In re Marubeni India Pvt. Ltd. (GST AAR Karnataka)
Whether the supply of goods from the Applicant to the overseas customer is taxable under GST as a zero rated supply or not?
The applicant stated that they are a Private Limited Company registered under the provisions of CGST/KGST Act 2017; they are engaged in trading of finished goods and also in providing support services to customers located outside India; they intend to enter into a new business transaction wherein the applicant would be engaged in supplying domestically procured goods to customers outside India. In view of the foregoing, the applicant sought advance ruling as to “Whether the supply of goods from the Applicant to the overseas customer is taxable under GST as a zero rated supply or not”
There are two transactions involving the applicant. The first transaction is of supply of goods by the manufacturer to the applicant and the second transaction is of supply of the same goods by the applicant to an overseas customer.
As per the agreement with the applicant, the Indian manufacturer undertakes to supply the goods and complete all the export compliances including filing of Shipping Bill as an exporter and also receives Bill of Lading from shipper.
It is seen that the person claiming ‘exporter’ is the owner of the goods, and also the bill of lading is proof of title of goods when the goods are handed over to the shipper. Since the manufacturer files the shipping bill as exporter and also gets the bill of lading issued to him, he is the owner of the goods and holds the title of goods till they cross the customs frontiers of India. In effect the manufacturer takes the goods out of India to a place outside India while he is holding ownership and title of the goods, i.e., he exports the goods in terms of Section 2(5) of the IGST Act, 2017. Thus the manufacturer is the exporter of goods. Therefore in the first transaction of supply of goods by the manufacturer to the applicant, the place of supply of goods shall be the location outside India in terms of Section 11(b) of the IGST Act, 2017.
In respect of the second transaction involving the supply of the same goods by the applicant to overseas customer, it is observed that the goods are supplied from a location outside India to a location outside India, i.e., the 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. The said transaction is covered under Entry 7 of Schedule III of CGST Act, 2017 as a transaction or supply which shall be treated neither as a supply of goods nor a supply of services.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KARNATAKA
M/s. Marubeni India Pvt. Ltd., (herein after referred to as ‘Applicant’), 02 A 111, WeWork Galaxy, 43, Residency Road, Shanthala Nagar, Ashok Nagar, Bengaluru – 560 025, having GSTIN 29AAACM6413A3ZV, have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in form GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act, KGST Act.
2. The applicant stated that they are a Private Limited Company registered under the provisions of CGST/KGST Act 2017; they are engaged in trading of finished goods and also in providing support services to customers located outside India; they intend to enter into a new business transaction wherein the applicant would be engaged in supplying domestically procured goods to customers outside India.-
3(a). In view of the above, the applicant has sought advance ruling in respect of the following question that “Whether the supply of goods from the Applicant to the overseas customer is taxable under GST as a zero rated supply or not?’
3(b) Admissibility of the application : The applicant claimed that the question on which advance rulings has been sought is with regard to “Determination of the liability to pay tax on any goods or services or both” which is covered under Sections 97(2)(e) of the CGST Act 2017 and hence the instant application is admissible.
4. BRIEF FACTS OF THE CASE: The applicant furnished the following facts relevant to the issue:
4.1 The applicant is engaged in supply of goods and services to various customers/clients within as well as outside India and also engaged in rendering support services to customers located outside India; the applicant, with respect of to the operations of supply of goods, is engaged in trading of imported as well as domestically procured goods. They are proposing to enter into a new business transaction wherein the applicant would be engaged in supply of domestically procured goods to customers outside India.
4.2 The applicant has been approached by a customer outside India (herein after referred to as ‘Overseas Customer’) for supply of certain goods which will be domestically procured from vendors located in India. The purchase order for such goods would be issued by the Overseas Customer to the Applicant, who in turn would place a back-to-back order for procurement of the required goods upon domestic manufacturer / vendor (herein after referred to as Indian Manufacturer) of the goods.
4.3 The applicant, for ease of business and logistical convenience, would instruct the Indian manufacturer to ship the goods from its location/factory directly to the location of the Overseas Customer and accordingly the goods would be shipped from the Indian Manufacturer’s premises to a foreign destination without the goods being physically delivered by the Indian manufacturer to the applicant. The Indian Manufacturer, as part of the contractual arrangement with the applicant, is responsible for undertaking the applicable Customs Duty compliances such as documentation for outbound customs clearance as Exporter and filing of Bill of Lading for transportation of goods to the Overseas Customer on the direction of the Applicant.
4.4 To the extent of outbound freight from the port in India to the location of the Overseas Customer, there would be two possible scenarios which are as under:-
a) The applicant would be responsible for payment of such Sea/Air freight cost for onward journey to Overseas Customer country’s port.
b) The Indian Manufacturer would be responsible for payment of such Sea/Air freight cost for onward journey to Overseas Customer country’s port.
4.5 Two invoices will be raised in the transaction as the transaction will be on principal to principal basis between the Indian Manufacturer and the Applicant and also between the Applicant and the Overseas Customer. One invoice would be raised by the Indian Manufacturer to the Applicant and second invoice would be raised by the Applicant to the Overseas Customer. The consideration for supply of goods from the Applicant would be paid by the Overseas Customer either in advance or subsequent to receipt of the goods, in convertible foreign currency duly supported by Bank Realisation Certificates (BRCs), which will be received in foreign currency account maintained by the Applicant in India. Further, the applicant would remit the payment, towards purchase of goods, to the Indian Manufacturer in foreign currency out of its Foreign Currency Account maintained in India. Alternately, the Overseas Customer will open a Transferable LC in foreign currency in favour of applicant, in which case the applicant would partially transfer the same LC in favour of Indian Manufacturer for the price agreed between the Indian Manufacturer and Applicant and such transactions are permitted for EEFC accounts as allowed by the RBI and FEMA guidelines.
4.6 The transaction between the applicant and the Indian Manufacturer would be recovered, in the books of accounts of the applicant, as ‘purchase of goods’ transaction and the transaction between the applicant and Overseas Customer would be recorded as ‘sale of goods’ transaction. The Indian Manufacturer, as per the agreement with the applicant, would be responsible to arrange the logistics till customs port and also for filing the Shipping Bill for export of goods in accordance with provisions of the Customs Act 1965, with the following details.
