Case Details:

Sterlite Technologies Limited

Advance Ruling No.:

GUJ/GAAR/R/04/2020

Ruling pronounced by:

GST AAR Gujarat

Date of Ruling:

17-03-2020

• The applicant proposes to undertake “Merchandise Trade Transaction” in which goods will be directly supplied to foreign customer from foreign vendor. The applicant would receive orders from foreign customer (located outside India) and it would make consequential ‘buy’ order to foreign vendor (located outside India).
• Goods will be directly shipped by the foreign vendor to foreign buyer without bringing goods in the Indian territory. Further, the payment to foreign vendor as well as receipt from foreign customers would be in foreign currency.

Q-1: Whether GST is payable in respect of goods procured from outside India and such goods not brought to India?

Observations:

• In accordance with 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.
• Thus, this is a case of “Inter-state supply”.
• As per section 5 of IGST Act read with the provisions of Customs Act, 1962, it is clear that IGST on goods imported into India shall be levied and collected at the point when custom duties are levied on the said goods u/s 12 of the Customs Act, 1962.
• Reliance was placed on the decision of AAR, Kerala in the case of M/s Synthite Industries Limited, Kerala on the similar issue (Order No. CT/12275/18-C3 Dated 26-03-2018)

Ruling on question-1:

In the instant case, customs duty will not be paid by filing of ‘Bill of Entry’ as goods are never brought into customs clearance. Therefore, GST on such goods procured from vendors located outside India shall also not be payable where the goods so purchased are not brought into India.

Q-2: Whether GST is payable in goods are shipped directly from the foreign vendor’s premises to customer’s premise (located outside India)?

Observations:

• Outward supply from vendors’ premises to customer shall tantamount to ‘supply’ as per the definition as per the GST law.
• In the event that the supplier is located in India and the place of supply is outside India, such supplies shall be treated as “interstate supplies”.
• The goods under consideration are supplied to overseas buyer as declared by the applicant 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. As such it is a case of “inter-state supply”.
• Further, “Export of goods” means taking goods out of India to a place outside India. In this case, goods are not taken out of India, therefore, this transaction can not be taken as “Export” of goods.

Ruling on question-2:

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 goods. Thus, the theory of elimination takes us to the conclusion that such supplies will be subject to levy of GST. Applicable 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.

Author’s opinion on question-2:

• Schedule-III to CGST Act, 2017 specifies the “Activities or transactions which shall be treated neither as a supply of goods nor a supply of services”. Item No. 7 of Schedule-III reads as follows:

“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.”

• Item No. 7 has been inserted by CGST Amendment Act, 2018 dated 30-08-2018 w.e.f. 01-02-2019 vide Notification No. 02/2019- Central Tax dated 29-01-2019. The AAR has not looked into the effect of Item no. 7 of Schedule-III to CGST Act, 2017.
• In view of above entry, supplies of goods through a foreign vendor to a foreign customer without bringing goods into India should not be “Supply” under GST laws. As such, no GST could be levied upon such transactions.

This article is very relevant in the case of those persons who are engaged in drop-shipping business from India to places outside India.