Recent GST updates - Audit, Consulting, Advisory, and Tax ... · Amendments to GST laws—Input Tax Credit on employee services Prior to amendment • Input tax credit of following

Headline Verdana BoldRecent GST updatesIndia GST and Global Trade Advisory update seminarConfidence to think ahead22 February 2019

Tax

India GST and Global Trade Advisory update seminar© 2019 Deloitte & Touche LLP 2

Changes to the GST laws

Procedural relaxations

Key clarifications

IGST Rules—Place of supply

Compliance related amendments

Changes in GST rates

Anti-profiteering

Calamity Cess in Kerala

Recent advance rulings

Appendices

Content

© 2019 Deloitte & Touche LLP 3India GST and Global Trade Advisory update seminar

Changes to the GST laws


Amendments to GST laws

Definition of service• Expanded to include facilitating or arranging transactions in securities

• Securities by themselves are excluded from definition of goods and service

Place of supply

• Place of supply (POS) for goods transportation service under section 12, to a place outside India, be the destination of goods. Earlier, the POS was where the goods were handed over for transportation

• Goods imported temporarily in India for repairs or for any other treatment, which are re-exported after such treatment or process, not to attract tax under section 13

Composition supplies

• Threshold for composition dealer increased to maximum of INR15 million (S$300,000/-) from INR10 million (S$200,000/-)

• Option available for dealers supplying services along with goods of value not exceeding 10 percent of total turnover or INR5,00,000/- (S$10,000), whichever is higher

These are effective from 01 February 2019

*S$1 = INR50


Amendments to GST laws (cont.)

Exports of services• Allow receipt of payment for consideration in India rupees wherever permitted by RBI

for export of services

Credit/debit notes• Option to issue consolidated credit/debit note for multiple invoices provided.

Requirement to link the credit/debit note with corresponding invoices to continue

Registration

• Option provided to obtain separate registration in respect of multiple places of business in a State/UT provided

• Earlier the option was restricted for business vertical only


*S$1 = INR50


Amendments to GST laws—Transactions outside GST ambit

Following added to list of transactions whichqualify neither as supply of goods nor services under Schedule III to GST Act


Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India (third country exports)

Supply of warehoused goods to any person before clearance for home consumption (in-bond sales)

Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption (High seas sales)

Neither supply of goods nor supply of services

An explanation provided to state that transactions which are neither considered as supply of goods nor supply of services to be excluded while calculating the value of “exempt supplies” for purpose of credit reversals.


Amendments to GST laws—Transactions outside GST ambit (cont.)

Customer/HSS buyer

Domestic Vendor/HSS

seller

Movement of goodsInvoicing

Outside India

Customer to file BOE and clear the goods from Customs port

Invoice for supply of goods

Invoice for supply of goods

Foreign Vendor

India

1 2

• Under Section 7 of the IGST Act, a supply of goods before they crosses custom frontiers to be considered as inter-state supplies and attract IGST laws.

• CBIC subsequently clarified that no GST payable by HSS seller and IGST to be paid only once at time of clearance of goods in India

• Due to this, authorities considered HSS seller as provider of non-taxable service and hence an exempt supply. Accordingly, demands for reversal of input tax credit were raised on the HSS seller

• After the amendment, the supply by HSS seller to be considered neither as a supply of goods nor a supply of services. Further, no credit reversal required for such transactions by HSS seller


Amendments to GST laws—Scope of deemed supplies expanded

Schedule I of the CGST Act, which deems certain transactions as "supply" even in absence of consideration amended

Prior to amendment, import of services by a registered person from a related party without consideration was deemed as a supply

Post the amendment, import of services by any person from a related party without consideration deemed as a supply

As a consequence of the above, a person who import services from a related party without consideration shall be required to obtain registration and discharge applicable tax



Amendments to GST laws—Input Tax Credit on motor vehicles

Prior to amendment

• Input tax credit on motor vehicles and other conveyances is not available except when used for following taxable supplies:

- Further supply of such vehicles or conveyances;

- Transportation of passengers; or

- Imparting training on driving, flying, navigating such vehicles or conveyances

Post to amendment

• Input tax credit of following motor vehicles is available:

- Motor vehicles used for transportation of goods

- Motor vehicles having seating capacity of more than 13 persons

- Motor vehicles having capacity of 13 persons or less, vessels and aircraft if they are used for specified purposes (Annexure 1)

• Input tax credit of insurance, servicing, repair and maintenance relating to motor vehicles, vessels and aircrafts (mentioned above) isavailable



Amendments to GST laws—Input Tax Credit on other services

Prior to amendment

• Input tax credit of following goods and services is available when such goods and services are used as inward supply to provide same category of outward supply:

- Food & beverage;

- Outdoor catering;

- Beauty treatment;

- Health services;

- Cosmetic and plastic surgery;

- Rent-a-cab;

- Life insurance and health insurance

Post to amendment

• Input tax credit of following goods and services is available when such goods and services are used as inward supply to provide same category of outward supply :

- Food & beverage;

- Outdoor catering;

- Beauty treatment;

- Health services;


- Leasing, renting or hiring of motor vehicles, vessels or aircraft when used for specified purposes (Annexure 1);




Amendments to GST laws—Input Tax Credit on employee services

Prior to amendment

• Input tax credit of following goods and services is available when it is obligatory for an employerto provide such goods or services under any lawfor the time being in force:

- Rent-a-cab;


Post to amendment

• Input tax credit of following goods and services is available when it is obligatory for an employer to provide such goods or services under any lawfor the time being in force:

- Food & beverage;

- Outdoor catering;

- Beauty treatment;

- Health services;


- Leasing, renting or hiring of motor vehicles, vessels or aircraft when used for specified purposes (Annexure 1);


- Club or health and fitness centre membership

- Travel benefits for employees



Admissibility of ITC of bus-transportation

expenses

• Applicant—YKK India Private Limited

• By taking reference of dictionary meaning of cab and definition of cab from erstwhile service tax regime, AAR held that hiring of buses for transportation of employees is covered under the purview of rent-cab services

• Since, the applicant is neither under obligation of any law to provide rent-cab services nor such services are used for further outward supply of same services, therefore, ITC is not admissible

Amendments to GST laws—Input Tax Credit on employee services (Advance Ruling)


Amendments to GST laws—Reverse Charge

Supplies from

unregistered

persons

Prior to amendment

• Any supplies received by a registered person from unregistered persons, taxable under reverse charge

Post amendment

• Only notified supplies received by specified persons from unregistered persons, taxable under reverse charge

• The supplies and class of persons yet to be notified

Security services • Security services provided by any person (other than a body corporate) to registered persons added to list of services taxable under reverse charge mechanism

This is effective from 01 February 2019

This change is effective from 01 January 2019


Amendments to GST laws—Pre-deposit

Related clarifications

• CBIC clarified that the arrears of Central Excise duty, Service Tax or wrongly availed CENVAT credit under the erstwhile law is permissible to be paid through the CGST credit

• Recently, Bangalore Tribunal in the case of Dell International Services India Pvt Ltd held that CGST credit can be used for payment of mandatory pre-deposit

Pre-deposit limits

• Maximum limit of pre-deposit for filing appeal with the Appellate Authority now capped to INR250 million (S$5 million)

• Maximum limit of pre-deposit for filing appeal with the Appellate Tribunal now capped to INR500 million (S$10 million)

• The capping is substantially higher than limit of INR100 million (S$2 million) provided in erstwhile indirect tax laws

This amendment is effective from 01 February 2019

*S$1 = INR50


Procedural relaxations


Key procedural relaxations—Signing of an invoice and bill of supply

It appears that the purpose of this amendment is to extend the scope of ways to authenticate invoice ie to cover electronic signature. However, it is better to take an opinion from expert on Information Technology Act in

this regard

Rule 46 of CGST Rules require an invoice/billof supply to be signed by the supplier.

Latest amendment provides that digital signature not required if electronic invoice/bill of supply is

issued as per provisions of Information Technology Act, 2000 (IT Act)

The IT Act specifically provides for authenticationof electronic records in section 3 and section 3A

of the said act. The authentication can be doneeither by way of a digital signature or by an

electronic Signature


Key procedural relaxations—Registration for an e-commerce operator

E-commerce operator

• An e-commerce operator has to take registration in each state where the supplier (who is supplying goods through its platform) is located in order to deduct TCS

• However, the requirement of having principal place of business in each such state has been removed. Necessary amendments have been made in the registration form

Supply of goods through e-commerce platform

Supplier A

Customer A

State A State B

• E-Commerce operator has its principal place of business in State A. For deducting and paying TCS, E-Commerce operator is required to obtain registration in State B. Earlier, for obtaining registration, the E-Commerce operator was required to have a principal place of business in State B as well

• The rules have now been amended to provide that E-commerce operator can take registration in State B using its principal place of business of State A

• To this effect, certain States (such as Goa) have issued orders to clarifying that necessary changes have been made to the GSTN portal


Key procedural relaxations—Job work

PrincipalJob

Worker 1

Goods sent for processing

1Goods sent for

processing2

Job Worker 2

Goods sent for processing

3Job

Worker 3

Goods sent back after processing

4

• Details of challan issued for sending goods from one job worker to another not to be furnished in GST ITC-04

• Earlier, details of delivery challan issued at step 1, 2, 3 and 4 was required to be furnished in GST ITC-04

• Now, details of delivery challan issued for steps 1 and 4 are only required to be furnished in ITC 04

• Further, time limit for receipt of inputs from job worker has been extended from 1 to 2 years and time limit for receipt of capital goods has been extended from 3 to 5 years


Key clarifications


Key clarifications—Price adjustments for transitional supplies

Invoice value = INR1150 Taxable value = INR1000

Service tax at 15% = INR150

Supply of services

Downward price adjustment for INR236

A (Supplier)

B (Recipient)

Pre-GST period

Post-GST period

Credit note value = INR236Taxable value = INR200GST at 18% = INR36

• Under section 142 of the GST Act, any price adjustments towards supplies made prior to GST implementation are to be done by way of issuing GST credit/debit notes

• There is ambiguity regarding the rate of tax that is required to be mentioned on such credit/debit note

• CBIC has now clarified that on such price adjustments will attract the GST rate applicable on underlying supplies

Clarifications provided

• The credit note issued for downward price adjustment should be issued as a GST credit note

• Assuming the underlying supplies attract GST at 18%, GST adjustment to be claimed on the credit note should be at 18%

• Accordingly, A to issue credit note of INR236/-(taxable value of INR200 and GST of INR36/-). B to correspondingly reduce GST credit of INR36


Key clarifications—Valuation under GST

Supply of motor vehicleat INR1.5 million and TCS at

1% on INR1.5 million

A(Supplier)

B(Recipient)

Recently, Kerala High Court has stayed the above clarification provided by CBIC on interim basis

• Under Income Tax laws, Tax collected at source (TCS) is collected by the seller for sale of specified items such as motor vehicle exceeding INR10 lakhs, scrap etc. Credit of such tax collected is available to the purchaser at time of filing income tax return and calculating next tax payable

• It has been clarified that since, as per section 15 of the CGST Act, value of taxable supply includes any taxes, duties, fees etc. levied any act other than GST Acts, the TCS collected by supplier under Income Tax laws should be included in for calculating value of taxable supply


• GST to apply on sale price plus TCS, i.e., INR1.515 million


Key clarifications—Export of services

• Under GST laws, for export of services, certain conditions are required to be met which inter-alia includes receipt of foreign exchange.

• Challenges were faced where a part of the consideration was not received outside India in the following cases:

- The supplier of services is located in India; however, part of the services were provided by an offshore associated party of the supplier

- The consideration for services were partly received by the Indian supplier and partly by the offshore associated party

• It has now been clarified that:

- The entire contractual value of services between the Indian supplier and the client will qualify as export, provided other conditions for export of services are met

- Consideration received directly by third party shall be treated as import of services by the Indian supplier and attract GST on a reverse charge basis in the hands of the Indian supplier

• The above is explained by way of an example in subsequent slide


A

C

India

Outside India

Contract for supply of services worth US$500,000

Contract for supply of services worth US$200,000

US$300,000

US$200,000

B

Contractual flow

Actual provision of service

Consideration flow


• A to pay tax under reverse charge on US$200,000

• A eligible to take input tax credit of GST paid on such value

• Value of export of services by A = US$500,000, provided

– GST on reverse charge paid on US$200,000

– The place of supply for concerned services outside India

– The provider of service is in India

– The recipient of services is outside India

– A and B are not merely establishments of a distinct person

– Consideration is received in convertible foreign exchange

– RBI has allowed part of consideration to be retained outside India

Key clarifications—Export of services (cont.)


Key clarifications—Others

Clarifications issued by

CBIC

• "Eligible duties" for carrying forward of transitional credit to include credit of service tax. Credit of cesses (such as education cess, swachh bharat cess) cannot be transitioned

• Refund claims to be made electronically on the GST portal. Physical submission of claim and supporting documents not mandatory. New formats for claiming refund notified

• Interstate movement of rigs, tools and spares (not

intended for further supply) will not qualify as supply and

would not be liable to GST


IGST rules—Place of supply


Amendment in IGST rules—Background

Place of supply

• Section 12 and 13 of the IGST Act, provided for the Central Government to make rules for apportionment of value of services where place of supply for following services was in more than one State:

- Services in relation to immovable property

- Services in relation to event held

- Telecommunication services

- Services which are provided in respect of individuals/goods

• The above rules apply only in cases where the contract is silent on apportionment of the value

• The Central Government has now prescribed rules for determining value of supplies in such cases. These are discussed in detail in following slides


POS where both the supplier andrecipient are located in India

Services Scenarios

Immovable property

related services

• On a single property located in two or more contiguous States/UT

• On multiple properties by a hotel/inn/club or campsite

• In any vessel and ancillary services

• State/UT in proportion to number of nights

• Such state/UT in proportion to time spent by the vessel in each State/UT

• State/UT in proportion to area of immovable property

Event based services

provided to a

unregistered customer

• Event is held in India and consolidated amount is charged

• To be determined by applying generally accepted accounting principles (GAAP)

Telecommunication

services

• Lease circuit is installed in more than one State and consolidated amount is charged

• Such state/UT in proportion to "number of points"

Amendment in IGST rules—Services covered under Section 12 of IGST Act


Amendment in IGST rules—Illustration

Recipient B

State A State B

Supplier X

Immovable property

Supply of services in relation to immovable property

• Immovable property is located in both State A and State B in the proportion of 80 percent and 20 percent respectively

• Supplier X provided real estate services amounting to INR5,00,000 to recipient B in relation to immovable property

• As per the rules, value of supply of services for which POS is State A to be INR4,00,000 (80 percent of INR5,00,000) and value of supply of services for which POS is State B to be INR1,00,000 (20 percent of INR5,00,000)


POS where either the supplier orrecipient is located outside India

Services Scenarios

Immovable property

related services

• On a single property located in two or more contiguous States/UT

• On multiple properties by a hotel/inn/club or campsite

• In any vessel and ancillary services

• State/UT in proportion to number of nights

• Such state/UT in proportion to time spent by the vessel in each State/UT

• State/UT in proportion to area of immovable property

Event based services

provided to a

unregistered customer

• Event is held in India and consolidated amount is charged

• To be determined as per GAAP

Services provided in

respect of

individuals/goods

provided

• On same goods • Equally in each State/UT where services are

performed

• On different goods • State/UT in proportion of value of services

performed

• To individuals • To be determined as per GAAP

Amendment in IGST rules—Services covered under Section 13 of IGST Act


Compliance related amendments


Compliance—Key notifications

Late filing fee for GSTR-1, GSTR-3B, GSTR-4 for the months of July 2017 to September 2018 by any taxpayer waived off, if return filed till March 2019

Time limit for filing of GST ITC-04 for the period July 2017 to December 2018 extended till 31 March 2019

Time limit for filing GSTR-1 & GSTR-3B for the months from July 2017 to February 2019, for newly migrated taxpayers (who were issued GSTIN after December 2017) extended till March 31, 2019

Further time till January 2019, provided to taxpayers for submitting provisional ID's to jurisdictional nodal officer and apply for GSTIN

Penalty payable [section 73(11) of the CGST Act] for delay in payment of self assessment tax waived off if tax deposited within 30 days from due date and before issuance of show cause notice

A person not filing GST returns for two consecutive periods cannot generate Part-A of e-way bill

1

2

3

4

5

6


• ITC towards supplies received during FY2017-18 can be availed till the filing of return for the month of March 2019, provided the details are uploaded by the supplier. Earlier, such ITC could be availed till September 30, 2018

• Time limit for rectification of any error/omission in return filed during FY2017-18 extended till the filing of return for the month of March 2019

Extension of time limit for availing ITC & rectification of

errors

• Due date for filing of annual return (GSTR-9 and GSTR-9C) extended till 30 June 2019

• New formats for GSTR-9 and GSTR-9C notified (discussed in subsequent slide)

Extension of due date for filing

annual return

• Due date for filing return by e-commerce operator (GSTR-8) extended for months Oct- Dec 2018 extended till 31 January 2019

Extension of due date for filing

return by e-commerce operator

Proposals made by government

Compliance—Key orders


Compliance—Snapshot of changes in annual return format

• The basis for providing details of input and output supplies changed from that declared in returns to made during the year. Thus, any supplies not reported in GSTR-1 and GSTR-3B to be reported in GSTR-9

• Non-GST supplies to include no supply transactions (such as employer-employee transactions for a consideration, sale of land, transactions in actionable claims, etc.)

Details of input andoutput supplies

• Following amendments done after end of the relevant FY to be now reported in annual return furnished for the relevant FY:

Changes in output/input supplies by way of raising debit/credit notes

ITC initially availed but reversed subsequently

Amendments made afterFY end to be reported

• HSN wise summary of inward supplies not to be declared unless the item constitutes 10 percent or more of the total value of inward supplies

• Any additional payment as a result of filing GSTR-9 to be made in cash only

Others


Changes in GST rates


GST rates—Key changes

SN Description of goods Old rate Revised/new rate

1. Retreaded or used pneumatic tyres of rubber; solid or cushion tyres, tyre treads and tyre flaps, of rubber 28% 18%

2.

Transmission shafts (including cam shafts and crank shafts) and cranks; bearing housings and plain shaft bearings; gears and gearing; ball or roller screws; gear boxes and other speed changers, including torque converters; flywheels and pulleys, including pulley blocks; clutches and shaft couplings (including universal joints

28% 18%

3. Lithium-ion accumulators (other than battery) including lithium-ion power bank 28% 18%

4. Walking-sticks including seat sticks 12% 5%

5. Fly ash bricks or fly ash aggregate with 90 per cent. or more fly ash content; Fly ash blocks 12% 5%

6. Digital cameras and video camera recorders 28% 18%

7. Television set (including LCD or LED television) of screen size not exceeding 32 inches; 28% 18%

8. Computer monitors not exceeding 32 inches, Set top Box for Television (TV) 28% 18%

9.

Video game consoles and machines, articles of funfair, table or parlour games, including pintables, billiards,

special tables for casino games and automatic bowling alley equipment [other than playing cards, ganjifa card, chess board, carom board and other board games of 9504 90 90 like ludo, etc.

28% 18%

10. Marble and travertine, crude or roughly trimmed”; 18% 5%

11. Parts and accessories of carriage for disabled persons 5%

12. Parts and accessories of vehicles of heading 8713; 28% 5%

13. Flexible intermediate bulk containers 12%


Anti-profiteering


Anti profiteering—Concept and application

A legal obligation not unique to India

Key objective Similar to concept of “unjust enrichment”

Legal Obligation

• Benefit arising out of new tax should flow to consumer

• Control inflation

• No one should enrich at the expense of others

• Retention of benefit by a person that would be unjust or inequitable

• Section 171 of CGST Act

• Any benefit due to tax rate changes or enhanced input tax credit to be passed on by way of commensurate reduction in the prices


Anti profiteering—Key triggers

Ongoing obligation

Introduction of GST—immediate

impact post 1 July 2017

Rate changes(November 17,

June 18)

Price revisions (normal business

cycle)

Future expansion of scope of GST


Anti profiteering—Consequences of non-compliance

To reduce prices of goods or services (as relevant)

Imposing penaltiesCancelling GST

registration

To return amount of benefit not passed to customer along with

interest

Penal consequences + reputational risk

Anti-profiteering authority may issue any of the following orders


• Compliance at SKU level or business segment or entity level?

• Compliance at pan India or State level?

• No prescribed formula for computing the benefits to be passed

• Compliance with Legal Metrology (mandate to sell packages of prescribed quantity)

• Notices from multiple authorities in different jurisdictions

• Complaints on same issue by multiple parties

• Onus for complaints against supply chain partners

• Sectors where prices are market driven (how to monitor benefit to be passed on)

No clear guidelines Practical issues

Key challenges

to date

Anti profiteering—Key issues and challenges





4

3

2

1• Article 279A allows GST Council to make recommendation to Union and States to

levy additional tax for a specified period to raise resources during any natural calamity or disaster

• GST Council in its 32nd meeting approved levy of calamity cess by Kerala to raise resources for flood affected areas

• Such cess will be levied only intra-state supplies in Kerala and rate of such cess not to exceed 1 percent. Cess to apply on the taxable value

• Levy and collection of the cess yet to be made effective


Recent advance rulings


Advance ruling—Taxation of inter company services

M/s TOSHNIWAL BROTHERS (SR) PRIVATE LIMITED (Karnataka AAAR)

• The Applicant was engaged in the business of marketing, sales promotion and post-sale support services to overseas entity

• The applicant provided promotion and marketing services which included:

- Advertise the details of the goods

- Provide demonstration

- Communicate all the relevant information to the prospective customers

- Communicate with the overseas client queries of the prospective customers

- Review of credit rating of the prospective customers

• The aforesaid activities carried out by the Applicant are all part and parcel of facilitating the supply of products by Principal i.e., overseas entity to the customers in India. Thus, such services should be considered as "intermediary services" and GST should be applicable


Advance ruling—Taxation of back office services

M/s VSERVGLOBAL PRIVATE LIMITED (Maharashtra AAR)

• Applicant was an entity located in India and engaged in provision of back office support services to overseas companies, which were engaged in trading of chemicals and other products in international trade

• Various services were provided by applicant for and on behalf of overseas companies which included:

- Generation of order number

- Creation of purchase order

- Sending sales contract

- Pro-forma invoice to the customers

- Liaise with supplier for cargo readiness

- Follow up for smooth shipping on board with supplier and forwarder

- Process payment request

- Payroll processing of employees etc.

• The authority held that sum of all the aforesaid activities clearly indicate that applicant was engaged in arranging or facilitating supply of goods/services between the overseas client and their customers. Thus, the services were in nature of an "intermediary"


Advance ruling—Taxation of back office services (cont.)

M/s ASAHI KASEI INDIA PRIVATE LIMITED (Maharashtra AAR)

• Applicant was an entity located in India and engaged in provision of sales promotion and marketing support to Asahi Japan and other overseas entities of Asahi Kasei Group

• Services by the applicant included:

- Collection and market analysis

- Marketing & administration support

- Back-office support (including accounting support)

- Co-ordination with the government authorities

- Supporting sales activity of Asahi Kasei group

• The authority held that the applicant is not representing itself to be agent of Asahi Kasei Group and vice-versa. Further applicant has no authority to conclude or negotiate any contracts or secure any orders or maintain any stock of goods on behalf of its overseas entities

• Rather, applicant would provide service on own account to improve functioning of holding company. Thus, applicant is not arranging or facilitating supply of services between two or more persons and would not fall to be classified as "intermediary service"


Advance ruling—Key principles for intermediary services

Following key principles emerge from various advance rulings

regarding intermediary services:

• The expression "any other person, by whatever name called" in the definition of “intermediary”, would cover any person irrespective of whether such person was involved at the time of finalisation of the contract between the vendor and the recipient

• The expression "facilitates the supply of goods or services or both or securities, between two or more persons…" would cover a very wide range of activities including business support services such as back office work relating to the sale/purchase transactions of the client

• If the language of contract creates the relationship of principal and agent between parties, then also services can be covered the ambit of intermediary services

• If the consideration for services is influenced by the volume of sale of goods by offshore entity in any manner, then such services may be considered as intermediary services


AppendicesAppendix 1—ITC in case of motor vehicles

Appendix 2—Number of points


ITC in case of motor vehicles

Appendix 1

Credit of motor vehicles with capacity of 13 persons or less available except when they are used for

• Further supply of such motor vehicles; or

• Transportation of passengers; or

• Imparting training on driving such motor vehicles.

Credit of vessels and aircraft available only when they are used for

• Further supply of such vessels or aircraft; or

• Transportation of passengers; or

• Imparting training on navigating such vessels; or

• Imparting training on flying such aircraft; or

• Transportation of goods.


Number of points

Appendix 2

The number of points in a circuit shall be determined in the following manner:

• In the case of a circuit between two points or places, the starting point or place of the circuit and the end point or place of the circuit will invariably constitute two points

• Any intermediate point or place in the circuit will also constitute a point provided that the benefit of the leased circuit is also available at that intermediate point

Headline Verdana BoldRecent GTA updatesIndia GST and Global Trade Advisory update seminarConfidence to think ahead22 February 2019

Tax


Content

SCOMETA—developing regulation in India

New regulations for allowing manufacturing under Custom BondedWarehouse

Customs valuation—Recent development

Litigation trends

Key changes in customs duty rates on electronic products includingelectric vehicles

Recent changes in Authorised Economic Operator (AEO) program


SCOMET—A developing regulation in India


Objective and overview of India’s export control

Overall objective of export Control

• In order to contribute to regional and international security and stability various multilateral export control regimes (MECR’s) and conventions have been signed.

• In terms of these MECR’s and conventions principally the transferring country is entrusted with the responsibility to ensure that their national policies that transfer of arms, sensitive dual use goods and technology do not contribute in enhancement of military capability against the objective of these regulations.

India’s import/export policy

• The export/import of various products/technologies from/to India is usually free except for restrictions/prohibitions carved out for certain items in the export/import policy of India.

• India’s export policy prohibits or mandates prior approval/license for the export of following amongst others:

– Goods, software and technology covered under SCOMET list;and

– Specified flora species, endangered wild life species etc.

Special chemicals, organisms, materials,

equipment & technologies (SCOMET) List

• Prior to April 2017, India had its own export control list named SCOMET list. This list was revamped in April 2017 to harmonise with the guidelines and control list of various MECR’s.


India’s membership to MECR’s—SCOMET list revamped

India became a member of Wassenaar Arrangement (WA) in December 2017 by revamping its SCOMET list. Further, India has also became a member of Missile Technology Control Regime (MCTR) in June 2016 and Australia Group (AG) in January 2018.

Category 0—Nuclear materials, nuclear-related other materials, equipment and technologyCategory 1—Toxic chemical agents and other chemicalsCategory 2—Micro-organisms, toxinsCategory 3—Material, material processing equipment, and related technologiesCategory 4—Nuclear-related other equipment and technology, not controlled under category zeroCategory 5—Aerospace systems, equipment including production and test equipment and related technologyCategory 6—(Reserved)Category 7—Electronics, computers and information technology, including information security

SCOMET list—Categories before revamp

Category 6—Munition list populatedCategory 7—Reserved Category 8—Special materials and related equipment, material processing, electronics, computers, telecommunications, information security, sensors and lasers, navigation and avionics, marine, aerospace and propulsion*Category 8 has been populated with WA dual use list items

Licensing authority Category 0—Department of Atomic EnergyCategory 6—Ministry of Defense Category 1 to 5 and 8—Directorate General of Foreign Trade (DGFT).

