Recently, there was an Advance Ruling by the Gujarat AAR in case of ‘Sterlite Technologies Pvt Ltd‘wherein it was decided that the goods procured from a supplier located out of India and directly supplied to a recipient located out of India falls under the category of ‘inter-state transaction’ and hence, the same is liable to GST, even if the goods have neither crossed borders in either of the transactions.
The Ruling heavily relied on strict interpretation of the below provisions of the Goods and Services Tax :
I. Section 7 of the CGST Act, 2017:
(1) For the purposes of this Act, the expression “supply” includes –
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business; [and]
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; 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’.
II. Section 7 of the IGST Act, 2017:
5) Supply of goods or services or both,-
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) 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.
III. Section 2 (5) of IGST Act, 2017:
Export of goods would mean-‘With its grammatical variations and cognate expressions, means taking goods out of India to a place outside India’.
A plain reading of the above sections would prove that the supplies made without the goods moving out of India goes out of the ambit of Exports and as the same is out of the ambit of Exports, it falls under the category of Inter-State Supply.
However, what the AAR conveniently avoids to consider are the specific provisions as given below :
IV. Section 7(2) of CGST Act, 2017:
Notwithstanding anything contained in sub-section (1),— (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services
V. Schedule III:
7. 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.
It is interesting to note that the AAR, while refers the Section 7(1) vehemently but conspicuously keeps silent on sub-section (2) of the same Section 7 !!!
Similarly, while it goes on to restrictedly, but elaborately, prove that such supplies falls under ‘inter-state supplies’, but quite cleverly goes speechless on Schedule III above which has overriding effect on the provisions relied by the AAR.
Hence, it is highly likely that this AAR will be quashed at the level of Appellate.
Dear Vinod Sir,
What is the GST impliclation on sale of time spot to a person outside India for advertising in Indian Television channel ?
Sir Congarates for good analysis. By amendment in Schedule III Item 7 By Act 32 of 2018 issue will remain that this amedment will cover tranasactions prior to amendment and whether AAR was dealing with past transaction or hypothetical transaction . I think amendment should be retrospective and that turnover must not be included for calcualting to turnover for refund purpose.