Manufacturing dies for foreign customers without physical export not considered export under IGST Act 2017

AAR Karnataka ruled that manufacturing and supplying dies to foreign customers without physical export does not constitute export under IGST Act 2017. The die remained with the applicant in India despite invoicing in foreign currency. Place of supply was determined as applicant's location, making it an intra-state transaction liable for CGST/SGST. Similarly, dies manufactured by Thai suppliers but retained abroad do not constitute imports. IGST on reverse charge applies only if dies are physically imported later. Scrapping dies abroad falls outside GST purview.

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Issues Involved:
1. Tax invoice procedure for steel dies manufactured by the applicant and invoiced to a foreign buyer without physical export.
2. GST liability procedure for steel dies manufactured by a foreign supplier and invoiced to the applicant without physical import.

Issue-wise Detailed Analysis:

1. Tax Invoice Procedure for Steel Dies Manufactured by the Applicant and Invoiced to a Foreign Buyer Without Physical Export:

The applicant, a manufacturer and exporter of Aluminium and Zinc die castings, raises tax invoices for steel dies in the name of the overseas customer in foreign currency, even though the dies are not physically exported. The applicant retains the steel dies until the completion of the export order or the die's life. The applicant sought clarification on whether to raise a tax invoice addressed to the foreign buyer, a self-invoice, or an invoice under the reverse charge mechanism, and the procedure to discharge GST liability.

The judgment clarified that as per Section 2(5) of the IGST Act, 2017, the transaction does not qualify as an export since the goods are not taken out of India. The time of supply is determined by the date of issue of the tax invoice or the date of receipt of payment, whichever is earlier, as per Section 12 of the CGST Act, 2017. The place of supply, as per Section 10(1)(c) of the IGST Act, 2017, is the location of the goods at the time of delivery to the recipient, which in this case is the applicant's location. Therefore, the transaction is treated as an intra-State supply, and the applicant must issue a CGST and SGST tax invoice, collect and pay the CGST and SGST tax. If the steel die is scrapped at the applicant's end without moving out of the country, the applicant must issue an intra/interstate tax invoice and collect and pay the applicable tax as per the GST Act, 2017.

2. GST Liability Procedure for Steel Dies Manufactured by a Foreign Supplier and Invoiced to the Applicant Without Physical Import:

The applicant also imports Aluminium casting and pressure die casting components from a Thailand supplier, who manufactures the die as per the applicant's specifications and retains it until the completion of the order or the die's life. The Thailand supplier raises a tax invoice in the applicant's name, even though the die is not physically imported. The applicant sought clarification on whether to account for the purchase commercial invoice and pay GST under the reverse charge mechanism and the procedure to discharge GST liability.

The judgment clarified that the transaction does not qualify as an import as per Section 2(10) of the IGST Act, 2017, since the goods are not brought into India. However, if the applicant physically imports the die after the completion of the order or the die's life, they must pay IGST under the reverse charge mechanism and claim the IGST paid as input tax credit, subject to eligibility. If the steel die is scrapped at the overseas supplier's location without being imported to India, the transaction occurs outside the taxable territory and is not under the purview of the GST Acts.

Ruling:

1. For the manufacture of dies by the applicant and invoiced to the recipient without moving the goods, the applicant must raise a tax invoice addressed to the foreign buyer, collect CGST and SGST, and discharge the liability. The applicant cannot claim the payment as input tax credit. If the steel die is scrapped at the applicant's end, an intra/interstate tax invoice must be issued, and applicable tax must be collected and paid.

2. For the manufacture of dies by the Thailand supplier, if the applicant physically imports the die to India, they must pay IGST under the reverse charge mechanism and claim the IGST paid as input tax credit, subject to conditions. If the steel die is scrapped at the overseas supplier's location without being imported to India, the transaction is outside the taxable territory and not under the purview of the GST Acts.

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