Understanding the place of supply for import transactions: legal and regulatory framework

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Published Date:  09-01-2024   Author:   amitha-shet
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Import is any process in which goods are brought to one’s country. There can be many reasons why importing goods has to be done.

One of the reasons for importing goods is when the production is insufficient or the quality doesn’t match the bar it has set globally. Importing products is difficult, as certain rules and laws are made for it.

While trading, importing, and exporting, the main point to remember is the place of supply. Place of supply holds great importance when the goods are supposed to be sent out of the country or when the goods are brought from any other country.

Let’s learn how import transactions are affected by the place of supply and the related legal and regulatory framework in correspondence with the imports. 

The legal and regulatory framework governing the place of supply for imports

There can be different regulatory frameworks and functions, all of which vary according to other countries’ rules. In many countries, it follows the same steps where the central bank regulates the market and its dealers.

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However, the security regulatory authority caters to market intermediaries concerning the secondary market.

When these factors and critical points are dealt with in harmony and coordination between the regulations, things may go smoothly and help avoid gaps.

When the matters are dealt with with no harmony, markets of different sizes undertake the same activities under their supervision.

For the effective regulation of the market, it should include the following:

  1. Transparency when it comes to the requirements 
  2. Market conduct regulations 
  3. Market intermediaries and their regulations 

Determination of place of supply for different types of imports

Importing goods is a complicated process that has its own rules and regulations. No matter what the product is, there are some methods and rules through which it has to undergo to reach its destination.

The basic process through which the products are imported includes:

  1. Determination of the goods type and its category. This is the first step towards the import process. 
  2. The second step is when a foreign trade contract is signed between importing and receiving. 
  3. The third step is crucial, and it includes the verification of all the documents. Your product will likely be imported, even if a document is missing. 
  4. This step only happens when there is a requirement for it. It is the registration for the specialized examination. 
  5. Then comes the step where it’s time to declare and transmit the declaration to the customs department. 
  6. Once the above steps are done, it’s time to get the delivery order ready. 
  7. Once the delivery order is ready, you can prepare the customs documents needed during customs clearance. 
  8. You can now pay the import taxes (if any) and complete your import procedure. 
  9. Once all these steps are done and checked thoroughly, you can head towards the storage warehouse.

These were the basic steps that every imported product has to go through. The following are the types of imports:

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  1. Direct import: In this import category, the buyer directly relates to the supplier. There are no middlemen, no clients, and no salesperson. 
  2. Another category is entrusted imports. This category helps the goods get imported through any middlemen or forwarders. That particular middleman will be responsible for providing all the product details. 
  3. Countertrade: In this category, it gets the government involved in exchanging goods and services from one country to another.

No matter what type of import category it is, the place of supply has to be addressed accordingly. That’s how the transactions will be made, as per the category of the import type and the type of transaction. 

Tax implications of import transactions based on place of supply

Tax implication is any financial impact due to any decision or action on an organization’s reputation regarding tax liability.

The foremost important objective of such implications is the endurance of compliance concerning policies and regulations. The tax is applied to all import transactions, depending on the place of supply. It’s because the place of supply holds excellent importance when receiving or dispatching goods.

For imports, the place of supply is where the goods are received. The tariff and other duties regarding the import transaction will be applied accordingly. A surcharge is another category of tax that is used for goods that are being imported. 

Customs procedures and place of supply considerations

The procedure for customs is different when it comes to imports and exports. The imported goods can be stored for 90 days until they can get a declaration from the customs department.

Once the customs department declares them, they are levied to bear taxes such as customs duty, excise duty, VAT, and anti-dumping tax.

Once they are done with the taxes, there are customs procedures.

  1. The goods will be sent to the warehouse, where they will be stored. 
  2. Then comes the inward processing. The goods are transformed at this stage. 
  3. At this point, it’s a temporary admission. The goods are supposedly used before they can be re-exported. 
  4. The goods can then be transported to the location destined for the imported goods.

This was for imported goods. When it comes to the exported goods, the procedures are as follows:

  1. Outward processing
  2. Temporary exportation 

Compliance requirements for importers

Let’s see what import compliance covers before knowing what requirements are needed. Following are the three basic aspects of import compliance. These are:

  1. The calculation of tariffs and duties on the goods that are being imported
  2. The identification and classification of goods that are supposed to be imported
  3. Licensing for products such as food and medicines. These products must be licensed with the FDA, i.e., the food and drug associations in the USA.

The responsibility for import compliance is different for different organizations. Many organizations have appointed specific customs employees to verify HTS codes. Some organizations have given charge to whole teams responsible for the verification.

These organizations also take help from various third-party customs officials to keep the compliance process running smoothly.

When it comes to the compliance requirements for importers, the following are the requirements:

  1. The price is asked for the goods that are imported. The companies are responsible for all the fees, costs, and rate changes. 
  2. Definition of the goods that are about to be imported. You are supposed to explain the product in detail. 
  3. You need to clarify where your shipment is from. In other words, it’s called country of origin. 
  4. The quantity of the goods that are being imported needs to be mentioned.

