The implementation of the Goods and Services Tax (GST) in India on July 1, 2017, marked a significant reform in the indirect tax landscape. One of the key components of the GST regime is the Integrated Goods and Services Tax Act, 2017 (IGST Act), which governs inter-State supplies of goods and services, including imports and exports. The IGST Act is designed to seamlessly integrate cross-border transactions into the GST framework, ensuring uniformity and eliminating the complexities that previously existed under the Central Sales Tax and multiple indirect tax laws.
This article examines the statutory framework governing imports and exports under the IGST Act, explores how it interfaces with the Customs Tariff Act, and analyzes the implications of valuation and levy of IGST on imported and exported goods and services.
Definition of Import and Export under the IGST Act
Understanding the basic terminology is fundamental to comprehending the GST implications on cross-border transactions. The IGST Act defines “import of goods” as bringing goods into India from a place outside its territory, whereas “export of goods” means taking goods out of India to a place outside its territory. These definitions correspond exactly with those provided in the Customs Act, 1962, ensuring alignment between customs and GST laws.
This synchronization is critical because imported goods attract IGST along with customs duties, while exports are typically zero-rated, meaning IGST is not charged but eligible for refund. Such provisions promote India’s export competitiveness while maintaining tax neutrality for imports.
Statutory Framework Governing Import and Export under GST
GST as a Unified Tax on Supply
GST is levied on all taxable supplies of goods and services across India, with the taxable event being “supply” as defined in Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act). The term “supply” is broad and covers sale, transfer, barter, exchange, license, rental, and other forms of provision of goods and services, ensuring comprehensive coverage under the tax net.
GST is administered through a fourfold legal framework: the CGST Act for intra-State supplies, the respective State GST Acts, the Union Territory GST Act, and the IGST Act for inter-State and cross-border supplies. Alongside these, the GST (Compensation to States) Act imposes a compensation cess on specified goods to compensate states for revenue losses arising from GST implementation.
Role of the IGST Act in Cross-Border Transactions
The IGST Act holds special significance because it governs the taxation of inter-State supplies and transactions involving imports and exports. Before GST, imported goods were subject to customs duties including Countervailing Duty (CVD), which mirrored excise duties on domestically manufactured goods. Post-GST, IGST replaced CVD as the levy applicable on imports, maintaining the principle of a countervailing levy to ensure no tax advantage to domestic goods over imports.
The IGST Act incorporates provisions from the CGST Act for procedural aspects such as tax demands, refunds, and appeals but functions as a central legislation applicable uniformly across all states and union territories.
Import of Services and Reverse Charge Mechanism
Unlike goods, import of services is not covered under the Customs Act. The IGST Act fills this gap by prescribing tax on imported services. Imported services attract IGST on a reverse charge basis, wherein the recipient of services located in India is liable to pay IGST instead of the foreign service provider.
This shift from the pre-GST service tax regime, governed by the Finance Act, 1994, to a GST regime with concurrent jurisdiction for both Union and State governments ensures that the entire supply chain is covered under GST. The constitutional amendments introducing Article 246A and Article 279A created a GST Council to coordinate rate-setting, exemptions, and procedures, providing a robust framework for administering IGST on services.
Nature of IGST on Imports: Distinction from Customs Duty
A key issue in the GST-import nexus is whether IGST on imports qualifies as a customs duty or is purely a GST. IGST is charged under Section 5 of the IGST Act on inter-State supplies, including imports, and is therefore fundamentally a GST levy.
However, for practical collection and enforcement, IGST on imports is administered through customs authorities, leveraging the Customs Tariff Act and Customs Act procedures. This dual nature facilitates smooth tax collection at the border, ensuring IGST liability coincides with customs duties without necessitating separate compliance.
Interface with the Customs Tariff Act for IGST on Imports
Section 5(1) of the IGST Act contains a provision stating that the valuation for levy of IGST on imported goods shall follow Section 14 of the Customs Act, 1962. This means the valuation is based on the transaction value of goods or the value determined according to customs valuation rules rather than the valuation principles laid down under the CGST Act.
This legal provision ensures consistency between customs valuation and IGST levy, avoiding discrepancies that could arise if different valuation methods applied. As a result, IGST is collected simultaneously with customs duties based on the same assessed value at the time of import clearance.
The policy rationale behind this alignment is to create a countervailing levy equivalent to the GST paid on similar domestic goods, promoting tax neutrality and preventing cascading.
Judicial Interpretations: Clarifying the Legal Status of IGST on Imports
The Interglobe Aviation Ltd. Case
In Interglobe Aviation Ltd. v. Commissioner of Customs, New Delhi, the question arose whether IGST applies to repair costs on airline parts temporarily exported and subsequently re-imported. The Customs authorities contended that IGST, alongside Basic Customs Duty (BCD), was payable on such repair charges.
However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that IGST is not a “duty of customs” as defined under Section 2(15) of the Customs Act. The tribunal noted that the customs duties listed under the Customs Act do not include IGST, which is instead a GST levy under the IGST Act.
This judgment clarified that IGST, though collected at the customs point, cannot be equated with customs duties such as BCD. This distinction is important for understanding the legal basis of IGST and its procedural enforcement.
Valuation Provisions: Harmonizing Customs and IGST Rules
The IGST Act references the CGST Act for various procedural and substantive provisions, including valuation. However, for imports, the provision to Section 5(1) of the IGST Act clearly mandates that valuation shall be governed by the Customs Act provisions rather than the CGST Act valuation rules.
This harmonization removes ambiguity for importers and tax authorities, ensuring that the IGST value corresponds with the customs assessed value, ascertained using methods such as transaction value, related party adjustments, or computed value per customs valuation rules.
Territorial Scope: Definition of India and Jurisdiction
Section 2(56) of the CGST Act defines “India” to include Indian territory, territorial waters up to 12 nautical miles, the seabed, continental shelf, exclusive economic zone (EEZ), and the airspace above these areas.
The Supreme Court has ruled in Aban Loyd Chiles Offshore Ltd. v. Union of India that India’s jurisdiction extends to continental shelf and EEZ. Goods produced within these zones and brought to mainland India are not treated as imports and hence do not attract customs duty. Similarly, supplies made within these zones are domestic supplies subject to GST rather than IGST.
Goods moving beyond EEZ into international waters fall under international law and are outside Indian GST jurisdiction. This distinction is important for companies engaged in offshore operations and offshore supply chains.
Export and Import of Goods: Definitions and Practical Implications
“Export of goods” under Section 2(5) of the IGST Act means sending goods out of India to a place outside India’s territory. This aligns with customs definitions and is critical because exports are zero-rated supplies under GST. This means exporters pay no IGST but can claim refunds of taxes paid on inputs and input services.
On the other hand, “import of goods” involves bringing goods into India from outside its borders. Importers are liable to pay IGST on such goods based on customs valuation, which ensures that imports bear tax equivalent to domestic supplies, maintaining a level playing field.
Valuation of Imports under the IGST Act
Legal Basis for Valuation
The IGST Act mandates that the valuation of imported goods for the purpose of IGST levy shall be as per the Customs Act, 1962, specifically Section 14. This section lays down the customs valuation rules, largely aligned with the World Trade Organization’s Agreement on Customs Valuation.
This linkage ensures that the value on which IGST is charged corresponds with the customs assessed value, avoiding inconsistencies and disputes arising from divergent valuation methods. It also facilitates simultaneous assessment and collection of customs duty and IGST at the time of import clearance.
Transaction Value and Customs Valuation Rules
Under the Customs Act, transaction value is the price actually paid or payable for the goods when sold for export to India, subject to certain adjustments. The valuation includes:
- Cost of goods
- Packing expenses
- Assists (such as tooling, design, or engineering)
- Royalties and license fees related to the goods
If transaction value cannot be determined or is rejected, alternative methods are applied in a hierarchical manner including transaction value of identical or similar goods, deductive value, computed value, or fallback method. This hierarchy is binding for IGST valuation, ensuring consistency and transparency.
Valuation of Imported Services
Unlike goods, services imported into India are not valued by customs authorities. Instead, the recipient of imported services located in India determines the value based on the invoice or contract value of the service. The recipient is liable to pay IGST on this value under reverse charge mechanism.
