TaxTMI 
TaxTMI 
2024 (12) TMI 1220
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....the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the appellant has been given an opportunity of being heard. 2. Under Section 103 (1) of the Act, this Advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only- (a) on the applicant who had sought it in respect of any matter referred to in sub-section (2) of Section 97 for advance ruling; (b) on the concerned officer or the jurisdictional officer in respect of the applicant. 3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the said advance ruling have changed. 4. Under Section 104 (1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made. A....
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....of the Applicant in terms of recent amended Section 17 (3) of the CGST Act? 3.2. The AAR vide Ruling No. 17/ARA/2024 dated 25.07.2024 ruled as follows:- (i) Yes. The activity of the transfer of title of goods stored in FTWZ Unit by the applicant to its customers in Domestic Tariff Area (DTA) or multiple transfer within the FTWZ, will get covered under para 8 (a) of Schedule-III of the CGST/TNGST Acts, 2017. (ii) This query is not answerable, since the query at Sl. No. (i) is answered in the affirmative. (iii) In terms of the amended Section 17 (3) of the CGST Act, 2017, and the rules made thereunder, the applicant becomes liable to reverse the proportionate ITC on common inputs/capital goods/services availed, if any. 3.3 Aggrieved over the said ruling pronounced by the AAR, the Appellant has filed the instant appeal. Under the grounds of appeal as submitted by the Appellant, they have put forth the following points in support of their defence, viz., A. 1 The AAR has erred in holding that the transfer of title of goods stored in FTWZ Unit by the Applicant to its customers in Domestic Tariff Area (DTA) or multiple transfers within the FTWZ fo....
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....India (P) Ltd., is valid, as the said ruling has not been set aside by the Appellate Authority for Advance Ruling, Tamilnadu, but had only remanded the case, as the AAR had failed to consider the appellant's submission in its entirety. A.9 Accordingly, the appellant reiterated the detailed submissions made before the AAR and concluded that in view of the foregoing, it is evident that the AAR has misinterpreted the provisions in concluding that the supply of goods stored in the FTWZ falls under para 8 (a) of Schedule III, and therefore the impugned ruling should be set aside. B.1 The AAR has erred in not addressing the Query No. 2, on the basis that they have answered Query No. 1 in the affirmative, and therefore there is no need to respond to Query No. 2, as it starts with the phrase "If the answer to the above at (i) is no, ....". B.2 Though the AAR did not directly answer Query No. 2, they are indirectly concurring with the point that IGST would not be applicable to supplies within the FTWZ. B.3 While the inapplicability of GST on such supplies is undisputed, the disputed conclusion is with respect to the exclusions under paragraph 8 (a) of Sch....
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.... under paragraph 8 (a) of Schedule III, the Appellant would not be required to reverse ITC and therefore, the impugned ruling to the extent it ignores the amendments in entirety and aforesaid interpretation, is incorrect and liable to be set aside. 3.4 Accordingly, in respect of the queries raised by them, the appellant were of the viewpoint that, (1) FTWZ does not qualify as a customs warehouse under the provisions of the Customs Act. Thus the transactions are not covered under para 8 (a) of Schedule III. (2) FTWZ is not a customs warehouse, and thus, it does not fall under Para 8 (a) of Schedule III. However, given that supplies undertaken prior to the goods crossing the customs frontiers of India are not taxable as also observed in the impugned ruling, the said transaction is covered under Para 8 (b) of Schedule III, which addresses the supply of goods by way of transfer of title before home consumption. (2) The restriction on the availment of ITC under Section 17 (3) of the CGST Act concerning supplies covered under Påra 8 of Schedule III applies only to DFS in terms of Explanation 3 to Rule 43 of CGST Rules. Since the instant transaction is ....
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....supply of goods by endorsement of documents of title of the goods, before clearance for home consumption. 4.4 Regarding the second query relating to supply of goods to its customers in DTA unit, the AR stated that the same was not answered by the AAR in view of the fact that the first query was answered in the affirmative. The AR explained in detail about the legalities involved in the instant issue, and requested for a ruling on the same. 4.5 As regards the third query in relation to ITC availment in respect of such transactions, the AR contended that the AAR has considered only the amendment to Section 17 (3) of the CGST Act. Whereas, they have failed to take note of the parallel amendment in the CGST Rules, i.e., 'Explanation 3' to Rule 43 of the CGST Rules, 2017, wherein it has been made clear that the value of activities or transactions mentioned in sub-paragraph (a) of paragraph 8 of Schedule III of the Act, shall be the value of supply of goods from Duty Free Shops (DFS) at arrival terminal in international airports to the incoming passengers. The AR therefore reiterated that as far as paragraph 8 (a) of Schedule III of the Act is concerned, proportionate reversal of I....
