This article is penned to give an insight about the most common query among the GST dealer and who are operating through E-Market place in the area of branch transfer (Transfer of stock made to a branch which is outside India). Typically, this scenario arises when you have to keep your stock in a warehouse which is located outside India and has to service your order as and when it comes. The following are the queries
1. Dose this implies a supply under the GST Act?
2. Whether it will be recognised as Export and do I have to raise an export invoice?
3. Can it be done without payment of duty?
4. How to claim the refund in this case since I may receive the money at a very later date?
5. Do we have to pay tax if it is unsold for a very long period and have to be written off from the stock?
Before attempting to answer the queries let us try to understand the position of the relevant law in the Act:
Under the CGST Act, 2017, there is a list of activities which is considered as supply even though it is made without consideration, this list goes as below in the schedule I:
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.
2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
3. Supply of goods—
4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.
So, the point no. 2 above state that supply of goods or services or both between the related entity or between the distinct persons as specified in the section 25 shall be treated as Supply for the purpose of the act even if it made without consideration.
Now let us understand the Distinct person as specified in the section 25 of the CGST Act and Section 8 of the IGST Act
As per Section 25(4) and Section 25(5) of the CGST Act:
Section 25(4) All registered persons under same PAN : A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of GST laws.
Section 25(5) All establishments under same PAN :
Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, (whether or not registered under GST), then such establishments shall be treated as establishments of distinct persons for the purposes of this Act.
Further, As per explanation 1 to section 8 of the IGST Act for the purpose of this Act:
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment being a business place registered within that State or Union territory,
then such establishments shall be treated as establishments of distinct persons.
Now in the background of the provisions of the relevant law let us attempt on the common queries
Dose this implies a supply under the GST Act?
Yes, the stock transfer between the entity in India and its outside branch amounts to supply under the GST Act, though this is not distinct person for the purpose of CGST act, it is a distinct person under the IGST act and hence it will be treated as supply without consideration.
Whether it will be recognised as Export and do I have to raise an export invoice?
Yes, Since the goods is moving out of India it will be treated as Export and the invoice to be raised on the branch.
Can it be done without payment of duty?
Yes, Take an LUT and make the supply without payment of duty.
How to claim the refund in this case since I may receive the money at a very later date?
In Case of Export of Goods there is no need to submit the FIRC, so you can claim the refund based on the LUT submission.
Do we have to pay tax if it is unsold for a very long period and have to be written off from the stock?
Yes, if the stock is written off then the GST liability to be discharged appropriately
To summarise the branch situated outside India shall be treated as distinct person as per IGST Act and the goods moved out of India to a branch outside India shall be treated as Export and thereby all the rules of export applies and there is no hardship in getting the refund on this activity. However if declaration given under LUT is not complied or the goods sent outside is written off then appropriate GST to be discharged on such events along with interest if any.
Ref: GST Act