The valuation principles for imported services align with those applicable for domestic supplies, i.e., the transaction value or consideration paid or payable for the supply.
Exemptions and Concessions on Import and Export
Zero Rating of Exports
One of the cornerstones of the GST framework is the zero-rating of exports. Goods or services exported out of India are considered zero-rated supplies under Section 16 of the IGST Act. This means:
- No IGST is charged on export supplies.
- Exporters can claim refund of input tax credit (ITC) accumulated on inputs, input services, and capital goods used in the exported supply.
This incentivizes export activities by reducing the cost of goods and services in international markets, thereby promoting India’s competitiveness.
Exemption Notifications for Imports
Certain goods imported into India may be exempted from IGST by the government through notifications issued under Section 11 of the IGST Act. These exemptions typically include:
- Capital goods imported for use in special economic zones (SEZs)
- Raw materials for specified sectors such as agriculture or pharmaceuticals
- Goods imported under project imports for infrastructure development
These exemptions reduce the tax burden on specific sectors and projects critical to national development.
Deemed Exports and Their Treatment
Deemed exports refer to transactions where goods supplied do not leave India but are supplied to specified entities or for specified purposes notified by the government. Though these are domestic supplies, certain deemed exports are treated similarly to exports under GST, allowing suppliers to claim refunds or concessional rates.
However, deemed exports do not qualify for zero-rating under the IGST Act and thus are governed under CGST/SGST laws, distinguishing them from true exports.
Payment and Collection of IGST on Imports
Collection at Customs
IGST on imported goods is collected by the customs authorities at the time of import clearance along with customs duties. The importer is required to pay the IGST amount determined on the customs assessed value before the goods are released.
The seamless integration of IGST collection with customs clearance reduces compliance burdens and delays for importers. It also ensures that imports bear tax equivalent to domestic supplies, avoiding tax cascading.
Reverse Charge on Imported Services
For imported services, the recipient located in India is responsible for discharging IGST liability on a reverse charge basis. The recipient must self-assess the IGST amount based on the invoice value and pay the tax directly to the government.
This system ensures the tax on imported services is captured even though the service provider is outside Indian jurisdiction and unable to register or comply under GST.
Utilization of Input Tax Credit for IGST on Imports
Importers can utilize their input tax credit accumulated on inward supplies to discharge IGST liability on imports. If credit is insufficient or unavailable, payment must be made in cash.
This credit mechanism ensures seamless flow of taxes and reduces working capital requirements for businesses involved in international trade.
Refunds of IGST on Exported Goods and Services
Mechanism of Refunds
Under the IGST Act, exporters are entitled to claim refunds of IGST paid on inputs and input services used in making zero-rated export supplies. This prevents tax cascading and reduces the cost burden on exporters.
Refunds can be claimed either by exporting goods or services without payment of IGST under bond or letter of undertaking or by paying IGST and claiming refund thereafter.
Documentation and Procedural Requirements
To claim refunds, exporters must furnish relevant documents such as shipping bills, export invoices, and proof of receipt of payment from foreign buyers. Electronic refund applications are filed through the GST portal, and claims are processed by tax authorities.
Proper documentation is critical to substantiate the export transaction and entitlement to refund, ensuring timely receipt of funds.
Timeline and Interest on Delayed Refunds
The IGST Act provides timelines within which refund claims must be processed by the authorities, typically 60 days from the date of receipt of complete application.
In cases of delayed refunds beyond stipulated timelines, interest is payable to the claimant, safeguarding exporters from undue financial stress.
Valuation and Taxation Issues in Import and Export
Treatment of Discounts and Adjustments
Under the Customs Act valuation rules, certain discounts or rebates are added back to the transaction value for customs and IGST purposes if not reflected in the invoice price. This ensures the tax base is not artificially reduced.
For services, discounts or price adjustments agreed post-supply must be reflected in the value declared for IGST reverse charge.
Classification and Tariff Implications
The Customs Tariff Act classifies imported goods under the Harmonized System of Nomenclature (HSN) codes to determine applicable customs and IGST rates. Correct classification is critical since rates vary widely across different goods.
Misclassification can lead to disputes, penalties, and delayed clearances, impacting the supply chain.
