2022 (12) TMI 496 - AAAR - GST

High sea sales of imported goods not taxable under GST but related services remain taxable

In Re: M/s. Coperion Ideal Private Limited

The AAAR, UP ruled on the scope of advance ruling regarding high sea sales and place of supply. The Authority held that supply of imported goods ... Scope of Section 97(2) for Advance Ruling - Place of supply - Supply of goods on High Sea Sales - Supply of goods or supply of services - Whether the question falls within the domain of Customs Authorities - Custom's as Circular-33/2017-CUS - HELD THAT:- Section 7 of the CGST Act defines the term 'supply' in an inclusive manner to inter alia include all forms of supply of goods or services or both made or agreed to be made for a consideration by a person in the course or furtherance of business. Further, Section 7(2)(a) of the CGST Act refers to Schedule III of the CGST Act which specifies certain activities or transaction that shall be treated neither as supply of goods nor a supply of services for the. purposes of CST law. we also find that central Goods and Services Tax (Amendment) Act, 2018 inserted two new entries under the said Schedule Ill. From a plain reading of entry no. 8 (b) to Schedule III as inserted by Central Goods and Service Tax (Amendment) Act, 2018 with effect from 01.02 2019 it is clear that, only supply of 'goods' by the consignee by way of endorsement of documents of title to the goods during their sale on high sea sales basis for delivery in India, is covered therein. However, the supply of 'services' is not covered in entry no. 8 (b) to Schedule Ill of CGST Act, 2017, as amended. The question sought to be answered is squarely covered u/s 97(2) of the CGST ACT. Supply of imported goods i.e components needed for Pneumatic Conveying System made by the appellant to its customers on High Sea Sales basis will not be treated as supply of 'goods' by virtue of entry 8(b) to the Schedule III of CGST Act, 2017 as amended, with effect from 01.02.2019. However, the supply of 'services' in relation thereto, if any, will fall under the purview of 'supply' as defined under Section 7 of the CGST Act. Issues Involved:1. Jurisdiction of the Authority for Advance Ruling (AAR) under Section 97(2) of the CGST Act.2. Taxability of High Sea Sales under GST.3. Classification of High Sea Sales as neither supply of goods nor supply of services.Detailed Analysis:1. Jurisdiction of the Authority for Advance Ruling (AAR) under Section 97(2) of the CGST Act:The Appellant contended that their question fell under the purview of Section 97(2)(e) and (g) of the CGST Act, which pertains to the determination of the liability to pay tax on any goods or services and whether a particular transaction amounts to a supply of goods or services. The AAR had previously ruled that the issue of taxability of High Sea Sales required determination of the 'place of supply,' which is outside the purview of Section 97(2). However, the Appellate Authority found that the Appellant's question was indeed within the scope of Section 97(2), as it sought clarity on whether the transaction constituted a supply under GST, thus falling under clauses (e) and (g). The AAR's decision to decline jurisdiction was deemed erroneous.2. Taxability of High Sea Sales under GST:The Appellant argued that High Sea Sales transactions should be treated neither as supply of goods nor as supply of services under Entry 8(b) of Schedule III of the CGST Act. The AAR had previously ruled that the taxability of High Sea Sales fell within the domain of Customs authorities and was determined based on the place of supply. The Appellate Authority, however, found that High Sea Sales, as defined under the CGST Act and Customs Act, involve the transfer of title to goods while they are in international waters before crossing the customs frontiers of India. The Appellant's transactions were thus covered under Entry 8(b) of Schedule III, which treats such sales as neither supply of goods nor services.3. Classification of High Sea Sales as neither supply of goods nor supply of services:The Appellant's High Sea Sales involved merely transferring the title of goods by endorsing the bill of lading while the goods were in transit. The Appellate Authority noted that the CGST (Amendment) Act, 2018, specifically included High Sea Sales under Schedule III, treating such transactions as neither supply of goods nor services. The ruling emphasized that while the supply of goods on High Sea Sales basis is not taxable under GST, any associated services provided in relation to the transaction would still be considered a supply under Section 7 of the CGST Act.Ruling:1. The impugned ruling by the AAR was set aside, as the question posed by the Appellant was within the purview of Section 97(2) of the CGST Act.2. The supply of imported components for Pneumatic Conveying Systems on High Sea Sales basis will not be treated as a supply of 'goods' under Entry 8(b) of Schedule III of the CGST Act, 2017, as amended. However, any related services will be considered a supply under Section 7 of the CGST Act.Validity and Jurisdiction:The ruling applies specifically to the facts and circumstances of the Appellant's case and is valid within the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh, as per the provisions of the CGST Act, 2017, and the Uttar Pradesh GST Act, 2017.