Goods bought, sold overseas by domestic firms liable to GST in India: AAR

A 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 revalidated in light of provisions under schedule III of the CGST act, otherwise, it could be a fetter for the entire industry," 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," Roy said.

Deposits to be used for GST registration
 

The value of exempted income, like interest on PPF, savings bank account and loans given to family/friends, will be included along with taxable supplies while calculating the threshold limit for obtaining GST registration, the AAR has said. Under the GST law, businesses and individuals are required to obtain GST registration if their aggregate turnover is Rs 20 lakh or more. PTI