Domestic company buying goods from abroad and selling to another country will have to pay
GST on
such transactions even if the said products are not entering the Indian
territory, the Authority for
advance ruling (AAR) has said.
On
an application filed by Sterlite Technologies, the Gujarat-Bench of AAR
has ruled that 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 applicant had sought to know whether the goods and services tax (GST) would be levied on merchant trade transactions (MTT).
“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, the theory of elimination takes us to the conclusion that such
supplies will be subject to levy of IGST (integrated GST),” the AAR has
ruled.
The AAR verdict means that GST would be levied on MTT
where applicant will receive an order from the customer located outside
India and as per their instruction, the vendor would directly ship the
goods to customer located outside India.
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.
AMRG &
Associates Senior Partner Rajat Mohan said that globally, MTT is not
exigible to any taxation in intermediate host countries and so was the
case in India under the erstwhile regime. GST law also provides that MTT
is outside the scope of GST.
“Ruling by Gujarat AAR needs to be
revalidated in light of provisions under schedule — III of the CGST act,
otherwise, it could be a fetter for the entire industry,” Mr. Mohan
added.
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.
Tanushree Roy, director (GST), Nangia & Co LLP, said
that as GST is still evolving, it cannot be concluded with certainty
from the provisions of the GST legislation whether the supply of goods
takes place from the place/ State from where the tax invoice is raised
or from where the movement of goods start.
“This judgment has
provided clarity on this aspect by stating that in the event that the
supplier is located in India and the place of supply is outside India,
such supplies would be treated as inter-State supplies and liable to GST
in India.”
“Suppliers of goods should keep this aspect in mind
while entering into ‘Merchant Trade Transactions’/ back to back
contracts,” Ms. Roy said.