Changes in SCOMET list


Category 8 of SCOMET list—Triggered action for MNC’s in India

Sub-categories

1. Special materials and related equipment

2. Material Processing

3. Electronics

4. Computers

5. Part 1 Telecommunications

5. Part 2 Information security

6. Sensors and lasers

7. Navigation and avionics

8. Marine

9. Aerospace and propulsion

1. Special materials and related equipment

2. Material processing

3. Electronics

Five groups in each sub-category

A. System, equipment and components

B. Test, inspection and production equipment

C. Materials

D. Software

E. Technology

General exception to software and technology

1. Software and Technology in the public domain is excluded from the purview of regulations

2. Specific exclusions and exemptions are also specified in sub-categories of Category 8 of SCOMET list

Due to the these changes, MNC’s engaged in export/re-export of information technology hardware, telecommunication equipment, defense products, software and technology out of India need to examine that they comply with this branch of law.


Definition and other related aspects

Definition

Information (including information embodied in software) other than information in the public domain, that is capable of being used in:

a) The development, production or use of any goods or software; and

b) The development of, or the carrying out of, an industrial or commercial activity or the provision of a service of any kind.

Transfer of technology

Transfer of technology is wider than normal export. Under SCOMET regulations following ways of technology transfer is restricted and requires prior approval

• Actual export via any medium like hardware, internet or using any document.

• Transfer to foreign nationals by any person being a citizen of India, or any person who is a resident in India including transfer outside India.

• Transfer by entering into arrangement or understanding for site visits, on-site verification and access to records/documentation with a foreign government or foreign third party.

How to determine coverage under SCOMET

Since technology is correlated with the product for which it is used, typically the following process is followed in sequence to determine its coverage:

• Understand the details of technology to be transferred and products for which it is to be used;

• Determine the coverage of related product under the SCOMET list; and

• Thereafter, determine the coverage of technology under SCOMET list in the technology sub-category of the related product

*While determining the coverage, general and specific exclusion/exemption carved out in SCOMET list should be considered.


SCOMET licensing—Procedure for obtaining authorisation

Requisite documents

1. Purchase Order from foreign buyer;

2. End User Certificate from all entities in supply chain;

3. Profile of exporter;

4. Technical Specification of item to be exported; and

5. Bills of entry into destination country during last one year

Export as per normal export policy

Exporter

Examine and decide whether items covered under the SCOMET List

NoYes

File application ANF 2O online along with the requisite documents and file hard copies

of prescribed documents at DGFT Headquarter (HQ) in New Delhi

Application to be considered by Inter-Ministerial Working Group (IMWG) which

normally meets once every month

3.

Deficiency identified No deficiency

Approval/license granted1. Rectify deficiency

2. Application considered

again by IMWG

Satisfied

Reject application Not Satisfied

The entire

process of

obtaining license

takes three to

four months


Trade facilitation—Relaxation in approval process

Obtaining license in the above cases typically takes 1-2 months

Re-export to original exporter/Original Equipment Manufacturer (OEM) for repair/replacement

Export of SCOMET items after repair from India/for temporary purpose

Repeat orders for export of SCOMET items

Faster approval of SCOMET authorisation shall be granted by Chairman of IMWG when export is to be made to original erxporter/OEM (including its agent) on production of following documents:

• Agreement/PO with the supplier/OEM evidencing such warranting policy

• Export license obtained by supplier;

• Confirmation that no change in product after importation in India

• Bills of entry of original import into India.

• Faster approval granted by Chairman of IMWG for re-export of product after repair/being replaced in India those were originally exported from India subject to production of specified documentation.

• Similarly faster approval is granted for temporary export such as display/exhibition etc. Subject to fulfilment of conditions and production of specified documentation.

Faster approval of SCOMET authorisation will be granted by Chairman of IMWG subject to following:

• Repeat application is made within three years from the date of original authorisation

• Export is to be made to same country & same entity

• Cumulative quantity should be commensurate with operational capacity of end user

• Goods/technology to be exported is the same


Penalty for export of SCOMET items without authorisation

Penalty under

Customs

Who is liable The company and every person who was in charge of, and was responsible to, the company for the conduct of the business at thetime when offence was committed.

Penalty under FTDR

Act

Offences • Export of goods/technology covered under SCOMET List without authorisation.

• Contravene or attempts to contravene or abets any provisions relating to export of SCOMET items.

Goods are liable to confiscation and a fine amounting to up to three times the value of goods can be imposed.

Offence Technology Violation of other provisions False or forged documents

1st Offence

Fine of INR 3,00,000 to 2 million Imprisonment for six months to five years including fine

Fine of INR 5 00,000 or value of goods/services, whichever is higher

2nd or subsequent offence

Imprisonment for six months to five years including fine

Imprisonment for one to seven years including fine


SCOMET—Implementation and issues

A. Enforcement and precedents for levy of penalty

• Export control regulations is still an evolving one in India and the Government has been taking steps for its better enforcement.

• CBIC has issued an instruction to its field formations that any attempt of export in violation of SCOMET regulation to be informed to DGFT, Export Commissioner for required penal actions

• Customs Tribunal in a matter of attempt to export nuclear grade graphite held that even attempt to export goods covered under SCOMET list makes goods liable for absolute confiscation and other penalties.

• Penal actions are simultaneously taken by customs and DGFT, typically DGFT levies a penalty in the range of USD$10,000 to USD$25,000.

B. Open issues

1. Ambiguity on licensing requirement for various stages of technology such as development, testing, actual use for production, improvement etc.

2. No clarity on licensing for re-export of goods imported into India for temporary/short term purpose such as R&D, display, testing etc.

3. No clarity on bulk permits based on single application.

4. No simplified approval process available for export of SCOMET items to countries covered under WA.


Way forward for companies

Companies engaged in the business of information technology hardware/research and development/defense/telecommunication should do the following amongst others:

1. Understand the SCOMET regulations in detail. Legal provision pertaining to SCOMET is available at the URL http://dgft.gov.in/scomet

2. Create working group for compliance with SCOMET regulations and make process plan for implementation.

3. Discuss with business units in India which are engaged in export/re-export of goods/technology from India to understand coverage of such goods/technology under SCOMET list and finalise the licensing requirement.