Import compliance is a not-so-easy process and has its own complexity at each step. However, to be sure of the import plan and the compliance issue, it is recommended to go for a compliance expert who knows his job well. This way, there will be fewer chances of mistakes, and things will fall into place perfectly.

Also Read: Understanding Place of Supply: Import, Export, and Compliance

Conclusion 

Import and export are critical subjects and can give you a hard time when it comes to finding the right documents and the steps that need to be followed.

Import compliance is another tricky subject and needs thorough understanding as well. The best way to get things done perfectly is by consulting a compliance expert with all the relevant methods to expedite the process.

It doesn’t matter if it’s an import or an export of the goods; what matters most is the place of supply. That’s when you’d be sure about the transactions as well.

They will either be intrastate or interstate or if they have to do with import transactions, this greatly depends on the place of supply. The import and export process comes with risks and problems that should never be a reason to stop trading. The trade surplus has been an excellent tool for stabilizing the economic condition of your country.

Also Read: What are the Requirements for claiming ITC on Imported goods?

FAQs

Q1. What is the meaning of GST on imports?

GST stands for goods and services tax. It applies to products and services that are imported. As per the Act of 1999, just as the customs duty is paid, GST has to be paid then and there likewise.

The importer should declare the registration number to claim GST on imported goods. This registration number is directed to be submitted in the bill of entry. Some other documents are also needed; hence, tax invoices and other relevant documents must be there when GST is supposed to be claimed on imported goods. 

Q2. What do you mean by the value of supply?

The price of the supply of goods or services between two parties who are unrelated is called a transaction value, which is the sole price of the supply of goods or services. A value of supply is a transaction value that includes taxes, cess, fees, and other charges applicable by law, any incidental charges levied on it, interest, penalty, or late fee, or any recipient incurred charges. But this doesn’t include GST.

It means if GST has to be applied to the value of the supply, it considers the transaction value to arrive at it, which excludes all other types of charges mentioned above.

Q3. Is GST charged on import or export?

As per the GST law, imports and exports are both charged with GST. The imports of goods and services in regards to interstate trade attract IGST under GST imposed by the Center, whereas the exports of goods and services come under zero-rated supply, as to which no taxes are levied on exports; therefore, the exporter can claim the taxes paid on the inputs via input tax credit. The imports are subject to customs duties and GST. The exports can be exempted from customs duty.

Q4. What are zero-rated imports?

Zero-rated imports refer to importing goods or services from another country where no VAT and GST are levied in the importing country. The products considered necessary, such as food and beverages, medicines, and animal feeds, are exempted from the tax. Those products are called zero-rated imports.

Q5. What are the six methods of customs valuation?

The six methods for customs valuation are:

  1. Fall back method
  2. Transaction value or identical goods
  3. Transaction value method
  4. Transaction value of similar goods
  5. Deductive method
  6. Computed method

Each good or service goes through these steps at the customs department to reach its destination. 

Q6. What is import minus export?

The equation of exports minus imports is equal to net exports. This situation occurs when the quantity of exports exceeds that of imports, and the net export becomes positive. It is any situation for a country facing a trade surplus because exports are more significant than imports.

However, when the situation changes, where exports are less and imports are more, the figure for net exports becomes negative. Therefore, different countries work to improve their financial status and economic stability. It’s mostly because that’s how you create a positive image of your country on the global map.

Q7. What do you mean by tariff?

It is any tax a country imposes on certain goods and services imported from another country to influence it, raise its revenue, or simply help protect its advantages.

Q8. What is a price deflator?

The GDP (gross and domestic product) deflator is also called the price deflator. It measures the changes in goods and services within a limited economy.

When changing prices, rates, and taxes, a price deflator helps modify the rates in an economical budget. 

Q9. What are the four types of tariffs?

There are four different types of tariffs. These are:

  • Specific tariff
  • Retaliatory tariff
  • Compound tariff
  • Ad valorem tariff

A tariff is any type of tax that is directly applicable to any good that is imported. It solely depends on the weight and number of imported goods.

Different products are verified differently because of their physical appearance and quality. Before each product goes for export or import, it is thoroughly examined to see if the tariff has been calculated for that particular good or service. 

Q10. What is the meaning of IGST?

IGST is an acronym for integrated goods and services tax. It’s a tax category to be paid on all interstate supplies (goods transported from one country to another).

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Amitha Shet

Amitha is a creative enthusiast, which gets her into educating the world about things she comprehends. Finance, business, and digital transformation are the topics that she is profoundly interested in so that she can make things simpler for the audience. She is currently a content strategist for a fintech company. She holds a Bachelor of Engineering in Civil Engineering, although finance is a niche that piques her interest to not just educate but to invest and gain experience.

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