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
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“ Import of goods” with its grammatical variation and cognate expression means bringing goods into India from a place outside India”
Unquote
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
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“The place of supply of goods other than supply of goods imported into or exported from India shall be as under………”
Unquote
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
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“ 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”
Unquote
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
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“Export of goods” with its grammatical variation and cognate expression means taking goods out of India to a place outside India”
Unquote
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.
Author Bio
A Sub-Contractor takes contract for construction of roads on which it charges 18% GST on forward charge basis to the main Contractor.
The client also take contract for transportation of materials/ goods on truck from one place to another. Whether it can opt for RCM on services of transportation of goods on truck from one place to another or it has to charge GST on forward charge basis since the main business of the client is taking contracts from contractor. And transportation of goods is not the main business of the client.
Clarity require
Good Analysis. In one of the Seminar learned speaker also aprhanded same promblem that such type of si called Merchant Export Out to out Supply will be subject to GST. It may not be intention of Goverment to tax, but literal interpretation of law lead to GST. To remove fight clarification require from Goverment.
Similarly in case of High Seas Sales there is chances of twice GST. Once when saler raise invoice on buyer the same is subject to IGST. Further when buyer clear goods from custom by filing Bill of Entry for Home Consumption has to pay IGST. No dought in one of the twitter they have stated that high seas sales will be taxed once. Question is at which stage.As CUSTOME is bound to levy IGST, so at first stage when saler raise high seas invoice need ny charge IGST?
Similar situation arise in case of Bond to Bond Transfer.
On the above point there utter confusion in Trade. Transaction has been held up. Urgent clarification from Govt is require.
by virtue of sec 10(1)(b) and sec 7(5)(c), it is deemed import. there is no deemed export provision in GST yet. LET US WAIT.
had better set up an establishment in dubai.
All the points of the transactions is not considered i believe, this Transaction to be considered as Merchant Trade Transaction, which is governed by RBI, the transaction cannot be considered as a either export or Import and any incentive cannot be claimed this only facilitated by the RBI to speed up the transaction to avoid extra costs in the trade. Second Part – treating as an import as there is a territorial barrier to GST despite all the sections referred, whatsoever this is not to be considered as Import merely because of the supplier is from India and bear the GSTIN No. as the first criteria to be taxed is transaction to be carried out in India. I believe GST is not fully operation just in 29 days once all the states adopt e-way bill system this confusion will end unless reference of the e-way bill, you cannot claim any refund is one of the operational criteria based on this this transaction will not fit to be taxed.
I have one issue is that whether Mr. X will not be able to collect IGST from Mr. Y.
as per sec 10(1) e of IGST Act where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train,or a motor vehicle the place of supply shall be the location at which such goods are taken on board here in this case we assume that Goods deliver from mascot to Dubai through the vessel and GST is destination base so it can not be treated as import but it will be treated as export as because the Tax Invoice will be Issue by X of India to Y of Dubai
Hi, Good analysis. I have one question, is there any concept of high seas sales in GST and if yes, whether such a transaction is covered by high seas sales concept.
What about Services of a freight forwarder?
When they transport goods overseas, and bill their overseas counterparts, would the services related to the transport of goods in particular and not the performance based one qualify as export of services and can thus be billed as Zero Rated?
Good analysis