Is GST applicable on transfer of ownership title and consideration in an overseas transaction without actual delivery/supply?
Introduction
The applicability of GST depends on various components one of which being supply of goods/ services. This is an important factor in deciding if GST will be eligible or not.
In an interesting case we will identify if GST can be applicable on the basis of Title of ownership in goods without actual delivery. If goods obtain the title of ownership will the same amount to supply of goods without actual possession of goods?.
These questions have received clarification in the AAR ruling by Tamil Nadu in the case of M/s. Automative Components Technology India Private Limited.
Whether GST will be applicable for transfer of ownership title and consideration in an overseas transaction to an Indian buyer without actual delivery /supply?
We will understand the above issue in the case of M/s. Automative Components Technology India Private Limited Authority of Advance Ruling (AAR), Tamil Nadu.
Description in Brief:
The applicant is engaged in the supply of automotive components such as door locks and strikers for various sectors of the automotive industry.
Facts of the case:
1.M/s. Automative Components Technology India Private Limited addressed as the applicant are engaged in the supply of automotive components such as door locks and strikers for various sectors of the automotive industry.
2.They supply such parts to a wide range of customers which inter – alia include moulds and tools. They agree to supply certain parts, including the moulds to an Indian company i.e. ‘Indian buyer’ located in the State of Tamil Nadu and for the same place an order for manufacturing the said parts and moulds on a Thailand Company ‘ foreign supplier’.
3. The foreign supplier manufactures the parts and the same are physically imported into India. However, the moulds developed by the foreign supplier are retained in Thailand and are not physically imported into India. There is only a transfer of ownership in the mould from the foreign supplier to Applicant and the foreign supplier retains the physical possession of the moulds.
4. The foreign supplier raises an invoice on the Applicant for the parts and moulds separately. The Applicant raises separate invoices on the Indian buyer i.e., one for the supply of parts and another for transfer of ownership of the moulds from the Applicant to the Indian buyer.
5. With regard to the moulds, there are two transactions involved in the present case:
i. T1: Transfer of title in moulds from the foreign supplier to the Applicant.
ii. T2: Transfer of title in moulds from the Applicant to the Indian buyer.
6. The moulds are never physically imported into India. The moulds will be disposed as waste in Thailand after its usage for manufacturing the requisite parts. Thus, Transfer of title in moulds from the Applicant to the Indian buyer (without physical import of the same from Thailand) would not make the said transaction liable to GST under Section 5 of the IGST Act read with Section 7(5)(a) of Integrated Goods and Services Tax Act 2077 and thereby not required to charge IGST on the moulds sold to the Indian buyer.
7. Further, the applicant also is of the opinion that if section 10 (1) (c) of IGST Act 2017, is applied, the place of supply is in Thailand and the supplier is in India, therefore the supply could get covered under the ambit of Inter- State Supply in terms of IGST Act. The supply in the present case takes place outside the territorial jurisdiction of IGST Act and therefore is not subject to IGST.
8. In the written submissions furnished by the applicant, they had furnished:
i. Sample invoice raised by the applicant for supply of tools and moulds
ii. Declaration
iii. Tool ownership certificate issued by the applicant
iv. Pictures of name plate affixed in the tools and moulds indicating it is property
v. Brief Submissions
vi. Copy of AAR rulings, Maharashtra in r/o INA Bearings India (P) Ltd
Issues involved:
- Whether GST will be applicable on the transfer of title in moulds from applicant to Indian buyer?
- If yes, whether the Indian buyer would be eligible to take credit of the GST paid to the applicant for said purchase?
Relevant Sections:
Section 10 (1) (c) of IGST Act- Place of supply of goods other than supply of goods imported into, or exported from India:
10 (1) (c)- where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient;
Explanation: In present case there is no movement of goods from Thailand to any of the parties to the transaction and thus the place of supply of goods would be Thailand where the goods are notionally delivered to M/s. Automative Components Technology India Private Limited who in turn notionally delivers the material to Indian buyer. The transaction in the case is outside the territorial jurisdiction of IGST Act and outside India and therefore GST shall not be applicable.
Section 16 (2) (b) – Eligibility and conditions for taking input tax credit
16 (2)- Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
(b) he has received the goods or services or both.
Explanation: For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services––
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.
In the present case, the applicant has submitted that if at all tax is applicable on the transaction then input tax credit of the same should be available to the recipient. If the transaction is deemed to be an inter-state supply and if the same is made liable to GST ‘ then it should be deemed that such goods have been received from perspective and the credit should accordingly be made available to him.
