Understanding GST and Machinery Imports: Navigating the Complexities with Expert Insights

The Goods and Services Tax (GST) has transformed the taxation landscape in India, particularly for businesses involved in machinery import. Import duties and taxes such as customs duty, countervailing duty (CVD), and supplementary additional duty (SAD) have been subsumed into the Integrated Goods and Services Tax (IGST). This article aims to provide a clear understanding of the implications of GST for machinery imports, along with key insights from an expert Seoer (Search Engine Optimizer).

Rates of Duty and Incentive Schemes for Machinery Imports

The rates of duty for machinery imports have historically varied based on the type of machinery. There were also incentive schemes where lower or nil rates were available, linked to export performance. However, the ‘mega-exemption’ notification under customs 12/2012-Customs has been rescinded, and the exemptions have been modified in some instances as per notification 50/2017-Customs.

Impact of GST on Imports and Importers

1. Import as Inter-State Supply

Importing machinery into India will now be considered as an inter-state supply under the Model GST Law, attracting Integrated Goods and Services Tax (IGST) along with Basic Custom Duty (BCD) and other surcharges. This requires importers to calculate and pay IGST as part of their total tax liability.

2. Implications for Import of Services

The Model GST law shifts the liability of payment of tax to the service receiver if the service is provided by a person residing outside India. This is similar to the current reverse charge mechanism, where the service receiver is responsible for paying the tax and filing returns.

3. Transaction Value Based Valuation Principal

The Model GST law has introduced the concept of transaction value-based valuation, borrowed from the current customs law. This change will impact the determination of tax liability. Currently, CVD is charged based on the Market Reference Price (MRP). Under the new regime, IGST, which subsumes CVD, will be calculated based on transaction value. This change may require working capital restructuring and could reveal the margin of service providers.

4. Refund of Duty

Under the new law, tax paid during import can be used as a credit under the 'Import and Sale' model, whereas no such credit is available currently. This means the reverse charge mechanism for refund of SAD, a tax now available after specific compliance, will no longer apply under GST.

5. Withdrawal of Current Exemptions

There are multiple customs import tariffs with various exemption notifications. These exemptions are likely to be reviewed and withdrawn, or converted into a refund mechanism. For export-linked duty exemptions schemes under Foreign Trade Policy (FTP), this could mean a shift to exemption from payment of BCD, while IGST may not be exempt. The potential removal or conversion of exemptions may fundamentally change the attractiveness and viability of key schemes under FTP like export-oriented units (EOUs), Special Economic Zones (SEPs), and advance authorization.

Given the complexities involved in machinery imports post-GST, it is crucial for businesses to stay updated on any changes and seek expert advice to navigate these changes smoothly. By understanding these implications, businesses can plan their strategies and ensure compliance with the new tax regime.

Conclusion

The implementation of GST has brought significant changes to the import and taxation landscape for machinery. Businesses must adapt to these changes to ensure they remain compliant and competitive in the market. Staying informed and seeking guidance from experts can help navigate these complex changes more effectively.