Are exports and imports considered taxable under GST?

Under the Goods and Services Tax (GST) regime in India, exports and imports have distinct treatment in relation to taxation. While they are generally considered to be supply under the law, the taxation treatment differs significantly due to the special provisions related to exports and imports.

Exports under GST

Exports are treated as “zero-rated supply” under the GST law. This means that exports of goods and services are not subject to any GST at the point of supply. However, the exporters can avail themselves of the input tax credit (ITC) on the goods and services used to make the export. This essentially means that exporters are not taxed directly on their exports, but they can claim refunds of any input tax paid on the goods or services used for export purposes.

Key Provisions Related to Exports under GST

1. Section 16 of the IGST Act, 2017:
   • Zero-rated Supply: Exports of goods and services are treated as zero-rated supplies under Section 16 of the Integrated Goods and Services Tax (IGST) Act.
   • Zero-rated supply implies that the supply of goods or services is exempt from GST at the point of export. However, the exporter can claim a refund of any input tax credit (ITC) paid on the inputs or services used in the export process.
2. Section 7(5)(a) of the CGST Act, 2017:
   • Definition of Supply: It defines export as a supply of goods or services to a place outside India, which is considered a taxable supply under the law. Exports are, however, zero-rated, which means they are subject to GST at 0%.
3. Rule 96 of CGST Rules, 2017:
   • This rule provides the procedure for claiming refunds of input tax credit for exporters. The exporter can either opt for a refund of ITC or supply goods and services under bond or letter of undertaking (LUT) without payment of tax.
4. Section 5(3) of the IGST Act, 2017:
   • Exports are deemed to be inter-state supplies under the IGST Act, making them eligible for zero-rated supply treatment. This allows the exporter to claim input tax credit (ITC) for taxes paid on inputs used in the export process.

Refund of Input Tax Credit (ITC) for Exports:

• If an exporter has paid GST on inputs used in the production or purchase of exported goods or services, they are eligible to claim a refund of the GST paid.
• The exporter can either use the Letter of Undertaking (LUT) to export goods or services without paying tax or choose to pay GST and claim a refund of the input tax credit (ITC).

Imports under GST

Imports of goods and services into India are subject to GST at the time of entry into the country, similar to how goods and services would be taxed if they were supplied domestically. The Customs Act governs the importation of goods, and the Integrated GST (IGST) applies to both imports of goods and services.

Key Provisions Related to Imports under GST

1. Section 3(7) of the Customs Tariff Act, 1975:
   • Customs Duty: Imports are subject to Customs Duty as well as IGST (Integrated Goods and Services Tax) on the value of goods (including customs duty). This is a two-tier taxation process where Customs Duty is applicable at the time of import, and IGST is levied on the goods entering India.
2. Section 12 of the IGST Act, 2017:
   • Import of Goods: The section defines that the import of goods into India is considered an intra-state supply and, hence, subject to IGST. The value of the goods will be determined by the Customs Act and will include the Customs Duty in the calculation of IGST.
3. Section 13 of the IGST Act, 2017:
   • Import of Services: Services imported into India are also subject to IGST, based on the place of supply (which, in the case of imports, is India). The importer is liable to pay the tax under the reverse charge mechanism (RCM).
4. Section 5(1) of the IGST Act, 2017:
   • IGST is levied on imports of goods and services into India, and it is calculated based on the transaction value of the imported goods or services.
5. Rule 95 of the CGST Rules, 2017:
   • This rule defines the time of supply for imported goods, which is the time of arrival of goods at the Indian Customs. This is the point when IGST becomes applicable.
6. Section 2(53) of the CGST Act, 2017:
   • This section defines import of goods as the bringing of goods into India from a place outside India and considers it a taxable supply under the GST regime.
7. Section 7(5)(b) of the CGST Act, 2017:
   • Specifies that imports of goods or services into India are considered a taxable supply under GST. They are treated as inter-state supplies, and IGST applies to them.

Taxation on Imported Goods and Services:

• Imported Goods: IGST is paid by the importer at the time of customs clearance based on the customs value.
• Imported Services: For services imported, the receiver is liable to pay IGST under the Reverse Charge Mechanism (RCM).

Provisions in the Indian Constitution Related to Exports and Imports

1. Constitution (One Hundred and First Amendment) Act, 2016:
   • This amendment brought in GST and laid the foundation for the imposition of GST on exports and imports, recognizing the zero-rated treatment for exports and taxing imports through the Integrated GST (IGST) system.
2. Article 246A:
   • This article empowers both the Union and State Governments to levy taxes on the supply of goods and services, including on imports (IGST on imports) and exports (zero-rated treatment for exports).
3. Article 269A:
   • This article specifically relates to the inter-state supply of goods and services, which includes the taxation of imports as inter-state transactions.

Landmark Cases and Judgments on Exports and Imports Under GST

1. Union of India v. M/s. Vijay Electricals Ltd. (2019):
   • This case addressed the issue of input tax credit (ITC) on exports. The Supreme Court ruled that exporters could claim refunds of input taxes paid on inputs used for making exports, supporting the principle of zero-rated exports under GST.
2. Gujarat High Court in the Case of M/s. APM Terminals Inland Services Pvt. Ltd. (2017):
   • This case clarified the application of IGST on imports of services. The Court ruled that imported services are subject to IGST under the reverse charge mechanism (RCM), making the receiver liable for tax payment.
3. The State of Rajasthan v. M/s. Shree Cement Ltd. (2020):
   • The Rajasthan High Court examined the zero-rating of export supplies and the process of claiming refunds for exporters. It affirmed that exporters should receive refunds of unutilized input tax credit (ITC) on inputs used in the export process, aligning with the zero-rated nature of exports under GST.
4. M/s. Kumuda Trading Co. Pvt. Ltd. v. Union of India (2019):
   • The case dealt with the taxability of imported goods under the IGST Act. The Court upheld the application of IGST on imported goods, emphasizing that imports are treated as inter-state supplies under the GST regime.

Key Takeaways:

• Exports are treated as zero-rated supplies, meaning they are not subject to GST at the time of export, but exporters can claim a refund of input tax credits (ITC).
• Imports are subject to IGST at the time of entry into India, with the customs value serving as the base for calculating the tax.
• Exemptions and refund mechanisms ensure that exports remain non-taxable, and businesses engaging in exports can avail of input tax credits to avoid tax cascading.
• The Indian Constitution empowers both the Union and State Governments to regulate taxes on imports and exports, ensuring IGST is applied to imports and exports remain zero-rated.

Understanding the tax treatment of exports and imports is crucial for businesses involved in international trade, as it ensures compliance with tax regulations and allows for efficient use of input tax credits and refund mechanisms.