4. If covered, collate information/documentation and then apply for license and comply with other requirement.

http://dgft.gov.in/scomet


New regulations for allowing manufacturing under Custom Bonded Warehouse


Broad based, WTO compliant scheme

Not linked to specific category of imports, industries

Not linked to specific post import conditions, processes etc. or contingent upon export performance

Improves cash flow: equitably for import-store-supply or import-manufacture-supply models

Is not in the nature of subsidy for exports

Is not funded or subsidised by the Government

Various schemes such as (EPCG, EOU, STPI, SEZ) are linked to fulfillment of export obligation, hence being challenged at World Trade Organisation (WTO) as an export subsidy. However, custom bonded warehouse has following advantages

^Source: WTO Agreement on Subsidies and Countervailing Measures


Bonded warehouse regulations—Past versus current comparison

PF provisions in case of IW

Labour Code

Benefits under SSA Erstwhile Law Current Law

Eligibility to manufacture Section 65 of Customs Act allowed manufacturingoperations in bonded warehouse however onground level importers faced challenges whileobtaining license for manufacture, other than re-packing, labelling processes

Government has specifically notified theapplication process for obtaining approval tomanufacture in bonded warehouse, thereby givingclear instructions to the field officers to allow alltypes of manufacturing operations in bondedwarehouse

Application process Separate application was required to obtainpermission for manufacturing in bondedwarehouse and to obtain license for privatebonded warehouse u/s 58 of Customs Act

Single application form notified in Annexure A ofCircular 38/2018-Customs dated 18 October 2018

Books of Accounts Separate accounts for manufacturing operationsand private bonded warehouse to be maintained

Combined books of accounts to maintained as perAnnexure B of Circular 38/2018-Customs dated18 October 2018


Duty Deferral through Customs Bond

Supplier

Outside India India

Manufacturing of

finished product

Export sale

Customs duty deferredRefer Note 1

• Duty deferment—without any export obligation or foreign exchange commitment

• No restriction on quantum of DTA supply of finished product

• Note 1: Customs duty on imported goods embedded in finished product & GST payable on supply of finished goods

• Note 2: Customs duty not payable on imported goods embedded in finished product exported & GST is also not payable on export of finished goods

DTA sale

Refer Note 2

Customs bonded warehouse

Manufacturing operations has been allowed in customs bonded warehouse without any restriction or export obligation with an intent of promoting ease of

doing business. Duty implication of the same is as below:


Key success factors

Improves cash flow, reduces working capital requirement

Single regulatory interface with Customs only

Simplified record keeping

Duty/ tax payment only on removal from warehouse

No export obligation or restriction on domestic sale

Key beneficiaries—Entities engaged in manufacturing operations with

imported raw materials and exports thereafter along with DTA sale


Customs valuation—Recent development


Related Party Imports—Special Valuation Branch (SVB)

As discussed in the previous slide, in case of related party transactions, detailed scrutiny* is undertaken by SVB to investigate whether

declared import value is influenced due to relationship between parties. The below table reflects scenarios in which cases are referred and

not referred to SVB

Particulars Cases that may/may not be referred to SVB as per Circular 5/2016 dated 9 February 2016 of Customs (SVB circular)

Not Referred to SVB investigations • Import of Samples and prototypes from related sellers• Imports from related sellers where duty chargeable (including additional duty of Customs etc) is

unconditionally fully exempt or nil• Any transaction where the value of imported goods is less than Rs 1 lakh but cumulatively these

transactions do not exceed Rs 25 lakhs in any financial year

Usually Referred to SVB investigations • Transactions between related parties• Transaction involving addition to declared transaction value on account of :-

- Royalty and License fee under Rule 10 (1) of CVR, 2007- Where value of any part of proceeds of any subsequent resale, disposal or use of imported

goods accrues to the seller (i.e. Rule 10 [1][d]) of CVR, 2007- Where any other payments are made or are made in future by buyer to seller as a condition

of sale of imported goods etc. (i.e. Rule 10 [1][e]) of CVR, 2007


Steps for Submission with SVB

Steps for submission with SVB

Collection of Documents for SVB

At the time of Import

Filing of Annexure A at port of ImportFiling of Provisional Duty Bond

(PD bond)

Commissioner to decide if the matter needs to

be referred to SVB

Yes, matter will be referred to SVB

No, when the commissioner decides not to refer case to

SVB

Further queries by SVB

Customs to ask for further information in the form of Annexure B which has to be filed

with SVB within 60 days.

In case imports are made from only one

port, then the TV finalised by

Commissioner in terms of Rule 3 or in terms of

Rule 4 to 9 followed sequentially

PD Bond is required to be filed at each port of import on stamp paper. Typically following documents are required to be filed with a PD Bond

- Photograph, Residence proof of authorised signatory and witnesses

- Solvency certificate from Bank/Chartered Accountant

- Copy of PAN

SVB shall commence inquiries and issue its findings in the form of a report within specified period from receipt

of information in Annexure B

Investigation Report (IR)

Scenario 1: Valuation AcceptedProceed on getting imports finally

assessed

Scenario 2: Valuation RejectedNotice will be issued stating allegations why the

TV is proposed to be rejected


SVB—Imposition of Extra Duty Deposit (EDD)

During pendency of SVB investigation, imports are provisionally assessed and EDD is payable as under in terms of SVB Circular

S.no. Time period EDD

1. Up to 60 days from date of requisition of information and documents for SVB inquiry

No EDD

2. For the period of next three months (in case documents/ information is not furnished)

EDD at 5%


Transfer Pricing and Custom Interplay

Objective of customs valuation and Transfer Pricing (TP) methodologies is to establish that price of a cross border transaction is not influenced by the

relationship between the parties entering into the transaction

ROYALTY

• Customs authorities usually seek to include royalty in assessable values considered for computation of customs duty

• GST implications may also arise

SUBVENTION PAYMENTS

• Likely issues under Customs as well as GST laws

CREDIT NOTES / DEBIT NOTES

• Year end pricing adjustments often result in customs and TP implications

• Practice of issuing credit/ debit notes directly impacts transaction value, therefore valuation issues may arise

MARKETING INTANGIBLES

• Excessive Advertising, Marketing and Promotion (‘AMP’) expenditure creates an issue from customs as well from TP perspective


Emerging area of dispute in Valuation

Please note that there is no information available in this regard on public domain, so lot of what has been shared is market intelligence/experiential.

Introduction of analytic software to compare declared value in current BoE with the past value declared for similar/ identical goods (National Import Database)

02

01The analytics software patch was introduced for the first time in the second fortnight of December 201803

04In case the variation of price is more than 10 percent, the software will flag the shipment on the assessment screen and sent for further investigation

Many importers, exporter and products have suffered delay in clearances of goods in past months and have been asked to produce further information for investigation


Possible risk mitigation steps

To have a complete master database for import and

export operations (opportunity to sell GTR tool- discussed later in

slide)

To run periodic analytics on the database for spotting

the exceptions and possible defence

To check the procurement process on a real time

basis to reduce possible errors and omissions


Global Trade Radar (GTR)

Deloitte’s Global Trade Radar uses data sourced from customs authorities and/ or other sources such as readable data obtained from customs broker data to produce detailed insightful analytics across multiple jurisdictions in one dashboard.

GTR tool helps you to identify: How GTR Tool works

Amount of customs duty paid in each country in which you operate

Whether different Harmonised system codes are used to import the same product into different countries

Are there cash or cash flow opportunities for your organisation?

Is it possible to reduce your spend on customs compliance?

Are you aware of any potential customs exposure and the material consequences thereof?

3*

Data request

8Reporting

(Workshop to discuss findings and demonstrate dashboard)

7

Customs analysis

Prepare GTR project

12*

Prepare data request

5

Data mapping

6

Perform testing

4b*

Data transfer

Deloitte

Project team

Client

Project team

Customs authorities/

Customs broker

4a

Data transfer

7

Customs analysis


Litigation trends


Controversies—HSN Classification

Classification issue

Assessee is importing parts of motor vehicle/bike (say fuel injectors) which are used for the manufacture of such motor vehicle/bike in India.