Treatment of Temporary Imports and Re-Exports
Goods temporarily imported into India for repair, testing, or exhibition purposes may attract conditional IGST liability. If these goods are re-exported without use in India, refund or exemption of IGST paid is available subject to procedural safeguards.
Such provisions are designed to facilitate temporary imports and boost trade while protecting revenue interests.
Place of Supply Rules in Export and Import of Services
Importance of Place of Supply
Place of supply determines the jurisdiction where GST is applicable and who is liable to pay the tax. In cross-border supplies, accurate determination of place of supply is essential to distinguish between inter-State and export/import transactions.
Place of Supply for Exported Services
Under Section 13 of the IGST Act, the place of supply for exported services is the location of the recipient outside India. This ensures that services provided to foreign entities qualify as exports and are zero-rated under GST. This provision promotes India as a competitive service export hub.
Place of Supply for Imported Services
For imported services, the place of supply is the location of the recipient in India as per Section 13 of the IGST Act. This means imported services are liable to IGST in India, enforceable through reverse charge. This clarity aids taxpayers in understanding their liability on cross-border service imports.
Compliance and Procedural Aspects in Imports and Exports
Customs Clearance and GST Compliance
Importers must comply with customs formalities including filing of Bill of Entry, payment of duties, and submission of prescribed documents. Simultaneously, they must ensure proper GST invoicing and accounting for IGST on imports in their GST returns.
Synchronization between customs and GST systems has been enhanced by electronic data exchange and common portals.
Export Documentation and GST Filing
Exporters must file shipping bills, export invoices, and GST returns reflecting zero-rated supplies. Accurate filing ensures entitlement to refunds and compliance with regulatory requirements. The introduction of electronic filing systems has streamlined these processes.
Audit and Assessment
Authorities can conduct audits and assessments to verify valuation, classification, exemptions, and payment of IGST on imports and exports. Proper record-keeping and timely compliance reduce the risk of disputes. The IGST Act provides mechanisms for assessment and appeals aligned with the CGST Act procedures.
Dispute Resolution under the IGST Act
Common Areas of Disputes in Import and Export
Disputes often arise in areas such as valuation of imported goods, classification under the customs tariff, eligibility for exemptions, refund claims on exports, and the applicability of reverse charge on imported services. These issues require careful interpretation of the IGST Act, Customs Act, and related notifications.
For instance, differences may occur in determining the customs value used for IGST levy or in whether certain services qualify as imported services liable to reverse charge.
Administrative Remedies and Appeals
Taxpayers aggrieved by decisions relating to IGST on imports and exports can pursue remedies through statutory appeal mechanisms.
Initial assessments and orders are typically passed by the Customs authorities, but appeals lie before the Commissioner (Appeals), Customs, Excise and Service Tax Appellate Tribunal (CESTAT), and further to High Courts and the Supreme Court.
The IGST Act incorporates procedural provisions from the CGST Act for recovery, refund, and adjudication, facilitating consistency in dispute resolution.
Role of Advance Ruling Authorities
Advance rulings provide taxpayers with clarity on complex issues related to classification, valuation, place of supply, and applicability of IGST on proposed import or export transactions. This mechanism helps preempt disputes by obtaining authoritative interpretation before transactions occur.
For cross-border transactions, advance rulings can reduce uncertainty and litigation risk, fostering smoother compliance.
Amendments and Revisions in IGST Returns and Refund Claims
Filing Amendments to Returns
Importers and exporters may need to revise their GST returns due to errors or omissions in declared values, tax amounts, or classification. The IGST Act, in conjunction with CGST procedural rules, permits filing of amended returns within specified timeframes.
Timely correction ensures accurate compliance and avoids penalties or disputes related to underpayment of IGST or excess refunds.
Impact on Refund Claims
Amendments to export declarations or shipping documents may affect refund claims. For example, changes in export value, shipping bill particulars, or GST invoices can lead to adjustment or rejection of refund applications.
Exporters must maintain accurate records and promptly update authorities to safeguard refund entitlements.
