In re Haworth India Private Limited (GST AAR Tamilnadu)
Summary: The case in focus revolves around the transfer of title of goods within the Free Trade Warehousing Zone (FTWZ). The pivotal question raised is whether such transfers fall within the ambit of Schedule III of the CGST Act, 2017, post its amendment in 2018. It has been determined that such transfers do not qualify under the mentioned schedule. Additionally, the relevance of Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 has been mooted, as it has subsequently been rescinded. The rescindment comes in light of the amendment in Schedule III of the CGST Act, 2017, which specifically states that the ‘supply of warehoused goods to any person before clearance for home consumption’ neither classifies as a supply of goods nor a supply of service.
Introduction: In a crucial decision related to GST, the Authority for Advance Ruling (AAR) Tamilnadu analyzed Haworth India Pvt. Ltd.’s queries regarding the transfer of title of goods in FTWZ and the applicability of Integrated Tax (IGST) Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018.
Admissibility of the Application: The primary aspect to consider was whether the questions posed by Haworth India fall under Section 97(2) of the GST Act. This section defines the scope of questions on which advance rulings can be sought, including classification of goods/services, applicability of notifications, determination of tax liability, and more. In this case, the questions raised were indeed admissible.
Schedule III of the CGST Act, 2017 & CGST Amendment Act, 2018: Schedule III lists activities that are considered neither as a supply of goods nor services. The key focus here is on paragraph 8(a) that talks about the “supply of warehoused goods before clearance.” The interpretation of “warehoused goods” is directly linked to the Customs Act, 1962. This definition contrasts with the operations in the Free Trade Warehousing Zone (FTWZ), which operates under the SEZ Act, 2005, and not directly under the Customs Act, 1962.
Customs Act, 1962 Definitions: While the Customs Act clearly defines warehousing and the related permissions, it is essential to note that the FTWZ is considered a Special Economic Zone and thus has its operational framework. Hence, the FTWZ isn’t a warehouse as per the Customs Act, 1962, leading to a distinction in the interpretation of Schedule III.
Integrated Tax (IGST) Circular No. 3/1/2018: The second significant query is about the applicability of this IGST circular to the current situation. The mentioned circular has been rescinded due to an amendment in Schedule III of the CGST Act, 2017, particularly after the insertion of Paragraph No. 8(a).
Ruling:
1. The transfer of title of goods by Haworth India to its customers or multiple transfers within the FTWZ does not come under Schedule II of the CGST Act, 2017 r/w CGST Amendment Act, 2018.
2. The rescinded Circular No. 3/1/2018 – Integrated Tax (IGST) is no longer applicable due to subsequent amendments in the CGST Act.
Conclusion: In light of the deliberations on the nature of title transfers within the Free Trade Warehousing Zone (FTWZ) and its classification under the CGST Act, 2017, post its 2018 amendment, it is evident that such transfers do not fall within the confines of Schedule III. This signifies that these transfers are neither considered a supply of goods nor a service. Furthermore, the reference to Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is rendered moot due to its rescindment, which was initiated in response to clarifications in the amended Schedule III concerning warehoused goods. Thus, the crux of the matter pivots on the specific categorizations in the CGST Act, underscoring the non-applicability of the cited circular in the present context.
Read AAAR Order: Principles of natural justice violated: AAAR set aside order of AAR
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
The applicant M/s Haworth India Private Limited, having registered premises at Survey no. 260/4, Kiloy Village, Sriperambudur, Kancheepuram, Tamil Nadu 602105 (hereinafter referred to as the applicant) is registered under the GST Act 2017 with GSTIN 33AAACH8417K1ZK. The Applicant has sought Advance Ruling on the following questions:
1. In the facts and circumstances of the case, whether the transfer of title of goods by the Applicant to its customers or multiple transfers within the FTWZ would result in bonded warehouse transaction covered under Schedule III of the COST Act, 2017 r/w CGST Amendment Act, 2018?
2. Whether the Integrated Tax (IGST) Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is applicable to the present factual situation?
1.2 The applicant submitted a copy of challan evidencing payment of application fees of Rs.5,000/- each under sub-rule ( 1) of Rule 104 of COST Rules 2017 and SGST Rules 2017.
2.1. The Applicant has submitted the following in their Statement of relevant facts having a bearing on the question(s) raised:
The Applicant is a wholly owned subsidiary of Haworth, Inc. United States and is engaged in manufacture and sale of office furniture under the brand name `Haworth’. The Applicant procures raw materials indigenously as well as from international market (from group entities). The Applicant imports certain finished goods from its group entities. Haworth is a worldwide global leader in design and manufacture of organic workspaces, including raised floors, movable wells, systems furniture, seating, storage and lighting.
2.2. In India, the Applicant has manufacturing facility and sales office in the state of Tamil Nadu. Further, the applicant has sales office in Karnataka, Maharashtra, Haryana and Telangana. All operations of the Applicant are located in Domestic Tariff Area (DTA).The outward supplies effected by the Applicant in India includes:
a. Sale of goods manufactured at the manufacturing facility; and
b. Sale of goods imported from group entities.
2.3. The Applicant is contemplating to operate the import and re-sale transaction from a Free Trade Warehousing Zone (hereinafter referred to as (FTWZ’) for operational convenience involving less documentation and swift clearance process so as to expedite project execution.
2.4. The Applicant submits that FTWZ is a Special Economic Zone wherein trading, warehousing and other activities related thereto are carried out. An FTWZ is a deemed foreign territory within the geography of India for the purpose of trade. An FTWZ, also called foreign-trade zone, formerly free port is an area within a country in which goods may be landed, handled, manufactured or reconfigured, and re- exported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. The FTWZ law allows multiple transfers of ownership transactions without removal of the goods out of FTWZ, thus ensuring the trading chain to be as close as possible and as may be required, ensuring that there is no cascade of indirect taxes / compliance and avoids increase in transaction cost.
2.5. The Applicant has submitted the flow of Transaction in FTWZ for Proposed Transaction as detailed below:
