2020 (6) TMI 485 - AAR - GST

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

In Re: M/s. Sterlite Technologies Ltd.

The AAR Gujarat ruled on cross-border transactions where goods procured from outside India are sold to overseas customers without entering Indian ... Levy of GST - cross border purchase and sale of goods - goods procured from vendor located outside India in a context where the goods so purchased are not brought into India - 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. 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? - HELD 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 - the issue has already been decided by IN RE : M/S SYNTHITE INDUSTRIES LTD., ERNAKULAM [2018 (4) TMI 583 - AUTHORITY FOR ADVANCE RULING - 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 - The above circular is applicable in the present case - thus, where, Bill of Entry/import declarations are not being filed with respect to the goods so procured, GST would not be leviable. 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? - HELD THAT:- The thumb-rule for determining the taxability of any transaction is to ascertain whether the transaction tantamount to 'supply' in terms of the provisions of law - In the instant case, the applicant is selling goods for a consideration in the course or furtherance of business and as such the transaction tantamount to 'supply' in terms of the definition of 'supply'. In the instant case the applicant has not stated the nature of goods and has not declared that such goods are exempted under any notification issued under the powers of Sec. 11 of the CGST Act, 2017 and the corresponding State Act or Section 6 of the IGST Act. Thus, the only possibility of goods not subject to levy of IGST would be the circumstances where the goods are exported - definition of Export of Goods indicates that 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. 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. 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.