Foreign vendor to foreign customer sales attract GST despite goods never entering India

The AAR Gujarat ruled on cross-border transactions where goods procured from outside India are sold to overseas customers without entering Indian territory. The Authority held that GST is not payable on goods procured from foreign vendors when no import declarations are filed with customs authorities, as IGST is levied only upon importation into India. However, GST is payable on sales to foreign customers where goods are shipped directly from foreign vendor to foreign customer, as such transactions constitute taxable supply under GST law but do not qualify as exports since goods never entered Indian territory, making them subject to IGST as inter-state supplies.

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Issues Involved:
1. Whether GST is payable on goods procured from a vendor located outside India when the goods are not brought into India.
2. Whether GST is payable on goods sold to a customer located outside India, where goods are shipped directly from the vendor's premises (located outside India) to the customer's premises.

Issue-wise Detailed Analysis:

1. GST on Goods Procured from Vendor Outside India Not Brought into India:
The applicant, M/s Sterlite Technologies Limited, proposed to undertake a "Merchant Trade Transaction" where goods are procured from a vendor located outside India and shipped directly to a customer outside India without the goods entering India. The applicant sought clarity on whether GST is payable on such transactions.

Legal Provisions and Analysis:
- Section 2(10) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) defines "import of goods" as bringing goods into India from a place outside India.
- Section 7(2) of the IGST Act states that the supply of goods imported into India, till they cross the customs frontiers, shall be treated as inter-state trade or commerce.
- Section 5(1) of the IGST Act provides for the levy of integrated tax on inter-state supplies of goods or services.
- Customs Tariff Act, 1975 and Customs Act, 1962: Integrated tax on imported goods is levied and collected at the point when customs duties are levied.

From these provisions, it is evident that integrated tax on goods imported into India is levied when the goods cross the customs frontiers of India. Since the goods in question do not enter India, they do not meet the criteria for "import of goods" under the IGST Act.

Precedent:
- The Authority for Advance Ruling, Kerala, in the case of M/s Synthite Industries Ltd., held that IGST is payable only when goods are imported into India. Goods procured from China and directly supplied to the USA, or stored in a warehouse in the Netherlands and supplied around Netherlands, were not subject to GST as they did not enter India.

Conclusion:
GST is not payable on goods procured from a vendor located outside India when the goods are not brought into India.

2. GST on Goods Sold to Customer Outside India, Shipped Directly from Vendor's Premises:
The applicant also queried whether GST is payable on goods sold to a customer located outside India, where the goods are shipped directly from the vendor's premises (outside India) to the customer's premises.

Legal Provisions and Analysis:
- Section 7 of the Central Goods and Services Tax Act, 2017 (CGST Act) defines "supply" to include all forms of supply of goods or services for a consideration in the course of business.
- Section 7(5) of the IGST Act states that supply of goods or services, when the supplier is located in India and the place of supply is outside India, shall be treated as inter-state trade or commerce.
- Section 10(1)(a) of the IGST Act specifies that the place of supply of goods involving movement shall be the location where the movement terminates for delivery to the recipient.

In this case, the applicant is selling goods for a consideration in the course of business, which qualifies as "supply" under the CGST Act. Since the supplier is located in India and the place of supply is outside India, it is treated as an inter-state supply under Section 7(5) of the IGST Act.

Export of Goods:
- Section 2(5) of the IGST Act defines "export of goods" as taking goods out of India to a place outside India.
- Since the goods do not cross the Indian customs frontier, they do not qualify as "export of goods."

Conclusion:
The transaction is an inter-state supply and is subject to IGST unless the goods are exempted or zero-rated. Since the goods do not qualify as exports, IGST is payable on goods sold to a customer located outside India, where goods are shipped directly from the vendor's premises (outside India) to the customer's premises.

Ruling:
1. GST is not payable on goods procured from a vendor located outside India, where the goods so purchased are not brought into India.
2. Applicable GST is payable on goods sold to a customer located outside India, where goods are shipped directly from the vendor's premises (located outside India) to the customer's premises.

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