HC holds IGST as part of customs duty cannot be levied on reimport of goods after repairs

 This Tax Alert summarizes recent ruling of the Delhi High Court (HC) ^[1] on whether integrated tax (IGST) is payable on cost of repairs, insurance and freight in case of re-import of goods which were earlier exported for repairs.

Notification No. 45/2017–Customs provided exemption from duties of customs on re-imported goods in excess of duty which would be leviable if the value of re-imported goods were made up of the fair cost of repairs, insurance and freight charges.

The same was amended by Notification No. 36/2021 – Customs, and Circular No. 16/2021 – Customs was issued to clarify that the integrated tax and cess under Customs Tariff Act, 1975 (CTA) would also be payable on the fair cost of repairs, etc.

The key observations of the HC are:

• Section 3(7) of the Customs Tariff Act, 1975 cannot be construed as being the source of an independent levy of IGST on import of goods. The same merely designates the place and the juncture when the tax liability would be liable to be discharged.
• The transaction, in the instant case, is liable to be treated as import of service in terms of Section 5(1) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) read with Entry 3 of Schedule II to the Central Goods and Services Tax Act, 2017 (CGST Act). The same cannot be again characterized as import of goods and taxed under Section 3(7) of the Customs Tariff Act.
• The unamended Notification No. 45/2017 was in unambiguous terms restricted to the levy of BCD. Thus, the amendments made vide Notification No. 36/2021 - Customs together with Circular No. 16/2021 - Customs were clearly intended to expand the tax net and hence, cannot be termed to be merely clarificatory.

Basis above, HC declared Notification No. 36/2021 read with Circular No. 16/2021 as unconstitutional and ultra vires the IGST Act insofar as it purports to levy an additional duty over and above the IGST imposed under Section 5(1) of IGST Act.

Comments

• The ruling of the HC that IGST on import of goods is levied under IGST Act and not under Customs Tariff Act may raise questions on the validity of several notifications issued under the Custom Act exempting IGST on import of goods.
• Businesses may also explore a position of non-payment of IGST on import of goods where such goods are imported free of cost and hence, not constituting a “supply” as per Section 7 of the CGST Act.
• One may also need to analyze whether this ruling can be made applicable to goods imported under lease or for job-work.
• In cases where the place of supply of services provided on goods falls outside India, no tax is paid on such transaction in absence of import of services. Businesses may have to evaluate whether IGST as part of customs duty is required to be paid at the time of reimport of goods in such cases.