Such parts of motor vehicle/bike can be classified under following to contesting entries, as per Indian Customs Tariff Act:

• part of engine under heading 8407 or 8408 or 8409• Part of motor vehicle/bike as a whole, under the HSN 8714• Any other specific entry which specifically covers the part being imported (eg: HSN 8481 which covers valves etc.)

Now, in the above scenarios, wherein multiple HSN classification exits for a single product, then one need to clearly understand the productdescription and usage and then consider the General Rules of Interpretation of the Import Tariff and arrive at the final HSN classification

Key Takeaway:

Companies should focus on getting the classification of the goods being imported correctly considering technical features of the product and customsregulations and should not use residual entries (i.e. “Others”) without detailed examinations.


Controversies—Valuation

Valuation issue

Assessee was importing operating software embedded in hardware. As a matter of fact, the transaction value as declared for the purpose of payment ofcustom duty does not include the value of software so embedded.

Now, the question arises that whether in such cases the transaction value of hardware should be inclusive of the value towards the softwareembedded.

The Indian Custom Authorities (DRI) has recently issued notices to multinational information technology company, alleging that there has been a shortfallon payment of custom duty on import of hardware, to the extent that the declared transaction value does not include the value of software embedded onthe same.

Key Takeaway:

Software has remained a matter of debate and discussion from quite sometime. Hence Companies should upfront determine the mode of delivery (i.e.embedded in hardware, internet or both) of software considering the classification and valuation issues surrounding this.


Litigation historyInclusions

Lately, customs authorities have observed that Indian taxpayers are spending excessively on AMP expenses. Accordingly, customs authorities have been

examining inclusion of AMP in the value of imported goods and alleging that the expenditure has been made in relation to goods as a condition of sale by

the exporter or to satisfy the obligation of the exporter. At lower judicial forums, this view has been upheld

• Advertisement

• Promotion expenses

• Marketing expenses

• Royalty

• Franchise fee

• Expenditure necessarily required to be made due to a condition of sale imposed by the exporter

• Expenditure is in relation to imported goods

• Expenditure is made to satisfy any obligation of the exporter

• Reebok India Company vs CC, Patparganj [2018-VIL-49-CESTAT-DEL-CU]

• CC, New Delhi vs Avaya Global Connect Ltd [2016 (3) TMI 256—CESTAT NEW DELHI]

• Giorgio Armani India (P) Ltd. vs CC New Delhi [2018-VIL-248-CESTAT-DEL-CU]

Test for value addition

Key valuation considerations


Key Judicial Precedents

Reebok India Company vs CC, Patparganj [2018-VIL-49-CESTAT-DEL-CU]

The issue before Tribunal was whether the advertisement and marketing expenses incurred by the importer in India, shall be added in the assessablevalue as per Rule 10(1)(e) of the Customs Valuation Rules

In the instant matter, the importer (i.e. Reebok India Company) entered into an distribution agreement with Reebok International Ltd. England (RIL). Asper the said distribution agreement, Reebok India was under an obligation to spend on advertising and promotion activities not less than 6 percent of thenet invoiced sale of products. Details of such expenditure made shall also be reported back to RIL

The Tribunal held that the expenditure made toward the advertisement and marketing expenses shall be included in the value of importedgoods as:

In the current case the advertisement and marketing expenses was not made by Reebok India on its own account.Advertisement and marketing expenses was made by Reebok India as an expressed obligation and as a condition of sale for thedistribution of goods in India.

Key Takeaways:

In case of related party imports, the valuation is subject to confirmation from the Special Valuation Branch of Customs. Thus, an upfront analysis isrequired for all other payment to overseas entities, in addition to TV of imported goods



CC, New Delhi vs Avaya Global Connect Ltd [2016 (3) TMI 256—CESTAT NEW DELHI]

The issue before Tribunal was whether royalty paid in terms Technology Transfer Agreement is a condition of sale includible in the assessable value as perRule 10(1)(c) of the Customs Valuation Rules

In the instant matter, the importer entered into an agreement with M/s Lucent Technologies Inc. USA for supplying the manufacturing component andtechnical information for the manufacture of PBXs in India. Further, as per the terms of the agreement the importer was required to pay royalty and incase of failure to do so supplier had the right to terminate the supplies.

The Tribunal held that the royalty shall be included in the value of imported goods considering the following facts:

During the period in dispute, assessee was not engaged in manufacture of goods in India due to economic reason, rather the finished goods were directlyimported and sold. Further the payment of royalty was continued after importation being more economy viable as compared to manufacture.

As per the agreement, non-payment of royalty gives a right to overseas suppliers for termination of supplies of such imported goods. Hence royaltypayment was considered as a condition of sale of imported goods also.

Key Takeaways:

In case of related party imports, the valuation is subject to confirmation from the Special Valuation Branch of Customs. Thus, an upfront analysis isrequired for all other payment to overseas entities, in addition to TV of imported goods.



Giorgio Armani India vs CC, New Delhi [Tribunal Order No. 51195/2018]

The issue before Tribunal was whether Franchisee Fee at five percent of the value of net purchase, two percent for global advertisement campaign andthree percent on account of advertisement expense in India, in terms of supply agreement, needs to be included in the value of imported goods or not.

The Tribunal held as under:

This matter is affirmed by Supreme Court 2 January 2019.

Key Takeaways:• In case of related party imports, the valuation is subject to confirmation from the Special Valuation Branch of Customs. Thus, an upfront analysis is

required for all other payment to overseas entities, in addition to TV of imported goods

Issue Decision with Reasoning

Franchisee Fee at 5% of the value of net purchase Includable—since franchisee fee is being paid as a condition of sale of the imported goods

2% for Global advertisement Campaign Includable—since World wise advertisement fee is being paid as a condition of sale of theimported goods

3% on account of advertisement expense in India interms of supply agreement

Not Includable—since expense for advertisement in India are incurred after import of goodsinto India so cannot be said to be a condition of sale of the imported goods


Total no. of Indirect tax cases in the Tribunals and Courts is approximately 1.45 Lakhs where value of pending claims approximate to INR 2,62,000 Crore [SGD 49,780 Mn approx]

Average age of pendency of tax cases as on 31 October 2017 at:

Tribunal—3.8 years

High Court—6 years

^India Economic Survey 2017-18

With a view to reduce tax litigations in Customs, Government during its budget for FY 2018-2019 proposed two measures:

Change of Advance Ruling Mechanism Introduction of Pre-consultation notice mechanism

Pendency and delay in litigation matters is hampering tax collection, denting India’s ease of doing rating and stressing taxpayers

Tax Litigations—Current Scenario


Advance Rulings in Customs—Overview

Key features

Advance Ruling can be sought for:• Classification of goods• Availability of exemption• Valuation of goods• Origin of goods• Any other matter, as notified by Government

Objective of obtaining Advance Ruling• Upfront clarification on classification, duty

applicability, valuation issues, etc.• No dispute with Customs authorities

subsequently

Central Advance Ruling authority (CARA) to act as appellate authority

Customs Advance Ruling (CAR) can be sought with respect to any goods prior to importation or exportation

Scope of applicant:• IEC holder;• foreign supplier exporting in India;• any person with justifiable cause to the

satisfaction of CAR

Time limit to pronounce advance ruling is 3 months


In Budget 2018, decentralised Customs Advance Ruling was provided for. Prior to this Central Advance Ruling Authority was taking up matters, which took a long time around 12-18 months sometimes more for disposal of matter.

