2024 (6) TMI 11 - AAR - GST

GST not applicable on sale of warehoused goods in Free Trade Warehousing Zone under MOOWR Scheme

In Re: M/s. Sunwoda Electronic India Private Limited

AAR Tamil Nadu ruled that GST is not leviable on sale of goods warehoused in third-party Free Trade Warehousing Zone to customers who clear goods to ... Levy of GST - sale of goods warehoused in a third-party Free Trade Warehousing Zone (3P FTWZ) to customer who clears the same to bonded warehouse under MOOWR Scheme - as is where is basis - HELD THAT:- The Free Trade Warehousing Zone (FTWZ) is part of SEZ scheme and it is a Customs bonded warehouse. Warehousing of goods that are imported without payment of appropriate Customs duties are carried out in these zones. SEZ is a specifically delineated duly free enclave which is deemed to be a foreign territory for the purposes of trade operations and duties and tariffs. Normally, the applicant imports goods and stores them in FTWZ till he finds a local customer who will purchase the goods and such purchaser clears the goods under the Customs Act. In other words, the goods would become exigible to tax under the domestic enactments only when they are released for home consumption. Even before the amendment to Schedule III of the CGST Act, 2017, the legal position was that the supply of goods before their clearance from the warehouse would not be subject to the levy of Customs duty or integrated tax and that the same would be levied and collected only when the warehoused goods are cleared for home consumption from the customs bonded warehouse - the 'warehoused goods', as specified in clause 8 (a) of the Schedule III, covers the warehouses/warehoused goods in respect of the FTWZ/SEZ, being discussed in the instant case, as well. It is found that when the imported goods are warehoused, as long as the said goods are not cleared for home consumption, duties under Customs including IGST are not required to be discharged. Specifically, the legal position of such cases became much clearer, after the amendment whereby clauses 7 and 8 were added with effect from 01.02.2019 to Schedule III of the CGST Act, 2017, which talks about 'Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services'. It is held that the instant case of the applicant, where the imported goods stored in a 3P FTWZ warehouse, is being moved to the Bonded Warehouse (MOOWR) on effecting a sale to an OEM's MOOWR unit, taxes under GST are not leviable, as the transaction gets squarely covered under clause 8 (a) of the Schedule III of the CGST Act, 2017, which reads as “Supply of warehoused goods to any person before clearance for home consumption”. GST is not leviable on the sale of goods warehoused in 3P FTWZ on “as is where is” basis to customer who clear the same to bonded warehouse under the MOOWR Scheme. Issues Involved:1. Whether GST is leviable on the sale of goods warehoused in a third-party Free Trade Warehousing Zone (3P FTWZ) on 'as is where is' basis to a customer who clears the same to a bonded warehouse under the MOOWR Scheme.Summary:Issue 1: GST Levy on Sale of Warehoused GoodsFacts and Circumstances:- The applicant, M/s. Sunwoda Electronic India (P) Ltd., imports Portable Lithium System Batteries and stores them in a 3P FTWZ.- The goods are sold to an OEM's MOOWR unit while still warehoused.- The applicant sought an advance ruling on whether GST is leviable on such sales.Applicant's Argument:- The applicant argued that the sale of warehoused goods to an OEM's MOOWR unit is covered by Para 8(a) of Schedule III of the CGST Act, 2017, which states that the 'Supply of warehoused goods to any person before clearance for home consumption' is neither a supply of goods nor a supply of services.- They referenced CBIC Circular No. 48/2020-Customs and Rule 46(13) of the SEZ Rules, 2006, which allow the transfer of goods from FTWZ to a bonded warehouse without payment of duty.- They also cited various legal precedents and rulings supporting their stance.Legal Provisions and Findings:- Section 2(n) and Section 2(za) of the SEZ Act define FTWZ as part of SEZ, which is deemed to be outside the customs territory of India.- Section 53 of the SEZ Act states that SEZs are considered outside the customs territory for authorized operations.- Section 51 of the SEZ Act gives it an overriding effect over other laws.- CBIC Circular No. 3/1/2018-IGST clarified that integrated tax is levied only when warehoused goods are cleared for home consumption.- Amendment to Schedule III of the CGST Act, effective from 01.02.2019, explicitly states that the supply of warehoused goods before clearance for home consumption is neither a supply of goods nor a supply of services.Ruling:- The Authority ruled that GST is not leviable on the sale of goods warehoused in 3P FTWZ on 'as is where is' basis to a customer who clears the same to a bonded warehouse under the MOOWR Scheme.- The transaction is covered under Para 8(a) of Schedule III of the CGST Act, 2017.Conclusion:GST is not applicable on the sale of warehoused goods in a 3P FTWZ to a customer who clears them to a bonded warehouse under the MOOWR Scheme, as per the provisions of Para 8(a) of Schedule III of the CGST Act, 2017.