FTWZ goods transfer to DTA customers covered under Schedule III paragraph 8(a) not 8(b) CGST Act

AAAR Tamil Nadu ruled that transfer of title of goods stored in FTWZ to DTA customers falls under paragraph 8(a) of Schedule III CGST Act, 2017 (supply of warehoused goods before clearance for home consumption) rather than paragraph 8(b) (supply by endorsement of documents of title). The authority distinguished that paragraph 8(b) specifically requires endorsement of documents like bills of lading, whereas appellant used commercial invoices for title transfer. FTWZ constitutes warehousing facility similar to bonded warehouse under Customs Act. No reversal of input tax credit required under amended Section 17(3) CGST Act for such supplies.

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Issues Involved:

1. Whether the transfer of title of goods stored in FTWZ to customers in DTA or multiple transfers within FTWZ falls under paragraph 8(a) or 8(b) of Schedule III of the CGST Act.
2. Applicability of IGST on goods stored in FTWZ and supplied to DTA customers.
3. Requirement of reversal of input tax credit (ITC) under amended Section 17(3) of the CGST Act for supplies from FTWZ to DTA customers.

Issue-wise Detailed Analysis:

1. Classification of Transfer of Goods under Schedule III:

The primary issue was whether the transfer of title of goods stored in a Free Trade and Warehousing Zone (FTWZ) to customers in the Domestic Tariff Area (DTA) or multiple transfers within FTWZ falls under paragraph 8(a) or 8(b) of Schedule III of the CGST Act, 2017. The appellant argued that the FTWZ does not qualify as a customs warehouse under the Customs Act, and therefore, the transactions should not be considered under paragraph 8(a). Instead, they contended that these transactions fall under paragraph 8(b), which pertains to the supply of goods by endorsement of documents of title before clearance for home consumption. However, the judgment clarified that the term "warehoused goods" in paragraph 8(a) includes goods stored in FTWZ, which are akin to customs bonded warehouses. Therefore, the transfer of title within FTWZ before clearance for home consumption is covered under paragraph 8(a) of Schedule III.

2. Applicability of IGST on Supplies from FTWZ to DTA:

The second issue concerned the applicability of Integrated Goods and Services Tax (IGST) on goods stored in FTWZ and supplied to DTA customers. The judgment upheld the AAR's ruling that since the transaction falls under paragraph 8(a) of Schedule III, it is not considered a supply, and therefore, the query regarding IGST applicability was not answerable. The ruling affirmed that the provisions of paragraph 8(a) apply, and thus, the supply is not subject to IGST at the stage of transfer within FTWZ.

3. Reversal of Input Tax Credit (ITC):

The final issue addressed whether the appellant is required to reverse ITC on common inputs/input services/capital goods under the amended Section 17(3) of the CGST Act. The AAR had ruled that reversal of ITC was necessary. However, the judgment modified this ruling, clarifying that the reversal of ITC is not warranted unless the transactions involve supplies from Duty-Free Shops at arrival terminals in international airports. The judgment emphasized that the amendment to Section 17(3) and the corresponding rules specifically target Duty-Free Shops, and not general transactions under paragraph 8(a) of Schedule III.

Conclusion:

The appellate authority upheld the AAR's ruling regarding the classification of transactions under paragraph 8(a) of Schedule III and the non-applicability of IGST. However, it modified the ruling on ITC reversal, stating that such reversal is not required for the appellant's transactions, as they do not involve Duty-Free Shops.

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