Interest and Penalties on Delayed or Incorrect Filings
The IGST Act prescribes interest on delayed payment of tax, including IGST on imports, to discourage non-compliance. Similarly, penalties apply for willful evasion, misclassification, or suppression of facts.
Awareness and adherence to filing deadlines and accurate declarations are crucial to avoid financial and legal repercussions.
Compliance Enforcement and Audit Mechanisms
GST Audits of Importers and Exporters
Customs and GST authorities conduct audits to verify adherence to provisions relating to IGST on imports and exports. Audits focus on:
- Correctness of customs valuation and classification
- Proper discharge of IGST liability
- Eligibility and accuracy of refund claims
- Maintenance of prescribed records and documentation
Effective audits protect government revenue and ensure fair competition.
Risk Management and Selective Scrutiny
Authorities employ risk-based assessment strategies to identify high-risk consignments or transactions for scrutiny. Factors influencing selection include inconsistencies in declared values, past non-compliance, or suspicious import/export patterns.
Selective scrutiny aims to minimize disruption to compliant businesses while targeting potential revenue leakage.
Consequences of Non-Compliance
Non-compliance with IGST provisions may result in penalties, interest, confiscation of goods, or even prosecution in serious cases. Importers and exporters must exercise due diligence to fulfill all tax obligations and maintain transparency in cross-border trade.
International Trade and IGST: Aligning with Global Practices
Harmonization with WTO and Trade Agreements
India’s IGST framework, particularly the valuation provisions and zero-rating of exports, aligns broadly with World Trade Organization (WTO) principles and international customs valuation norms. This harmonization facilitates smoother trade relations and reduces the risk of disputes with trading partners.
Additionally, bilateral and regional trade agreements often reference or complement GST and customs regimes, influencing tax treatment of imports and exports.
Role of GST in Trade Facilitation
The IGST Act supports trade facilitation by integrating customs and GST procedures, enabling electronic clearance and real-time data sharing. This reduces delays, paperwork, and costs associated with cross-border trade.
Simplified compliance mechanisms and clear refund processes enhance India’s attractiveness as a trade hub.
Impact of IGST on Supply Chain Decisions
The incidence of IGST on imports affects the landed cost of goods and influences decisions on sourcing, inventory management, and pricing strategies. Exporters benefit from zero-rated supplies and input credit refunds, enabling competitive export pricing.
Understanding these tax impacts helps businesses optimize supply chains and improve profitability.
Special Issues in Export of Services under IGST
Classification Challenges in Service Exports
Determining the correct classification and place of supply for services is often more complex than for goods due to the intangible nature of services. The IGST Act provides rules based on the location of supplier and recipient, but disputes can arise regarding the nature and place of supply. Proper classification ensures correct zero-rating and compliance with export benefits.
Refund of IGST on Exported Services
Similar to goods exports, exporters of services can claim refunds of IGST paid on inputs and input services used in the exported service. Timely and accurate documentation is critical to support such refund claims.
Given the service sector’s significant role in India’s exports, efficient refund mechanisms are vital for sustaining growth.
Digital Services and Cross-Border Transactions
With the rise of digital services and e-commerce, the IGST Act’s provisions on place of supply and reverse charge have gained importance. Foreign suppliers of digital services to Indian consumers must register and pay GST or Indian recipients must pay IGST on reverse charge basis. This ensures the Indian GST regime captures tax revenue from rapidly evolving digital trade.
Import of Services and Reverse Charge Implications
Applicability of Reverse Charge
Imported services supplied by unregistered foreign suppliers require the Indian recipient to discharge IGST under reverse charge. This mechanism broadens the tax base and ensures tax neutrality.
The reverse charge applies to most services except those specifically exempted or covered under notified categories.
Compliance Challenges for Recipients
Indian recipients of imported services must track invoices, calculate tax liability, deposit IGST timely, and claim input credit where eligible. Coordination between finance, legal, and compliance teams is necessary to avoid penalties. Proper accounting entries and reconciliations are essential for GST returns.
Recent Developments and Clarifications
Government notifications periodically clarify the scope of reverse charge, exempted services, and compliance deadlines. Staying updated on such changes is essential for businesses involved in importing services.
Recent Amendments and Notifications Impacting Import-Export under IGST
Changes in Customs Valuation and IGST Rates
Periodic amendments in customs valuation rules or IGST rates affect the tax incidence on imports. For example, rationalization of rates on specific goods or changes in exemption lists directly impact importers’ costs. Businesses must monitor official gazettes and GST council notifications for timely compliance.
Introduction of E-invoicing and Electronic Documentation
The rollout of e-invoicing for exports and imports has improved transparency and reduced fraud risks. Electronic documents facilitate faster customs clearance and GST refund processing. This technological integration supports compliance and enhances taxpayer convenience.
Measures for Preventing Tax Evasion
Stringent checks, enhanced data analytics, and inter-agency coordination have been implemented to prevent tax evasion in imports and exports under the IGST framework. Measures include:
- Matching customs data with GST returns
- Real-time monitoring of export proceeds realization
- Verification of refund claims with transaction data
Such initiatives safeguard government revenue while supporting legitimate trade.
Case Laws and Judicial Interpretations Relevant to IGST on Import-Export
Important Judgments on IGST and Customs Interface
Various judicial pronouncements have clarified the distinction between customs duty and IGST, valuation principles, and applicability of IGST on imports and exports. Courts have emphasized that IGST is a tax and not a customs duty, though collected alongside customs duties.
These rulings help resolve conflicting interpretations and reinforce the legal basis of the IGST regime.
Impact of Judicial Decisions on Taxpayers
Judicial clarity assists taxpayers in managing compliance risks and planning transactions. For example, rulings on temporary imports, valuation disputes, or refund entitlement provide guidance to avoid litigations. Keeping abreast of case law developments is beneficial for tax advisors and businesses.
Future Trends and Challenges in IGST and International Trade
Evolving Global Trade Environment
Changes in global trade policies, tariffs, and digital economy expansion pose challenges and opportunities for the IGST framework. India’s GST laws must adapt to emerging trade patterns, technological advances, and international tax standards.
Role of Technology and Data Analytics
Advancements in artificial intelligence, blockchain, and big data analytics are expected to transform customs and GST compliance. These tools can enhance risk assessment, fraud detection, and taxpayer services. Adoption of technology will improve efficiency and transparency in import-export taxation.
Need for Continued Policy Reforms
To maintain competitiveness and ease of doing business, India may consider reforms such as harmonizing rates, simplifying procedures, expanding e-filing capabilities, and enhancing refund mechanisms. Continuous dialogue between government, industry, and stakeholders is critical for responsive GST policy-making.
Conclusion
The Integrated Goods and Services Tax (IGST) Act plays a pivotal role in regulating cross-border trade in India by seamlessly integrating GST with customs procedures and international trade norms. Its comprehensive framework addresses both goods and services, ensuring that imports and exports are taxed fairly while aligning with the constitutional mandate and global practices.
Through its structured provisions, the IGST Act has effectively replaced the earlier fragmented tax regime, eliminating cascading taxes, enabling seamless input tax credit, and facilitating smoother compliance for importers and exporters. The clear definitions of import and export, combined with valuation rules anchored in the Customs Act, create legal certainty and operational clarity. The zero-rating of exports promotes competitiveness by allowing tax-free outbound supplies and timely refunds of input credits.
Nonetheless, the practical implementation of IGST involves challenges in classification, valuation, reverse charge mechanisms on imported services, and timely refund processing. These issues often give rise to disputes that require robust administrative and judicial remedies, including advance rulings, appeals, and audits. The cooperation between customs authorities and GST officials, along with technological advancements like electronic invoicing and risk-based scrutiny, strengthens compliance and reduces revenue leakage.
Furthermore, India’s IGST framework is closely aligned with international trade principles under the WTO and bilateral trade agreements, supporting the country’s growing role in global commerce. As digital services and e-commerce expand, the IGST Act continues to evolve to address new taxability issues and ensure equitable treatment of foreign suppliers and domestic recipients.
Going forward, continued policy reforms, technological integration, and stakeholder engagement will be essential to enhance ease of doing business, reduce litigation, and maintain India’s competitiveness in international trade. By balancing revenue protection with trade facilitation, the IGST Act serves as a cornerstone for India’s dynamic and expanding trade ecosystem.