Section 97 (2) of the CGST Act – The question on which the advance ruling is sought under this Act, shall be in respect of:
a. classification of any goods or services or both;
b. applicability of a notification issued under the provisions of this Act;
c. determination of time and value of supply of goods or services or both;
d. admissibility of input tax credit of tax paid or deemed to have been paid;
e. determination of the liability to pay tax on any goods or service’s or both;
f. whether applicant is required to be registered;
g. whether any particular thing done by the applicant with respect to ang goods or service’s or both amounts to or results in a supply of goods or service’s or both, within the meaning of that term.
The Act limits the Advance Ruling Authority to decide the issues earmarked for it under Section 97(2) and no other issue can be decided by the Advance Ruling Authority.
Explanation: In the present case the issues on which ruling is sought by the applicant, the second question relates to eligibility to credit of tax paid by them at their buyers ‘end. The eligibility to credit of input tax paid by the applicant alone is covered under clause (d) of Section 97(2) above and the eligibility at the buyers’ hand when raised by an applicant do not fall under any of the category specified under Section 97(2) of the Act and therefore not within the ambit of this authority.
Section 7 of the CGST Act 20l7- “supply”
1.For the purposes of this Act, the expression “supply” includes-
a. all forms of supply of goods or service’s or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration bg a person in the course or furtherance of business;
b. import of service’s for a consideration whether or not in the course or furtherance of business; and
c. the activities specified in Schedule I, made or agreed to be made without a consideration;
(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of service’s as referred to in Schedule II.;
Schedule II determines the list of activities to be considered as supply of goods/Services and entry SI.No. 1 is as follows:
1.Transfer
(a) any transfer of the title in goods is a supply of goods;
From the above, it is evident that ‘transfer of the title in goods’ is supply of goods.
Explanation: In the present case there is transfer in title of moulds for a consideration and the supply is in the course of business therefore, the same constitutes supply of goods and GST is liable to be paid on such supply.
Observations:
1.The applicant is undertaking two transactions:
i. T1: Transfer of title in moulds from the foreign supplier to the Applicant
ii. T2: Transfer of title in moulds from the applicant to the Indian buyer
2. The question raised by the applicant is with respect to transaction at T2 above. It is stated that the moulds manufactured by the foreign supplier is not physically imported and only the title in the moulds are transferred from the foreign supplier to the applicant and thereupon by the applicant to the vendor located in India.
3. From the submission of the purchase order (PO) it is observed that order has been place with the condition of exclusivity that the Tools mentioned under the PO are 100% property of the Indian Company. Thus, the “Tool Ownership Certificate’ states that the tools shall be used exclusively for production of parts for the Indian Company. The “Tool Ownership Certificate’ is issued by the applicant to the Indian Company as transfer of title in ownership of tools on payment of consideration.
4. It is clearly mentioned that mould/tools shall be disposed of in Thailand as may be agreed in the future and no consideration shall be received by the applicant nor Indian company after the lifecycle of the mould/tool as it attributes no value. The agreement although not by the applicant nor the Indian Company due to change in the management and the earlier staff members are not currently employed with the applicant and the other Indian company. However, there are no changes in the modus of transaction as evident from the documents viz., Purchase Order, Invoice, tool ownership certificate etc.
5. The applicant on his interpretation of law has stated that on application of Section 10(1)(c ) of IGST Act 2Ol7 , the place of supply is Thailand and the supplier is in India, therefore the supply could get covered under the ambit of Inter-State Supply in terms of IGST Act, but IGST levy can be imposed only to supplies within the territorial jurisdiction of the IGST Act. The applicant has stated that the supply in the case at hand takes place outside the territorial jurisdiction of IGST Act and thereby not subject to IGST and has sought to clarify the applicability of GST in the said transaction.
6. Having seen the factual position and considering Section 7 of the CGST Act 2017- which defines “supply”, it is clearly evident that Transfer is a part of supply and any transfer of the title in goods is a supply of goods.
Ruling and Order:
- GST is applicable on the transfer of title in moulds from the applicant to the India buyer
- The second issue- If yes, whether the Indian buyer would be eligible to take credit of the GST paid to the applicant for said purchase. This issue is not answered since the same is not in the ambit of the authority as per Section 97(2) of the Act mentioned above.
Therefore, transfer of moulds for a consideration and supply is in the course of business and is covered under the definition of supply under transfer of ownership. Hence the same constitute supply of goods and GST is to be paid for the same.
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