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....esaid submissions, they requested for another opportunity to explain the same, before the appellate authorities take any further decision. 4.8 As requested, the appellant was accorded another opportunity of hearing on 07.11.2024, and Shri K. Sivarajan, Partner, PW & Co., LLP, Mandaveli, the authorized representative (AR) of M/s. Panasonic Life Solutions India (P) Ltd., appeared for the Personal Hearing. The AR briefly summarized the submissions made by them already during the personal hearing held on 03.10.2024. The AR further stated that as undertaken, the sample copies of the documents sought for by the Members during the hearing on 03.10.2024, have been furnished under the appellant's letter dated 15.10.2024. 4.9 The AR reiterated that SEZ is a port area and to this effect, the AR furnished a screen-print of the DGFT portal, wherein on being prompted with the Port code INCJJ6', the Port name is shown as 'J.Matadee Free Trade Zone SEZ Mannur Tamilnadu, and the Location type is shown is 'SEZ'. The AR therefore stated that the goods stored therein cannot be considered as 'warehoused goods' in the strict sense of the term, as SEZ warehouses are not included under the Customs A....
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....he appellant, the submissions made during the personal hearings held on 03.10.2024 and 07.11.2024, the documents furnished through their letter dated 15.10.2024 and through their mail dated 11.11.2024. 5.2 We observe that in the instant case, the moot point that requires attention, is as to whether the transfer of title of goods stored in FTWZ by the appellant to its customers in DTA or multiple transfers within the FTWZ, before the goods are actually cleared into DTA for home consumption, gets covered under paragraph 8 (a) or under paragraph 8 (b) of Schedule III of the CGST Act, 2017. For facilitation, the relevant provisions are reproduced as under :- 8(a) Supply of warehoused goods to any person before clearance for home consumption; 8(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption."; 5.3 We note from the above that the appellant's contentions revolves basically around the concept that the expression 'warehoused goods' used in paragraph 8 (a) of Schedule III of the CGST A....
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.... any other person, by endorsement of documents of title to the goods". It is to be noted here that the above phrase specifically refers to the term 'by endorsement of documents' in absolute terms, and not just 'transfer of title to the goods' in general. We are therefore of the opinion that the term 'by endorsement' assumes significance in the context of the instant case. 5.6 In this regard, it is seen from the 'Principles of Insurance and Banking' authored by Dr. S.S. Kundu, the term 'Endorsement' and its properties has been discussed as below:- "1.9 ENDORSEMENT The word 'endorsement' in its literal sense means, writing on the back of an instrument. But under the Negotiable Instruments Act it means, the writing of one's name on the back of the instrument or any paper attached to it with the intention of transferring the rights therein. Thus, endorsement is signing a negotiable instrument for the purpose of negotiation. The person who effects an endorsement is called an 'endorser', and the person to whom negotiable instrument is transferred by endorsement is called the 'endorsee'. Essentials of a valid endorsement The following are the essenti....
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....e been dispatched from the port of origin located outside India but before clearance for home consumption.", points to a situation when the goods lie midway, or, are in transit. Ideally, when a 'High Sea Sale' takes place, 'Bill of lading' normally becomes the crucial document that could be subjected to endorsement. We are of the opinion that this is precisely the reason as to why paragraph 8 (b) of Schedule III is conceptually linked to 'High Sea Sale'. 5.9 Further, we find that the appellant have stated in para 14 of the 'Statement of facts', filed along with the application for appeal, as follows :- "Further, upon finalisation of customer, the Appellant would raise a tax invoice (without tax) on the Domestic Tariff Area ("DTA") customer in foreign currency. In case of supply to overseas entity, the Appellant issues an export invoice as export of goods without payment of tax under Letter of Undertaking ('LUT'). The said invoices also specify the fact that the goods are being supplied from FTWZ unit (vis. of KILPL) and mentions that it is 'On Account' of supply by the Appellant." In addition to the same, the appellant have stated in the 'Grounds of Appeal' as part o....
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....arance for home consumption", applies to the instant case or not. 5.12 In this regard, the explanation 2 to Schedule III of the CGST Act, 2017 that runs as below, merits attention, i.e., 'Explanation 2.-For the purposes of paragraph 8, the expression "warehoused goods" shall have the same meaning as assigned to it in the Customs Act, 1962." As per Section 2 (44) of the Customs Act, 1962, "(44) "warehoused goods" means goods deposited in a warehouse" And, as per Section 2 (43) ibid, "(43) "warehouse" means a public warehouse licensed under section 57 or a private warehouse licensed under section 58 or a special warehouse licensed under section 58A." In this regard, we observe that as rightly pointed out by the taxpayer, the definition of 'warehouse' as in the Customs Act, 1962, gets restricted to the Customs bonded warehouses under Sections 57, 58 and 58A of the Act, ibid. 5.13 At this juncture, it becomes imperative to take note of the fact that while SEZ is considered as a duty free enclave in simple terms, FTWZ is one category of SEZ that specializes in warehousing and trading operations. The definitions of SEZ and FTWZ under the SEZ Act,....
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....nd Import Items. 27 (7) The goods already imported or shipped or arrived before the issue of Letter of Approval shall be eligible for duty free clearance provided customs duty has not been paid and goods have not been cleared from Customs or cleared and placed in the Bonded Warehouses. 28 (4) The Unit or Developer may also procure goods required for the authorized operations, without payment of duty, from International Exhibitions held in India or from bonded warehouses set up under the Foreign Trade Policy and under the Customs Act in the Domestic Tariff Area; 5.15 In its most fundamental sense, a bonded warehouse is one of the types of warehouses sanctioned by customs authorities, specifically designed to house imported goods without the immediate burden of import duties or taxes. This allows business enterprises to store their goods without paying duties until they are ready to be released into the domestic market. On the other hand, in non-bonded facilities, duties on the items imported and kept, are already paid for. Accordingly, the bonded warehouses and unbonded warehouses differ significantly in terms of tax status. 5.16 However, it is to be noted he....
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....ods required for the authorized operations, without payment of duty, from International Exhibitions held in India or from bonded warehouses set up under the Foreign Trade Policy and under the Customs Act in the Domestic Tariff Area;" Whereby, it could be seen that the legal provisions, identify and accommodates both types of bonded warehouses, whether set up under the Foreign Trade Policy (warehouses under SEZ/FTWZ), or under the Customs Act (Customs bonded warehouses). Both the customs bonded warehouses and the warehouses under the duty-free zones are special warehousing regimes that offer logistics solutions tailored to international trade, each with their own advantages and benefits. While the customs warehouse stands out for its focus on secure warehousing and efficient inventory management, the warehouses in duty-free zones are notable for its commercial freedom and tax advantages. In effect, both the types of bonded warehouses offer financial respite to the business houses in the form of tax deferral. 5.18 It is to be noted here that while the terms 'warehouse' and 'warehoused goods' have been defined under Section 2 (43) and 2(44) of the Customs Act, 1962, the same hav....
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.... Port Code INCJJ6'. Later, by way of Circular No. 19/2016-Customs dated 20.05.2016, on the subject "Allotment of Warehouse Code for Customs Bonded Warehouses", the Central Board of Excise and Customs in para No. 1 stated as follows:- "Please refer to the changes made in the Finance Act, 2106 to shift towards record based control with respect to Bonded Warehouses. It is proposed that each warehouse be allotted a unique warehouse code so that importers can declare the warehouse in which goods shall be deposited, at the into-bond bill of entry stage." It has also been explained in the Annexure to the said Circular about the generation of eight digit Warehousing Code, whereby the first 4 characters indicates the EDI port of registration, the fifth character to denote the type of warehouse and the sixth, seventh and eighth characters are running numeric serial numbers. The User Manual on 'SEZ Web Forms' by ICEGATE 2.0 prescribes two types of Bill of Entry, viz., 1. Z type BOE:-SEZ BE (FTA-SEZ) and 2. T type BOE:-SEZ (DTA Sales - Trading). The Manual further prescribes that 'General and Warehouse details' pertaining to the import is required to be provided in Segment-1 of the said ....
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....isions of 8 (a) of Schedule III of the CGST Act, 2017 is to be considered as the provision that is most akin to the instant transaction, and the provisions of 8 (b) of Schedule III of the Act, ibid, stands effectively ruled out as it is meant to cover a specific situation/activity, i.e., by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India". 5.23 Under these circumstances, we are of the opinion that a 'Free Trade Warehousing Zone', as the name suggests, is a bonded premises providing warehousing facility, much in parity with the bonded warehouse under the Customs Act. Further, when the goods are imported and brought into a FTWZ unit, they are basically warehoused first and then traded or subjected to other authorized operations as the case may be. We notice that the appellant's queries for advance ruling in the instant case is restricted to the first stage, i.e., when the imported goods are supplied to any person before they are cleared for home consumption, while they still remain warehoused. Accordingly, we are of the considered opinion that the provisions of 8 (a) of Schedule III of the CGST Act,....
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..... 5.27 In this regard, we observe that the provisions of Section 17 (2) and 17 (3) that talks about apportionment of credit in such situations when a taxable person effects taxable supplies as well as exempted supplies, reads as below, "(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building." 5.28 Prior to the amendment to Section 17 of the CGST Act, 2017, carried out under the Finance Act, 2023 (8 of 2023), the explanation to sub-section (3) of Section 17, read as follows :- "Explanation. For the ....
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....No. 7 of the Notification No. 38/2023 - Central Tax dated 04.08.2023, that reads as below :- "7. In the said rules, in rule 43, after sub-rule (5), - (a) in Explanation 1, clause (c) shall be omitted; (b) after Explanation 2, with effect from the 1st day of October, 2023, the following Explanation shall be inserted, namely: - "Explanation 3:- For the purpose of rule 42 and this rule, the value of activities or transactions mentioned in sub-paragraph (a) of paragraph 8 of Schedule III of the Act which is required to be included in the value of exempt supplies under clause (b) of the Explanation to sub-section (3) of section 17 of the Act shall be the value of supply of goods from Duty Free Shops at arrival terminal in international airports to the incoming passengers.". 5.30 Further, perusal of the excerpts of para 7.59 of the 'Minutes of the 47th Meeting GST Council held on 28th & 29th June, 2022', confirms the position that the intention behind these amendments, is to include certain transactions (supplies from 'Duty Free Shops', specifically) under paragraph 8 (a) of Schedule III of CGST Act in the value of exempt supply, for the purpose of ....