2022 (12) TMI 496 - AAAR - GST

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

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 ... High Sea Sales - Entry 8(b) to Schedule III - exclusion of supply of goods by endorsement of documents of title - treatment of services under supply definition in Section 7 of the CGST Act - Authority for Advance Ruling jurisdiction under Section 97(2)(e) and (g) to rule on taxability - place of supply (determination not a bar to advance ruling on taxability)Authority for Advance Ruling jurisdiction under Section 97(2)(e) and (g) to rule on taxability - advance ruling on taxability - Whether the Authority for Advance Ruling had jurisdiction under Section 97(2) to answer the appellant's question on whether the High Sea Sales transactions amount to supply. - HELD THAT: - The Appellants sought a ruling on whether their High Sea Sales transactions constitute a supply (and hence are taxable) or are excluded from supply by Entry 8(b) to Schedule III. Section 97(2) lists matters on which an advance ruling may be sought, including determination of liability to pay tax and whether a particular thing done amounts to a supply. The appellate authority examined the question as one of taxability falling squarely within clauses (e) and (g) of Section 97(2). The Authority for Advance Ruling erred in refusing to rule on the ground that the issue involves determination of place of supply and falls within Customs domain; the appellate authority held that the question as framed was about whether the transactions are supply at all and therefore within the AAR's remit under Section 97(2)(e) and (g). [Paras 11]Set aside the Authority for Advance Ruling's refusal and hold that the question falls within the jurisdiction of Section 97(2)(e) and (g) to decide taxability.High Sea Sales - Entry 8(b) to Schedule III - exclusion of supply of goods - treatment of services under supply definition in Section 7 of the CGST Act - Whether the appellant's supply of imported components on High Sea Sales basis is neither a supply of goods nor a supply of services by virtue of Entry 8(b) to Schedule III of the CGST Act, 2017. - HELD THAT: - Entry 8(b) to Schedule III, as inserted w.e.f. 01.02.2019, excludes from 'supply' only the supply of goods by the consignee to any other person by endorsement of documents of title after dispatch from a port of origin outside India but before clearance for home consumption. The appellate authority examined the contracts, purchase orders and the scope of work and noted that while many activities (inspection, testing, drawings, optional post-import field services) are part of the overall contractual supply, Entry 8(b) by its plain language covers only the transfer of title in goods effected by endorsement of documents of title on high seas. Therefore the transfer of title in goods on High Sea Sales falls within Entry 8(b) and will not be treated as supply of 'goods' for GST; however services that form part of or are supplied in relation to the transaction are not covered by Entry 8(b) and remain taxable as 'supply' under Section 7. [Paras 11, 12]Supply of the imported components on High Sea Sales is not a supply of 'goods' under Entry 8(b) to Schedule III; any supply of 'services' in relation thereto will continue to be taxable under Section 7.Final Conclusion: The impugned AAR ruling is set aside. The appellate authority holds that it has jurisdiction to rule under Section 97(2)(e) and (g); on the merits, endorsement transfers of title on High Sea Sales of the appellant's imported components are excluded from 'supply of goods' by Entry 8(b) to Schedule III, while any services connected therewith remain taxable as 'supply' under Section 7. 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.