Case Law Details
In re Sterlite Technologies Ltd (GST AAR Gujarat)
The Gujarat bench of Authority for Advance Ruling recently passed a ruling in case of M/s. Sterlite Technologies Ltd (applicant) which brought a sense of ambiguity in the minds of taxpayers. The Applicant sought advance ruling on two transactions which it propose to undertake. However, In this article, only one has been discussed as the relevant question on GST laws. The applicant sought advance ruling on applicability of GST on supply of goods which were purchased outside India and then sold outside India without being brought into India.
Brief Facts of the Case
- M/s. Sterlite Technologies Ltd proposed to undertake ‘’Merchant Trade Transaction’
- Wherein they would receive an order from customer located outside India;
- Back to back order would be placed by them to supplier located outside India;
- Goods would be directly shipped by vendor outside India to customer located outside India;
- Payment would be made in foreign currency to vendor and applicant would receive foreign currency from customer.
They therefore wished the Authority for Advance Ruling to determine if any GST is payable on goods procured from vendor outside when goods purchased are not brought into India and whether GST would be payable on goods sold to customer located outside India.
Hearing before AAR
- With regards to the query on leviability of GST on outward supply from place of vendor to customer, it is to mention that the thumb-rule for determining the taxability of any transaction is to ascertain whether the transaction tantamount to ‘supply’ in terms of the provisions of law. The term ‘supply’ has been defined at Sec. 7 of the CGST Act, 2017. In the instant case, the applicant is selling goods for a consideration in the course or furtherance of business and as such the transaction tantamount to ‘supply’ in terms of the definition of ‘supply’.
- Once the test of supply is met with, the next step is to determine whether the same is an Intra-state supply or inter-state supply. In this regard it is pertinent to examine the provisions of Section 7 of the IGST Act, 2017. Sub section (5) of section 7 of IGST is reproduced hereunder as “Supply of goods or services or both,––
- When the supplier is located in India and the place of supply is outside India;
- To or by a Special Economic Zone developer or a Special Economic Zone unit; or
- In the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.
The above statute indicates that in the event that the supplier is located in India and the place of supply is outside India, such supplies shall be treated as Inter-stated supplies.
- Thus, it is very clear that the transaction undertaken by the applicant tantamount to supply and is an Interstate supply.
- Having travelled thus far, it is obvious that IGST will be leviable unless the goods are exempted or are zero-rated supplies which have been defined as export of goods or services in terms of the provisions of Sec. 16 of the IGST Act, 2017. The only possibility of goods not subject to levy of IGST would be the circumstances where the goods are exported.
- The term ‘export of goods’ has been defined under sub section 5 of Section 2 of IGST Act, 2017 which reads as under: Export of goods would mean—‘With its grammatical variations and cognate expressions, means taking goods out of India to a place outside India’. The above definition indicates that the act of taking goods out of India to a place outside India qualifies as export. In the instant case, the goods have not crossed the Indian customs frontier and as such it is clear that the goods are not physically available in the Indian territory. When the goods are not available in the Indian territory, the question of taking goods out of India does not arise. Thus, the subject transaction does not qualify as export of goods.
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Author Bio
This is already made amply clear as in comment that
sch III of transactions of non supply at sr. 7 covers this and also clarifications that this also not to be treated as exempt supply ( for ITC reversal )
this decision needs revision
When the Goods are sold out and out then it should be treated as export
Thanks TaxGuru & Pawan Sir! Very good analysis for quick read!
To Be Noted> “Date of Judgement/Order : 17/03/2020” – more than 3 months since passed; will be interesting to know about further developments, if any, since then !
ADMN: Factual matrix , etc., as narrated in the Order, are not fully reconcilable with the AAR’s Decision/ Ruling. For a right grip by anyone concerned, a close study is recommended !
RIDER
Q
Decision by AAR
In view of the above, IT APPEARS that the transaction is covered under the ambit of Inter-state supply and is neither exempted nor covered under export of services. THUS THE THEORY OF ELIMINATION TAKES US TO the conclusion that such supplies will be subject to levy of IGST.
UQ
In view thereof, to infer therefrom, it appears that, why no GST is leviable has not at all been addressed and argued. That explains why the Ruling suffers from the malady of a “MISTAKÉ APPARENT FROM THE RECORD” ; which provides a sufficient ground for seeking a review/rectification ?!
If the admin is really serious about making our beloved country self reliant I think the tax legislation need a complete overhaul. Am not a legal expert but the above judgement is a case in point about how complex the legislation is what are the possible ramifications of varied interpretations. Need less to add the penal provisions are draconian to say the least and without exception any difference in opinion is treated as an attempt to defraud the revenue. Once the admin reposes some faith in its citizens the citizens can and will whole heartedly reciprocate
OFFhand;
As per the ‘Comments’ of the writer, in terms of the special provisions of the GST law drawn attention to, it is a clear case of “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”; hence not liable for the levy. Premised so, there is no ambiguity in the law. As such, the suggestion that, – “The department should come into play and remove the ambiguity, created by this ruling” is misconceived/ does not seem to carry conviction..
On the other hand, it may be,- apart from challenging the patent absurdity in the Ruling given, in court, – a fit case for moving the AAR in a ‘review’ petition, if so advised by assisting counsel. Particularly if, in the application or in the course of the proceedings, the specific provision of the law has been duly stressed and forcefully pleaded !
Incidentally, it does not stand to reason / is anybody’s guess as to why the applicant/ its advising counsel considered it necessary or was obliged to seek a Ruling of AAR in a matter such as herein , on which no adverse view is patently possible.
How can they pass such rulings without application of mind.. Surely CBIC’s Approval must be taken by states before passing Ruling. or only CBIC must issue rulings.