The Gujarat Authority of Advance Ruling (AAR) in its recent ruling in the case of M/s. SPX Flow Technology (India) Pvt. Ltd. has ruled that from 01.02.2019 onwards no IGST is payable where the supply of goods takes place from place in a non-taxable territory directly to another place in a non-taxable territory without the said goods entering into India. However IGST will be applicable on such transactions effected till 31.01.2019.
Facts of the case:
The applicant M/s. SPX Flow Technology (India) Pvt. Ltd. is a company engaged in the business of manufacturing goods like pumps designed for handling water, single and multi-stage pumps designed for handling water, single and multi-stage pumps, dairy machines etc. falling under Chapter 84 and other such products which are classifiable under Chapter 84 of the GST Tariff. The applicant also carries out business of trading in such goods.
The trading business is undertaken in the following manner:
(1) The applicant’s parent company located in Poland is engaged in shipping goods such as spare parts of dairy machinery to recipient customer company located in Bangladesh. The transaction involves generation of one invoice by M/s. SPX Flow Technology, Poland to the applicant and
generation of another invoice by the applicant on the recipient company which is located in Bangladesh.
(2) The recipient customer company in Bangladesh which is M/s. BRAC Dairy and Food Project, receives such dairy machinery and its spare parts directly from SPX Flow Technology, Poland. In other words, the goods are directly delivered from Poland to the customer located at Dhaka on CIF basis. While undertaking this transaction, the invoices are generated parallel to each other, whereby M/s. SPX Flow Technology, Poland raises a set of invoices to SPX Flow Technology India
pvt.ltd.(herein the applicant) and at the same point of time, the applicant company raises another set of invoice to M/s. BRAC Dairy and Food Project, Bangladesh.
(3) As it ordinarily happens in the international trade involving multiple parties, a purchase order is received by the applicant from the customer of Bangladesh (i.e. BRAC Dairy and Food Product) specifying therein their requirements in terms of the components, parts etc., and quantity required.
(4) After receiving such order, the applicant would place its purchase order to the polish supplier (i.e. M/s. SPX Flow Technology, Poland) specifying therein details of the goods required, quantity of such goods etc. The details like name and address of the applicant’s customer at Bangladesh
are also notified to the polish supplier while placing the PO.
(5) Thereupon, the Polish supplier would dispatch the goods directly to the applicant’s customer of Bangladesh and documents for transportation of the goods directly from Poland to Bangladesh are also prepared and issued by M/s. SPX Poland.
(6) A VAT invoice is issued by SPX Flow Technology, Poland to the applicant and the applicant has to make payment of the price of the goods so invoiced by the Polish supplier and such payment is actually made also by the applicant to SPX Flow Technology, Poland by following the normal banking channel.
(7) The applicant would issue its commercial invoice to the customer at Bangladesh, and the customer makes payment of the price of the goods so invoiced to the applicant directly.
Issue on which Ruling was sought:
The applicant has sought the advance ruling on the issue whether the activity undertaken by the applicant is covered by Entry No.7 in Schedule 3 of the CGST Act, 2017. Further ruling has also been sought on whether the applicant is liable to pay IGST on out and out transactions taking place beyond the Customs frontiers of India.
Order of Gujarat AAR: Deliberation and Ruling
- On going through the definitions and comparing the same to the transactions involved in the issue on hand, we find that the applicant, who is the third party in the transaction involved in the instant case, is acting as an agent on behalf of the supplier i.e. SPX Flow Technology, Poland and is therefore covered under the definition of ‘supplier’ as mentioned in Section2(105) of the CGST Act, 2017. We also find that the applicant who is the supplier in the instant case, is selling goods for a consideration in the course or furtherance of business and such transaction tantamount to ‘supply’ in terms of the definition of ‘supply’.
- In the instant case, it is an undisputed fact that the supply involves movement of goods and therefore the place of supply would be the termination for delivery to the recipient. The goods under consideration are supplied to overseas buyers as declared by the applicant and as such the place of supply will be a place outside India. Further, the supplier is the applicant who has declared the principal place of business within India and issues the invoices for sale of such goods.
- When the goods are not physically available in the Indian territory, the question of taking goods out of India does not arise. Thus, the subject transaction does not qualify as export of goods. In view of the above, it appears that the transaction is covered under the ambit of Inter-state supply and is neither exempted nor covered under export of goods or services.
- In view of the amendment in Schedule-III of the CGST Act, 2017, supply of goods from a place in the nontaxable territory to another place in the non- taxable territory without such goods entering into India shall be treated neither as a supply of goods nor a supply of services with effect from 01.02.2019. Since in the instant case, the supply of goods takes place from Poland (which is a non-taxable territory) directly to Bangladesh (which is also a non-taxable territory) without the said goods entering into India, the transactions mentioned in the instant case are similar to that as mentioned in Entry No.7 of Schedule-III of the CGST Act,2017. Therefore, in view of the facts mentioned above, we conclude that no GST is leviable on such type of transactions which have taken place with effect from 01.02.2019 and onwards.
In view of above deliberations the Coram consisting of Sanjay Saxena and Mohit Aggarwal held that the activity undertaken by the applicant M/s. SPX Flow Technology (India) Pvt. Ltd., Ahmedabad is covered under Entry No.7 in Schedule 3 of the CGST Act, 2017 in respect of the transactions undertaken for the period from 01.02.2019 onwards.
Further the AAR ruled that applicable IGST is payable on goods sold to customers located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises (located outside India) for such transactions effected upto 31.01.2019. However, the AAR held that no IGST is payable on such transactions effected from 01.02.2019 onwards.
Relevant entry of Schedule III:
We may see that the above ruling is based upon Entry No.7 of Schedule-III of the CGST Act,2017.
It may be noted here that vide Central Goods and Services Tax (Amendment) Act, 2018, Schedule-III of the CGST Act, 2017 (which covers activities or transactions which shall be treated neither as a supply of goods nor a supply of services) has been amended with effect from 01.02.2019 (as per Notification No.02/2019-Central Tax dated 29.01.2019) and entries 7 and 8 have been inserted under the said Schedule. The same reads as under:
“SCHEDULE III of CGST Act 2017:
“Activities or transactions which shall be treated neither as a supply of goods nor a
supply of services”.
Newly inserted paras after 6:
7. 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.
8.
(a) Supply of warehoused goods to any person before clearance for home consumption;
(b) 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.”;
Newly inserted explanation 2:
‘Explanation 2.––For the purposes of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962.”
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
