GST on sale of goods lying in customs warehouse, before payment of customs duty

[Aap Consulting Pvt. Ltd.]

Dear Experts

Please guide. X imports goods in India and files Bill of Entry for Home Consumption; the goods are lying in Customs Warehouse pending payment of duty. Before payment of duty, X sells goods to Y; however after the sales X pays the Customs Duty and gets OOC. Now the questions are:

1. Whether sales from X to Y will be liable to GST?

2. Is there any legal prohibition under Customs Act or GST Act on sale of goods imported pending clearance?

3. If the import is completed only after payment of duty, then this sales from X to Y would be domestic sales or high sea sale?

[Sadanand Bulbule]

The Customs Act, 1962:

47. Clearance of goods for home consumption.

[(1)] Where the proper officer is satisfied that any goods entered for home consumption are not prohibited goods and the importer has paid the import duty, if any, assessed thereon and any charges payable under this Act in respect of the same, the proper officer may make an order permitting clearance of the goods for home consumption.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

CBIC Circular no. 3/1/2018-IGST dated 25 May, 2018 clarifies that,

"As per section 7(2) of the IGST Act, 2017, supply of goods imported in India is considered as inter-State supply till such goods cross the custom frontiers. Further, the proviso to section 5(1) of the IGST Act states that IGST on goods imported into India is levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act. Accordingly, IGST would be imposed on the supply of warehoused goods, at the time of collection of customs duty, i.e. clearance of such goods for home consumption".

So for the queries, the answer is

1. Whether sales from X to Y will be liable to GST?

Ans. IGST is payable.

2. Is there any legal prohibition under Customs Act or GST Act on sale of goods imported pending clearance?

Ans:- As answered by Sri Sadanand Bulbule Sir at (1).

3. If the import is completed only after payment of duty, then this sales from X to Y would be domestic sales or high sea sale?

Ans:-The goods have crossed the custom frontuier and are warehoused. Hence cannot be a High Sea Sales.

[VENU K]

Section 7(2)(a) of the CGST Act, 2017, specifies that activities or transactions listed in Schedule III shall be treated neither as a supply of goods nor as a supply of services. This means that transactions falling under Schedule III are outside the purview of GST.

Paragraph 8(a) of Schedule III of the CGST Act, 2017, explicitly covers the 'supply of warehoused goods to any person before clearance for home consumption'. This provision was inserted vide the CGST (Amendment) Act, 2018, and has been made effective retrospectively from July 1, 2017, following the decision in the 48th GST Council meeting in December 2022.

In your scenario, the goods are lying in a Customs Warehouse, and the sale from 'X' to 'Y' occurs before 'X' pays the Customs Duty and obtains the Out of Charge (OOC) order. Obtaining OOC signifies the clearance of goods for home consumption. Therefore, the sale from 'X' to 'Y' is a supply of warehoused goods before clearance for home consumption.

Based on the clear stipulation in Paragraph 8(a) of Schedule III of the CGST Act, 2017, this transaction is treated neither as a supply of goods nor a supply of services. Consequently, no GST will be leviable on the sale of goods from 'X' to 'Y'.

It is important to distinguish this from a scenario where goods are sold after clearance for home consumption, which would constitute a domestic supply and be liable to GST. The fact that 'X' subsequently pays the duty and obtains OOC does not alter the nature of the sale to 'Y' which occurred prior to this final clearance.

My opinion

[Sadanand Bulbule]

Entry 8(a) of Schedule III applies only until the goods are cleared for home consumption; therefore, once the Out of Charge (OOC) order is granted, the goods cease to be warehoused goods for this purpose, and any subsequent sale falls outside the scope of Entry 8(a).

This is purely an academic/personal opinion and not a reply to the query.

[Shilpi Jain]

Refer Issue Id: 121005

AI Summary

Warehoused goods sales before home-consumption clearance may fall outside GST, while post-clearance sales constitute taxable domestic supplies. A sale of imported goods from X to Y while the goods remain in a customs warehouse and before clearance for home consumption is considered under paragraph 8(a) of Schedule III of the CGST Act. The stated view is that such a pre-clearance supply of warehoused goods is neither a supply of goods nor services and is outside GST. Clearance follows payment of customs duty and grant of an Out of Charge order; a sale after that stage is a domestic taxable supply. The discussion distinguishes the transaction from a high-sea sale.