2020 (5) TMI 604 - AAR - GST

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 ... Time of supply - Place of supply where supply does not involve movement of goods - Export/import of goods definitions - Intra State supply - Supply occurring outside the taxable territory - Reverse charge on import of goods - Input tax credit eligibilityPlace of supply where supply does not involve movement of goods - Time of supply - Intra State supply - Input tax credit eligibility - Tax treatment where applicant manufactures a steel die, raises an invoice in the name of an overseas buyer while retaining the die in India, and supplies castings using that die - HELD THAT: - The invoice issued by the applicant immediately after manufacture constitutes the time of supply. At that time the die remains in the applicant's location and has not been moved out of India. Where supply does not involve movement of goods, the place of supply is the location of the goods at delivery; here that is the applicant's location. Since the supplier's location and the place of supply are in the same State, the transaction is an intra State supply and liable to CGST and SGST. The applicant, being the supplier who issued the invoice, is not the recipient of that supply and therefore cannot treat the tax on that invoice as input tax credit. If thereafter the die is scrapped domestically (on customer instruction) and supplied as scrap to a third party, the applicant must issue intra or inter State invoice as appropriate and discharge the applicable tax under the GST law. [Paras 18, 19, 20, 22]The manufacture and invoice transaction where the die remains in India is an intra State supply; applicant must collect and pay CGST and SGST and cannot claim the tax on that invoice as input tax credit.Export/import of goods definitions - Reverse charge on import of goods - Supply occurring outside the taxable territory - Input tax credit eligibility - Tax treatment where a foreign supplier manufactures a die abroad, invoices the applicant though the die is not physically imported, and later either the applicant imports the die or the die is scrapped abroad - HELD THAT: - A tax invoice issued abroad by the foreign supplier in respect of a die that has not been brought into India does not amount to import under the IGST Act. If subsequently the applicant physically imports the die into India, IGST is payable under the reverse charge mechanism by the applicant at the time of import and the applicant may claim the IGST paid as input tax credit subject to the usual conditions. Conversely, if the die is scrapped at the foreign supplier's location and never brought into India, that event occurs outside the taxable territory and does not attract GST. [Paras 21, 22]If the die is later physically imported into India the applicant must pay IGST on reverse charge and may claim input tax credit if eligible; if the die is scrapped abroad and never imported, the transaction lies outside the GST net.Final Conclusion: The Authority rules that when the applicant invoices a foreign buyer while retaining the die in India the transaction is an intra State supply liable to CGST and SGST and the applicant cannot claim input tax credit on that self issued invoice; where a foreign supplier invoices for a die retained abroad, no import arises unless the die is physically brought into India, in which case IGST on reverse charge is payable and eligible as input credit subject to conditions, while scrapping abroad is outside GST. 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.