of the CGST Act mandates compulsory registration for persons,
without any benefit of the threshold limit for registration, who are required
to pay tax under reverse charge. Accordingly, importer of services who are
required to pay IGST under reverse charge have to obtain compulsory
registration under GST law so as to be able to pay tax on imported services
under reverse charge.
Thus, recipient of imported services other than non-taxable online recipient
must register compulsorily.
4. EXPORTS
One of the fundamental principals to make exports competitive in the international
market is that taxes should not be exported. Hence, export to destinations outside
India as well as supplies to SEZ have been ‘zero-rated’, i.e., the goods or services
exported are relieved of GST levied upon them either at the input stage or at the
final product stage by way of refund of taxes paid. Thus, it can be seen that supply
to SEZ unit/developer is treated at par with physical exports.
Physical exports [Section 2(5)]
Export of goods requires taking the goods from India to a place outside India.
India is defined as extending to the limits of its maritime zone, which is 200
nautical miles from the coastal baseline. This is far beyond the normal
definition of India, which only includes its territorial waters, which in turn
extend 12 miles from the baseline. Given the extended meaning of India,
export would require that the goods must travel beyond 200 miles from the
baseline in order to qualify as having been exported.
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Sending/ taking goods out of India for exhibition or on consignment
basis for export promotion: Circular No. 108/27/2019 GST dated
18.07.2019 has clarified that the activity of sending/ taking goods out of
India for exhibition or on consignment basis for export promotion, except
when such activity satisfy the tests laid down in Schedule I of the CGST
Act, does not constitute supply as the said activity does not fall within
the scope of section 7 of the CGST Act as there is no consideration at that
point in time. Since such activity is not a ‘supply’, the same cannot be
considered as “zero rated supply” as per the provisions contained in
section 16 of the IGST Act.
Thus, activity of sending/ taking specified goods out of India is not a zero-
rated supply. That being the case, execution of a bond or LUT, as required
under section 16 of the IGST Act, is not required.
Deemed exports
Deemed exports refers to supplies of goods manufactured in India (and not
services) which are notified as deemed exports under section 147 of the CGST
Act. (Which would be discussed in our upcoming lectures/videos)
Export of services
Supply of service qualifies to be an ‘export of service’ if it fulfills the
followingconditions:
(a) the service is supplied from India to a recipient located outside India,
(b) the place of supply of the service is outside India,
(c) the consideration for the service is received in freely convertible foreign
exchange or in Indian rupees wherever permitted by the Reserve Bank of India,
and
(d) the transaction is between separate entities, i.e., not merely between two
establishments of an entity
Branch and Head Office of one taxable person are not treated as two separate entities
for this purpose. In other words, provision of outbound services inter se Head Office
and Branch is not construed as export of service. However, Notification No. 9/2017
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IT(R) dated 28.06.2017 exempts the services provided by an Indian establishment to its
foreign establishment from IGST if the place of supply is outside India – For details,
refer Chapter 4: Exemptions in Module 1 of this Study Material.
Apparently, subsidiary and holding companies may not be treated as mere
establishments of one entity since these are two separate legal persons (with different
PAN). Thus, seemingly, provision of outbound services inter se subsidiary company
and holding company can be construed as export of service if all other condition of
export of services are fulfilled. Under service tax law, similar view was taken by the
Gujarat High Court in the case of Linde Engineering India Private Limited Other vs.
Union of India [R/Special Civil Application No. 12626 of 2018 dated 16.01.2020]. Service
tax law had identical provisions on this aspect.
As in case of export of goods, in case of export of services also, India extends to the
limits of its maritime zone, which is 200 nautical miles from the coastal baseline.
For example, Raman of Delhi has supplied services to John of USA.
Place of supply is outside
India and John and
Raman are two separate
entities
Export of services
John
Raman
Payment for service
is received in
convertible FOREX
In the given example, supplier of service – Raman – is located in India, recipient of
service – John – is located outside India and the place of supply of service is USA.
Payment for services provided by Raman has been received in convertible FOREX
and Raman and John are not merely establishments of a distinct person as per
explanation to section 8 of IGST Act. Since all the requisite conditions have been
satisfied, such services qualify as export of services.
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