Levy of GST

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of my clients who are going to get the orders from abroad and the same would be supplied directly to a client who is also in abroad. The goods will not reach Indian territory.

As per my understanding when the goods are not reach to India and transacted within the Non-Taxable Territory, then the tax would not be attracted(Schedule-III Sesrial No.7) of CGST Act,2017.

However, in the latest advance ruling issued by the State of Ahmedabad to M/s. Sterlite Technologies Ltd., dated 17.03.2020 = 2020 (6) TMI 485 - AUTHORITY FOR ADVANCE RULING, GUJARAT states that, the tax would be levied since the goods has not been exported physically, so, its covered as supply u/s 7 of CGST Act.

Now, whether we need to charge tax on supply would be made out side India or not.

Kindly elaborate. Thanks in Advance.

[Prasanna Kumar]

Mr.THYAGARAJAN KALYANASUNDARAM -

I have gone through the Ruling of 2018 (4) TMI 583 - AUTHORITY FOR ADVANCE RULING - KERALA IN RE : M/S SYNTHITE INDUSTRIES LTD., ERNAKULAM and also the ruling of M/s. Sterlite Technologies Ltd., dated 17.03.2020 = 2020 (6) TMI 485 - AUTHORITY FOR ADVANCE RULING, GUJARAT.

Please see the ruling of AAR Kerala, which reads as follows:-

RULING

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.

The clear meaning of this ruling is that when the goods are procured from China and sold directly to USA without bringing to India, will not attract GST at all.

your understanding that when the goods are not reaching India and transacted within the Non-Taxable Territory, then the tax would not be attracted (Schedule-III Serial No.7) of CGST Act,2017. It is correct. But this Serial No.7 was introduced with effect from 1st February 2019. The definition of High Seas sales means that the importer while importing the goods sells before they reach the customs barriers of India. As such this High Seas sales was exempt in VAT, and exempt in Customs Law even now. The Circular No. 33/2017-Cus. F.No.450/131/2017-Cus-IV, New Delhi, dated the 1st August, 2017 is very clear on this issue.

Why the AAR of Gujarat has given this ruling contradictory to the ruling of Ruling of 2018 (4) TMI 583 - AUTHORITY FOR ADVANCE RULING - KERALA IN RE : M/S SYNTHITE INDUSTRIES LTD., ERNAKULAM is not understandable.

If one accepts this Gujarath AAR ruling, it is like we are accepting that the High Seas sales is taxable under the provisions of the CGST ACT 2017 which is not true.

In my opinion, this ruling is sustainable in the eye of law. You can export your goods which you will be buying from non-taxable territory without bringing into India and need not pay any GST.

Relevant portion of the above referred circular is furnished for your ready reference:-

. "2. The issue has been examined in the Board. 'High Sea Sales' is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. After the High sea sale of the goods, the Customs declarations i.e. Bill of Entry etc is filed by the person who buys the goods from the original importer during the said sale. In the past, CBEC has issued various instructions regarding high sea sales appropriating the contract price paid by the last high sea sales buyer into the Customs valuation [Circular No. 32/2004-Cus., dated 11-5-2004 refers].

3. As mentioned earlier, all inter-state transactions are subject to IGST. High sea sales of imported goods are akin to inter-state transactions. Owing to this, it was presented to the Board as to whether the high sea sales of imported goods would be chargeable to IGST twice i.e. at the time of Customs clearance under sub-section (7) of section 3 of Customs Tariff Act, 1975 and also separately under Section 5 of The Integrated Goods and Services Tax Act, 2017.

4. GST council has deliberated the levy of Integrated Goods and Services Tax on high sea sales in the case of imported goods. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clearance.

5. The above decision of the GST council is already envisioned in the provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 inasmuch as in respect of imported goods, all duties, taxes, cessess etc shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the customs clearance purposes. The importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction. In case of a doubt regarding the truth or accuracy of the declared value, the department may reject the declared transaction value and determination the price of the imported goods as provided in the Customs Valuation rules."

Somebody needs to take this ruling of AAR Gujarath, to appellate AAR.

Regards,

[KASTURI SETHI]

Dear Querist, This decision of AAR is not for you. The applicant should be worried and not you. The department cannot make it precedent,especially, in view other decisions of AARs. This is not natural justice .

[Rajagopalan Ranganathan]

Sir,

The advance rulng rendered in the case of M/s. Sterlite Technologies is binding on the applicant for the advance ruling and jurisdiction GST officer. It is not binding on you. However Department may issue a show cause notice to you based on the above ruling. At that time you can contest the Department's stand in accordance with legal advice given to you. In my opinion when the transaction (supplying and buying of goods) took place outside the taxable territory (India) no gst is leviable on such transaction.

[Ganeshan Kalyani]

I agree with the views of the experts. AAR is applicable to the applicant only. However, the department can issue notice to other taxpayer considering AAR as base. However, taxpayer need to fight his case.

[DR.MARIAPPAN GOVINDARAJAN]

In my view no GST is leviable. I endorse the views of Shri Renganathan in this regard.

AI Summary

GST on supplies outside taxable territory may not apply where goods never enter India, but AARs vary in approach. The document addresses whether GST applies when goods bought abroad are supplied directly to foreign buyers without entering India. It contrasts an AAR finding that no GST arises where goods are never imported with a Gujarat AAR taking a contrary view. Administrative guidance (Circular No.33/2017) and the high seas sales concept indicate IGST is collected at importation and value addition across high seas sales is included in import valuation. AAR decisions bind only the applicant and relevant officer, so taxpayers outside the ruling may still face departmental notices and must rely on factual records to contest liability.