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Customs, GST relief to give Rs 60,000-cr boost to defence

Customs, GST relief to give Rs 60,000-cr boost to defence

India’s defence budget will be augmented by more than Rs 60,000 crore over the next five years owing to exemptions from customs duty and goods and services tax (GST) that kicked in on October 1, said people aware of the matter.

They said estimates by the Rajnath Singh-led defence ministry show that the twin exemptions will significantly impact its budget and free up resources for modernisation and replenishment of equipment.

The defence ministry had been hit by the imposition of customs duty in 2016 on all imports of military equipment, followed by the GST the next year. Although the two levies were aimed at promoting indigenous production of defence equipment, it soon became evident that there was a lack of capability to produce certain items locally.

With the ministry forced to spend a significant chunk of its budget on imports, the twin taxes reduced the availability of modernisation budget, leading to the armed forces cutting back on plans to acquire new systems.

“A case was taken up with the finance ministry to reinstate the exemption on customs duty and exempt GST as well for imported defence items for which there is currently no domestic production capability,” said one of the persons, who spoke on condition of anonymity.

A key factor in the exemption is that it has been provided for a select number of defence items and for a limited period of five years, during which it is estimated that domestic production will not be available. This would safeguard interests of the Indian industry and allow it to provide alternatives after the fiveyear window, said the person.

Officials said that around Rs 25,000 crore will be saved over the next five years on account of the rollback of customs duty on the import of defence equipment that is not manufactured in India while GST exemptions will augment the defence budget by Rs 35,000 crore.

As reported by ET, the withdrawal of customs duty on imported defence items that are not manufactured in India will improve cash flow, but the services are still short of resources to take forward their modernisation plans.

The defence allocation this year is pegged at Rs 3.18 lakh crore, with capital expenditure of Rs 1.08 lakh crore. The inadequate capital acquisition means that the three armed forces will fall short of almost Rs 18,000 crore on their committed liabilities to pay for equipment already purchased.

This gap could mean delayed payments to public sector units and a further delay in purchasing equipment.

Source: Economic-Times

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Goods bought at duty free shops exempt from GST: Bombay HC

Goods bought at duty free shops exempt from GST: Bombay HC

In a relief to duty free shops at the Chhattrapti Shivaji International Airport, the Bombay high court has held that the state or central government cannot charge GST on goods sold at these shops.

The high court was hearing a petition filed by a duty free shop (DFS) opposing a show cause notice and criminal case against by the sales tax department.

The court held that though duty free shops were in India they did not come under the taxable territory and hence were exempt from paying GST.

A division bench of Justices Ranjit More and Bharati Dangre while hearing a criminal application filed by Sandeep Patil, a petitioner in a previous public interest litigation, was informed that the application was filed for a review of the order in the PIL. The high court had dismissed the PIL that sought directions to the deputy commissioner of sales tax department to refund the GST collected from the duty free shop.

The court was also seized of two petitions filed by Flemingo Travel Retail Limited which runs duty free shops at the airport seeking similar reliefs as Patil.

The petitioners informed the bench that as per the Customs Act the shops were involved in sale of goods that were imported both for arriving and departing passengers.

The petitioners pointed out that as the goods sold to departing passengers were not taxed they were able to provide them at international rates.

They also submitted that the duty free shops were paying a consideration to MIAL to run the business and hence the additional tax in the form of GST would render it impossible for them to offer goods at prevalent rates internationally.

The counsel for GST argued that as the duty free shops were operating in the state of Maharashtra they were liable to pay GST.

The petitioners then referred to a Karnataka high court judgment which held that duty free though functioning on state land, technically were beyond the customs frontiers and outside taxable territory and hence exempt from GST.

After hearing the submissions, on October 7 the court held that it was clear that both arriving and departing passengers were either importing goods or exporting goods. However as the goods being bought from the duty free shops were to be construed as being brought from abroad, as per Baggage Rules under duty free allowance they were exempt from paying GST on crossing the customs frontiers.

The court also said as the departing passengers were taking goods from duty free shops that were beyond the customs frontiers and they too were exempt from paying GST.

Source: Hindustan-Times

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