India - Customs Duty

ERPNext
1

So, how to manage Customs Duty for the India environment?

  1. Create a Customs Duty + GST Payable Account - this will be in, all likelihood your, Duties and Taxes Group and under the Liabilities Head.
  2. As you get notification from your overseas supplier that consignment has shipped, Pass a Journal Entry and Charge the Customs Duty to Expenses Included in Valuation account (why this account? Read on to understand why), the GST to your IGST Account and the sum of these two to the Customs Duty + GST Payable account.
  3. Your consignment travels the high seas and hits your port of entry. Now you get a notice from your logistics partner that you need to pay Customs Duties. Pass another Journal Entry that nullifies the Customs Duty + GST Payable account and hits your Bank/Cash account on the other side.
  4. Now your Logistics Partner goes through the process of releasing your goods from Customs and will deliver those goods to your Stores. Stores does a Purchase Receipt for these items and assuming that these are stock items, the base value will now sit as Current Assets - Stock Assets after you make the Purchase Invoice for this transaction.
  5. Either before or after you make the Purchase Invoice, but after you make your Purchase Receipt, make a Landed Cost Voucher charging only the Customs duty component, but not the GST component to your stock valuation. The Landed Cost Voucher uses the Expenses Used in Valuation account to make this entry, so as detailed in Point 2, if you use the same account, the Expenses Included in Valuation account gets nullified for this transaction.
  6. Your GST component continues to sit in the IGST account and will get adjusted against your sales.

Sure, you can do things differently, but this is the process I recommend to a client and I think it is optimal in terms of the entries and creates the liability when it is prudent to do so.

Just monitoring these accounts on your General Ledger will help you be on top of things:

Customs Duty + GST Payable: Any significant balances will indicate (a) Your liability to Customs and the predicted cash out flow, (b) That these shipments are traversing the high seas. Minor balances in 10s or 100s or even 1000s of Rs could possibly be because of Currency Exchange variabilities.

Expenses included in Valuation: Significant balances will mean that you have paid Customs Duties of some shipments, but not done the Landed Cost Voucher for such items.

Now you may not have done the Landed Cost Voucher because (a) these goods have still not hit your stores, so there is no Document (and hence no items) to load the Landed cost onto, or (b) A purchase receipt has been done, but the Landed Cost Voucher has not been done yet.

A custom Report for Purchase Receipts made in Foreign Currencies, and the Landed Cost Voucher against such Purchase Receipts: This will show the Purchase Receipts for which Landed Cost Vouchers that have not been done yet.

Why do you need to run the Landed Cost Voucher? Just so you can load up the valuation of your raw materials for the Customs Duties part. If you don’t to this, you may go wrong with your raw material costing when you cost your product

The IGST part should not be loaded onto Valuation as you claim rebate on that as you sell your products. The net IGST paid may need to get loaded periodically based on your Outward IGST minus Input Credit and that’s best done as an accounting entry. How does that impact your Finished Goods pricing? There are no easy answers to that, and you should begin with an assumed numbers, validate it periodically and use the refined number in your costing calculations.

My observations:

While it is possible to be on top of this process by running the aforesaid reports, I hope to get a client to sponsor making this an elegant work flow and to interconnect the PO.s, the Journal Entries, The Purchase Receipt/Invoice, The Landed Cost Voucher in one start to finish process that will make it easy for the people on the floor to manage this whole process.

Any generous souls willing to contribute and share costs?

Cheers

Jay

2

Sir,
Does this way, IGST will reflect in our IGST report? Because I am not able to find the IGST entry in GSTR-2A!

3

We are not able to do the purchase entry this way? And how to settle multi currency issue?
Also the IGST do not reflect in GSTR-2 and 3B also.

Also how to show the payment of custom dury section? and other charges? To whom should i credit his and how?

4

Hi Hardik,

Apologies for the delay! I don’t come here too often.

Exchange Rate variabilities can be overcome two ways:

Option A: Enter the Exchange Rate at the time of the transaction - this is probably easiest.
Option B: Have a standard Exchange Rate for a period (Month, quarter, etc.) and then create a report that books the difference to Exchange Rate Fluctuations or Losses/Gains due to Exchange Rate Fluctuations and do a bit of crunching to take the delta from the standard rates and book those net amounts (which hopefully will even out over time).

So, you make a standard Landed Cost Voucher to book the Customs Duty and other expenses to increase the valuation of the items as described in my post on Discuss (I’m sure there are better posts than mine on this).

Now the only missing link is the IGST. This is a bit of a bother, I agree. You cannot use that in the Purchase Taxes and Charges Template as this amount should not be included in the Accounts Payable account of your supplier and neither can you include that in the Landed Cost Voucher, as you don’t want this IGST to hit the valuation of your item as you can cliam this GST as input credit.

If you book this expense as a Journal Entry, it may not show up in the GSTR reports. So, you will definitely need some customizations to ensure that all of this works well. Or you have to pull your GST reports from two sources.

I agree that this is a generic issue that all importers in India must be facing, and maybe you can initiate the process to have this addressed elegantly in the Purchase Taxes and Charges Master:

Like there could be a Check Box that goes Charge should not hit Accounts Payable Report of Party. As I type this out, I realize the perhaps the best place to do this is perhaps the Landed Cost Voucher and you could have the Check Box in the Landed Cost Voucher that goes Load this in the Valuation of the Report and it loads up the valuation for that charge only if this box is checked. And the GSTR Report will need to pull this information as well.

Till you (or somebody else) address(es) it, this process will be manual and inelegant.

Hope that helps.

Thanks

Jay

5

Sir,

Thanks for your reply.
One more issue is if I add custom duty in landed cost voucher, than how can I show the payment entry of custom duty? This way I can calculate the cost of the product but the accounts is still unclear as I am not able to show the payment of custom duty.
And IGST is still the issue…
I think ERP Next must look in to this matter and finally out the way out.
Hardik

6

That’s how I recommend you pass the payment entry.

I think we eventually will. All it takes is for somebody to say “You guys suck at this. Let me fix it for you”. Now there is no reason why that person can’t be you. If your defence is that you are not a developer, go to erpnext.org, Service Providers section, or Freelance Jobs and find a developer that is willing (often times the best way to make somebody “willing” is to pay for her/his time) to fix this for you. As as the developer fixes it for you, s/he fixes it for the community. And we all are happy and grateful.

Trust this helps.

Thanks

Jay

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