GST is applicable within the taxable territory. In this article we will analyze a scenario where we could notice how GST law could extend its arm to cover transactions beyond the taxable territory.
Mr. X, a Mumbai based business man engaged in export- import activities placed an order on a supplier based in Muscat with an instruction that the supplier will raise invoice on Mr. X but shipped the goods to Dubai where Mr. Y, customer of Mr. X is located.
Mr. X will raise invoice on Mr. Y, his customer located in Dubai for goods so supplier at Dubai from Muscat.
Will Mr. X required to pay IGST on reverse charge while releasing the payment to supplier located in Muscat?
Will Mr. X eligible to raise zero rated tax invoice on Mr. Y for supply of goods at Dubai from Muscat?
Let us analyse the relevant provisions of IGST Acts to arrive at an answer to the aforesaid questions.
Sec 2(10) of IGST Act 2017
“ Import of goods” with its grammatical variation and cognate expression means bringing goods into India from a place outside India”
Supplier of Muscat is sending goods directly to Mr. Y at Dubai, goods are not bringing to India, hence the said transaction will not qualify as import as defined u/s 2(10) of IGST Act
Sec 10 (1) of IGST Act 2017
“The place of supply of goods other than supply of goods imported into or exported from India shall be as under………”
Since the transaction does not qualify as import, sec 10(1) of IGST Act 2017 will be applicable to determine the place of supply.
Sec 10(1)(b) of IGST Act 2017
“ Where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person ………………..before …….movement of goods……….it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person”
Movement of goods by the supplier from Muscat to Mr. Y at Dubai is as per the instruction of the third party, Mr, X, located in Mumbai, hence the place of supply as defined under section 10(1)(b) of IGST Act will be Maharashtra.
Place of supply is Maharashtra and the location of supplier is outside Maharashtra ( in Muscat) so the transaction will qualify interstate supply.
As discussed above this supply will not be considered as import and hence this transaction will be out of the ambit of sec 3 of Customs Tariff Act for the purpose of levy of IGST under reverse charge basis.
Supplier who is located in Muscat is not a registered taxable person under GST and so the procurement of goods by Mr. X of Maharashtra from the supplier based in Muscat will be considered as purchase from un registered dealer.
Purchase of goods from un registered dealer located outside the state will be subject to IGST under reverse charge basis ( Sec 5(4) of IGST Act 2017)
Therefore Mr. X will be required to discharge IGST on remittance made to supplier located outside India for procurement of goods.
Regarding second leg of the transaction where Mr. X has raised invoice on his customer Mr. Y at Dubai, the issue is whether the said transaction will qualify as export under IGST Act and thus subject to zero rated tax.
Sec 2(5) of IGST Act 2017
“Export of goods” with its grammatical variation and cognate expression means taking goods out of India to a place outside India”
Mr. X of Mumbai is not sending goods from India to Mr. Y at Dubai. Goods will reach to Mr. Y at Dubai from Muscat.
Hence the said transaction will not qualify as export as defined under sec 2(5) of IGST Act.
Since the said transaction is not export, Mr. X cannot levy zero rated tax.
So Mr. X has to levy IGST on the invoice to be raised on Mr. Y and the same will amount to export of tax outside India which is not the intention of the legislature.
More over in highly competitive export market Mr. X may not be able to pass on the incidence of tax to Mr. Y.