GST payable on goods sold to customer outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises

Introduction

The world has become one huge integrated market. Businesses based in India are scattered all around the world. A business in India may have suppliers or customers from outside India. Issues arise in these cases pertaining to the leviability of taxes. GST is a destination based tax on consumption of goods and services in India. However, is GST payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises?

The Gujarat Authority of Advance Ruling (AAR) had recently passed a decision with respect to a similar issue raised in the case of M/s. Sterlite Technologies Ltd, which led to confusion, concern and doubt among taxpayers.

Let us first refer to certain applicable provisions of the law before we move forward

As per Section 2(10) of the IGST Act, 2017, “import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India.

Section 7(2) of the IGST Act, 2017, supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce.

According to Section 7 of the CGST Act, 2017, “supply” includes

1. all forms of supply of goods, services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
2. import of services for a consideration whether or not in the course or furtherance of business
3. activities specified in Schedule I, made or agreed to be made without a consideration

Section 7 of the IGST Act, 2017 helps to determine whether the supply is an Intra-state supply or inter-state supply. According to Section 7, inter-state supply will occur when

1. location of the supplier and the place of supply are in two different States
2. location of the supplier and the place of supply are in two different Union territories
3. location of the supplier and the place of supply are in a State and a Union territory
4. supply of goods imported into the territory of India, till they cross the customs frontiers of India
5. supply of services imported into the territory of India
6. supply of goods or services when the supplier is located in India and the place of supply is outside India
7. supply of goods or services to/by a SEZ developer/unit

Facts of the Case

1. M/s Sterlite Technologies Limited is engaged in the Development and supply of software with respect to telecommunication, service management platform, pre integrated offerings etc. and trading in hardware.
2. They procure requisite hardware from the vendor located within India or outside India on payment of applicable duties/taxes
3. Such hardware is sold as per the requirement of the customer on payment of GST, except in case of export.
4. The applicant proposed to undertake transaction and supply of hardware, commercially known as ‘Merchant Trade Transaction’, wherein the applicant will receive an order from the customer located outside India and as per their instruction, Vendor would directly ship the goods to customer located outside India.
5. Vendor would issue invoice on applicant against which payment would be made in foreign currency and applicant would raise invoice on customer and would receive consideration in foreign currency. In the above transaction, goods would not physically come into India, but would move from place outside India to another place outside India.

Issue Raised

1. Whether GST is payable on goods procured from vendor located outside India in a context where the goods so purchased are not brought into India?
2. Whether GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises?

Proceedings of the Ruling

Whether GST is payable on goods procured from vendor located outside India in a context where the goods so purchased are not brought into India?

1.From a combined reading of the provisions of the IGST Act, 2017, the Customs Tariff Act, 1975, and the Customs Act, 1962, it is evident that integrated tax in leviable on goods imported into India shall be levied and collected at the point when duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962

2. Reference was given to the ‘High Sea Sales’, Circular No. 33/2017 Customs dated August 1, 2017 which clarifies that:

i. GST council had decided that IGST on high sea sale transactions of imported goods, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for customs clearance purposes for the first time.

ii. 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.

3. The above circular is applicable in the present case. Similarly, it was found that, where Bill of Entry/import declarations are not being filed with respect to the goods so procured, GST would not be leviable.

Similar Case:-

The issue has already been decided by Authority for Advance Ruling, Kerala in the case of M/s Synthite Industries Ltd. It was held that “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.

With regards to the second query regarding leviability of GST on outward supply from place of vendor to customer

1. The thumb-rule for determining the taxability of any transaction is to ascertain whether the transaction amount to ‘supply’ as per Section 7 of the CGST Act, 2017.
2. In the instant case, the applicant is selling goods for a consideration in the course or furtherance of business and as such the transaction tantamount to ‘supply’ in terms of the definition of ‘supply’
3. The next step is to determine whether the same is an Intra-state supply or inter-state supply.
4. Section 7 of the IGST Act, 2017 indicates that in the event that the supplier is located in India and the place of supply is outside India, such supplies shall be treated as Inter-state supplies.
5. Section 10 of IGST Act, 2017 pertains to place of supply of goods, other than supply of goods imported into, or exported from India. According to Section 10, where the supply involves movement of goods, whether by the supplier, recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.
6. In the instant case, the supply involves movement of goods and therefore the place of supply would be the termination for delivery to the recipient.
7. The goods under consideration are supplied to overseas buyers and as such the place of supply will be a place outside India. Further, the supplier is the applicant who has declared the principal place of business within India and issues the invoices for sale of such goods.
8. The above indicates that the supplier is located in India and the place of supply is outside India and as such the same would be Inter-state supply in terms of the provisions of Sec. 7(5) of IGST Act, 2017.
9. Therefore it can be deduced that IGST will be leviable unless the goods are exempted or are zero-rated supplies which have been defined as export of goods or services in terms of the provisions of Section 16 of the IGST Act, 2017.
10. In the instant case the applicant has not stated the nature of goods and has not declared that such goods are exempted under any notification issued under the GST Law.
11. Thus, the only possibility of goods not subject to levy of IGST would be the circumstances where the goods are exported
12. Section 2(5) of IGST Act, indicates that the act of taking goods out of India to a place outside India qualifies as export. In the instant case, the goods have not crossed the Indian customs frontier and as such it is clear that the goods are not physically available in the Indian Territory.
13. When the goods are not available in the Indian Territory, the question of taking goods out of India does not arise. Thus, the subject transaction does not qualify as export of goods.
14. In view of the above, it appears that the transaction is covered under the ambit of Inter-state supply and is neither exempted nor covered under export of services. Thus, by the theory of elimination, AAR concluded that such supplies will be subject to levy of IGST.

Conclusion provided by Gujarat Authority of Advance Ruling:-

1. GST is not payable on goods procured from vendor located outside India, where the goods so purchased are not brought into India
2. GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.

The ruling on supplies goods bought from abroad and sold to a customer in another country without entering the Indian territory is set to cause uncertainty and anxiety among traders as it could lead to a degree of tax terrorism for exporters community

Our View

In the above transaction, goods would not physically come into India, but would move from place outside India to another place outside India.

Schedule-III states that transactions where “supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India” shall be treated neither as supply of goods or services and hence not liable to GST.

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