Gujarat AAR vide its order dated 17.03.2020 against the application filed by M/s Sterlite Technologies Ltd (ADVANCE RULING NO. GUJ/GAAR/R/04/2020) has adjudged that GST is not payable on goods procured from vendor located outside India, where the goods so purchased are not brought into India.
Further it has ruled that applicable GST is payable on goods sold to customer located outside India ,where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.
Facts of the Case
The applicant M/s Sterlite Technologies Limited is engaged in the Development and supply of software with respect to telecommunication qua wi fi service management platform. OSS/BSS alongside packet core with flexibility of modular and pre integrated offerings etc. and trading in hardware. They procure requisite hardware from the vendor located within India or outside India) on payment of applicable duties/taxes. Such hardware is sold as per the requirement of the customer on payment of GST, except in case of export.
The applicant proposed to undertake transaction and supply of hardware, commercially known as ‘Merchant Trade Transaction’, wherein the applicant will receive an order from the customer located outside India and as per their instruction, Vendor would directly ship the goods to customer located outside India. Vendor would issue invoice on applicant against which payment would be made in foreign currency and applicant would raise invoice on customer and would receive consideration in foreign currency. In the above transaction, goods would not physically come into India, but would move from place outside India to another place outside India.
Questions on which advance ruling was sought
1) Whether GST is payable on goods procured from vendor located outside India in a context where the goods so purchased are not brought into India?
2) Whether GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises?
Highlights and Ruling of order of Gujarat AAR
Question 1)
- From a combined reading of the provisions of the IGST Act, 2017, the Customs Tariff Act, 1975, and the Customs Act, 1962, it is evident that the integrated tax on goods imported into India shall be levied and collected at the point when duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962 i.e.-on the date determined as per provisions of Section 15 of the Customs Act, 1962.
- It has already been decided by Authority for Advance Ruling, Kerala vide ORDER No. CT 12275/18-C3 DATED 26/03/2018 in the case of M/s Synthite Industries Ltd., Ernakulam, Kerala. It was held that “the goods are liable to IGST when they are imported into India and the IGST is payable at the time of importation of goods into India; The applicant is neither liable to GST on the sale of goods procured from China and directly supplied to USA nor on the sale of goods stored in the warehouse in Netherlands, after being procured from China, to customers, in and around Netherlands as the goods are not imported into India at any point.’’
- In the context of ‘High Sea Sales’, Circular No. 33/2017 Customs dated August 1, 2017 has been issued clarifying that sub section (12) of section 3 of the Customs Tariff Act, 1975 specifies that all duties, taxes, cesses etc shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the custom clearance purposes.
- Where, Bill of Entry/import declarations are not being filed with respect to the goods so procured, GST would not be leviable.
In light of above it was decided by Gujarat AAR that GST is not payable on goods procured from vendor located outside India, where the goods so purchased are not brought into India.
Question No.2)
- 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.
- The supplier is the applicant who has declared the principal place of business within India and issues the invoices for sale of such goods.
- The supplier is located in India and the place of supply is outside India and as such the same would be Inter-state supply in terms of the provisions of Sec. 7(5) of IGST Act, 2017. Thus, it is very clear that the transaction undertaken by the applicant tantamount to supply and is an Inter-state supply.
- The act of taking goods out of India to a place outside India qualifies as export. In the instant case, the goods have not crossed the Indian customs frontier and as such it is clear that the goods are not physically available in the Indian territory. When the goods are not 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.
- It appears that the transaction is covered under the ambit of Inter-state supply and is neither exempted nor covered under export of services. Thus, the theory of elimination takes us to the conclusion that such supplies will be subject to levy of IGST.
In view of above it was decided by Gujarat AAR that applicable GST is payable on goods sold to customer located outside India ,where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.
Our View
Gujarat AAR has given its ruling without discussing and considering para 7 of Schedule III of the CGST Act, 2017 which mandates that 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, is not treated as supply of goods.
It appears that instant case may squarely fall in para 7 of Schedule III and it being treated as non supply the question of levy of IGST thereon should not arise.
Anyways as per Section 103 of the CGST Act,2017, any Advance Ruling is binding on the Applicant who has sought it and on the concerned officer or jurisdictional officer in respect of the Applicant. However it has a persuasive value in other cases and thus with above ruling, the tax payers involved in merchant trade transactions abroad, have been put into dilemma.
In past also we have seen Advance Rulings which have been issued without considering entire facts and law like in case of Director remuneration, which has now been settled by issue of CBIC Circular thereon. It is therefore suggested that to evaporate doubts of the tax payers, CBIC should come out with a clarification in this regard.
For ready reference of our readers, the complete order of Gujarat AAR is given below:
***
A BIG THANKS to you for visiting our site and reading this article. Kindly provide your feedback on the above article in comment section below. Also please intimate about other GST issues on which you would require our team to pen down articles.
Doubts on GST may be lodged on ‘Ask GST query tab‘ under ‘Your GST queries’ tab on home page. National level GST experts will provide their reply on the matter raised at the earliest and same can be seen under ‘GST query resolved’ tab under ‘Your GST queries’ tab.
You can also subscribe to our free newsletter to always be updated on GST Law by filling the subscription form at home page.
TW Editorial Team comprises of team of experienced Chartered Accountants and Advocates devoted to spread the knowledge of GST amongst the various stakeholders.