Such authority will be headed by Principal Commissioner of Customs or Commissioner of Customs

Scope of advance ruling was expanded to cover subjects beyond mere determination of duty

Scope of applicant was widened to include any importer or exporter

Time frame was pronouncing ruling was reduced from 6 months to 3 months

Recent Developments in Advance Ruling Provisions

Upon formation of Customs Authority of advance ruling, appeal can be filed before existing AAR formed under Income tax act, against order passed

In Budget 2019, Government of India has updated that Government is in process of appointing Customs Advance Ruling Authority & drafting regulations for filing applications


Key changes in customs duty rates on electronic products including electric vehicles


Basic custom duty (BCD) rate changes of parts of Electrically Operated Vehicles

Electrically Operated

Vehicle

(HSN 8702 or 8704)

CKD

10%

SKD

15%

Any other form 25%

Motor car*

(HSN 8703)

CKD

10%

SKD

15%

Any other form with CIF value

more than USD 40,000 100%

Any other form with CIF value

more than USD 40,000 60%

Motor cycle

(HSN 8711)

CKD

10%

SKD

15%

Any other form 50%

Government of India has key focus on Make in India program. With the said objective the Government has introduced new entry for import of

electrically vehicles which clearly defines the applicable rate on CKD, SKD and CBU form.

*8703 Electrically operated Motor cars and other motor vehicles, principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars, if imported,-1. As a Knocked Down kit containing all the necessary components, parts or sub-assemblies, for assembling a complete vehicle, with,-

a) Disassembled Battery Pack, Motor, Motor Controller, Charger, Power Control Unit, Energy Monitor Contractor, Brake system, Electric Compressornot mounted on chassis;

10%

b) pre-assembled Battery Pack, Motor, Motor Controller, Charger, Power Control Unit, Energy Monitor Contractor, Brake System, Electric compressor not mounted on a chassis or a body assembly.

15%


BCD rate changes of parts of Electrically Operated Vehicles

5% as

against NIL earlier

Batteries for electrically operated vehicles

5% as

against NIL earlier

Battery pack for use in manufacture of electrically operated vehicle or hybrid vehicle

Chapter heading 8507


BCD rate changes of parts of Electrically Operated Vehicles

Battery Charger

AC or DC Motor

Contactor

Energy monitor

Power Control unit (inverter,

AC/DC converter, condenser)

Brake system for recovering

Electric Compressor

AC or DC Motor

Controller

Following goods for use in manufacture of Electrically operated vehicles are taxed at Nil rate

1

2

3

4

75

6 8

Point no. 4 to 8 has been inserted recently in the exemption list


Recent changes in AEO program


AEO—Basic

Key drivers for AEO certification

• Duty deferment

• Exemption from requirement of bank guarantee

• Faster disbursement of refunds/drawback

Financial Benefits

• Standardisation of process

• Process based controls and exception monitoring

• High standards of compliance and security

Business efficiency

• Lower risk score at RMS, meaning thereby faster clearance

• Direct Port Delivery

• Self-certification of origin certificate

• More facilitation measures like E-wallet to be introduced

Facilitation at Customs

Global objective to facilitate legitimate trade

AEO certification is evolving into an industry standard of good governance

AEO certification obtained by importers, exporters and Logistics operator in the international supply chain

01

02

03

As on 12 January 2019 following are the no. of AEO

certified entities:

AEO T1—1759

AEO T2—301

AEO T3—2


Comparison of key benefits

Key benefit AEO T1(Over regular importer/exporter)

AEO T2(In addition to T1)

Brand Enhancement

Direct Port Delivery/Entry of containers

24 hour clearance without Merchant overtime fees

Separate space in custodian premises

Facility for Deferred Duty Payment X

Waiver of bank guarantee for various schemes 50% 75%

Faster resolution of investigations under Indirect taxes

Seal verification by customs officer Required Waived

Priority processing of BOE/Shipping Bills Higher as compared to T1

Dedicated relationship manager from Customs X

Access to consolidated data through ICEGATE X

Scanning of containers at Port Required Priority over others

Facility to paste MRP stickers in their premises X

Faster completion of SVB proceedings X

Faster Disbursement of all Incentives (Duty Drawback, & Refunds)

X


Quantitative benefits of AEO

Approx. saving of INR

7,000 per 20 feet

container & INR 15,000

per 40 feet container,

due to shift from CFS

to Direct port delivery

Opportunity cost on

account of faster

reimbursements of

refund

Savings on account of

partial/ complete

waiver to furnish

bank guarantee

Saving of interest on

account of deferred

duty payment

fortnightly

Quantitative benefits of having a AEO certification


AEO—Recent Developments

Simplification and Rationalisation of AEO-T1 application form by reducing the no. of Annexures from seven

to two.

Decentralisation of authority granting approval for AEO-T1 certification to Zonal AEO Manager instead of

Directorate of International Customs.

Online filing and processing of AEO-T1 application has been brought into force w.e.f 7 December 2018,

however manual filing and processing is allowed up to 31.03.2019

With 168 AEO certified entities on September 2017, the list has gone upto 2565 as on 22 January 2019

Government of India is also considering to introduce a rating mechanism for the importers and AEO

certification will be considered as a positive mark


Deloitte’s AEO Scan—Background

AEO Scan tool is a web

based self-assessment tool,

rooted in the current self-

assessment framework

articulated by Indian

Customs

It is an innovative solution

that helps understand the

complex administrative

processes with respect to

AEO certification

requirements

Outcome of the AEO Scan

assessment is a detailed

report with a heat map of

existing processes

The report depicts processes

at an acceptable level

(marked in green), requiring

improvement (marked in

amber) and which are not

defined but should exist

(marked in red)

Allows detection of possible

issues and shortcomings

before being flagged by the

customs authorities

AEO Scan report allows

sizing the effort required to

move from an ‘As-Is’ status

to the desired status of

procedure driven safety,

security and compliance

systems in the company

Provides a good perspective

on the enterprise-wide

readiness on AEO

certification requirement

Designed to assist and

facilitate aspiring companies

looking for AEO T2 and T3

certification

Heat Map


Benefits of AEO Scan

• Allows centralised self assessment and progress monitoring

• Removes blind spots, allows clear visualisation of the path to AEO certification

• Aligned to current Customs assessment framework

• Usage based payment, no capital cost or ongoing cost overheads

• Simple, visual communication of message through color coded heat map

• Relevant information easily available on commencement of any customs audit

• Supports the on-going customs requirement for AEO status maintenance

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