Case Law Details
In re Haworth India Private Limited (GST AAR Tamilnadu)
Summary: The case in focus revolves around the transfer of title of goods within the Free Trade Warehousing Zone (FTWZ). The pivotal question raised is whether such transfers fall within the ambit of Schedule III of the CGST Act, 2017, post its amendment in 2018. It has been determined that such transfers do not qualify under the mentioned schedule. Additionally, the relevance of Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 has been mooted, as it has subsequently been rescinded. The rescindment comes in light of the amendment in Schedule III of the CGST Act, 2017, which specifically states that the ‘supply of warehoused goods to any person before clearance for home consumption’ neither classifies as a supply of goods nor a supply of service.
Introduction: In a crucial decision related to GST, the Authority for Advance Ruling (AAR) Tamilnadu analyzed Haworth India Pvt. Ltd.’s queries regarding the transfer of title of goods in FTWZ and the applicability of Integrated Tax (IGST) Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018.
Admissibility of the Application: The primary aspect to consider was whether the questions posed by Haworth India fall under Section 97(2) of the GST Act. This section defines the scope of questions on which advance rulings can be sought, including classification of goods/services, applicability of notifications, determination of tax liability, and more. In this case, the questions raised were indeed admissible.
Schedule III of the CGST Act, 2017 & CGST Amendment Act, 2018: Schedule III lists activities that are considered neither as a supply of goods nor services. The key focus here is on paragraph 8(a) that talks about the “supply of warehoused goods before clearance.” The interpretation of “warehoused goods” is directly linked to the Customs Act, 1962. This definition contrasts with the operations in the Free Trade Warehousing Zone (FTWZ), which operates under the SEZ Act, 2005, and not directly under the Customs Act, 1962.
Customs Act, 1962 Definitions: While the Customs Act clearly defines warehousing and the related permissions, it is essential to note that the FTWZ is considered a Special Economic Zone and thus has its operational framework. Hence, the FTWZ isn’t a warehouse as per the Customs Act, 1962, leading to a distinction in the interpretation of Schedule III.
Integrated Tax (IGST) Circular No. 3/1/2018: The second significant query is about the applicability of this IGST circular to the current situation. The mentioned circular has been rescinded due to an amendment in Schedule III of the CGST Act, 2017, particularly after the insertion of Paragraph No. 8(a).
Ruling:
1. The transfer of title of goods by Haworth India to its customers or multiple transfers within the FTWZ does not come under Schedule II of the CGST Act, 2017 r/w CGST Amendment Act, 2018.
2. The rescinded Circular No. 3/1/2018 – Integrated Tax (IGST) is no longer applicable due to subsequent amendments in the CGST Act.
Conclusion: In light of the deliberations on the nature of title transfers within the Free Trade Warehousing Zone (FTWZ) and its classification under the CGST Act, 2017, post its 2018 amendment, it is evident that such transfers do not fall within the confines of Schedule III. This signifies that these transfers are neither considered a supply of goods nor a service. Furthermore, the reference to Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is rendered moot due to its rescindment, which was initiated in response to clarifications in the amended Schedule III concerning warehoused goods. Thus, the crux of the matter pivots on the specific categorizations in the CGST Act, underscoring the non-applicability of the cited circular in the present context.
Read AAAR Order: Principles of natural justice violated: AAAR set aside order of AAR
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, TAMILNADU
The applicant M/s Haworth India Private Limited, having registered premises at Survey no. 260/4, Kiloy Village, Sriperambudur, Kancheepuram, Tamil Nadu 602105 (hereinafter referred to as the applicant) is registered under the GST Act 2017 with GSTIN 33AAACH8417K1ZK. The Applicant has sought Advance Ruling on the following questions:
1. In the facts and circumstances of the case, whether the transfer of title of goods by the Applicant to its customers or multiple transfers within the FTWZ would result in bonded warehouse transaction covered under Schedule III of the COST Act, 2017 r/w CGST Amendment Act, 2018?
2. Whether the Integrated Tax (IGST) Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is applicable to the present factual situation?
1.2 The applicant submitted a copy of challan evidencing payment of application fees of Rs.5,000/- each under sub-rule ( 1) of Rule 104 of COST Rules 2017 and SGST Rules 2017.
2.1. The Applicant has submitted the following in their Statement of relevant facts having a bearing on the question(s) raised:
The Applicant is a wholly owned subsidiary of Haworth, Inc. United States and is engaged in manufacture and sale of office furniture under the brand name `Haworth’. The Applicant procures raw materials indigenously as well as from international market (from group entities). The Applicant imports certain finished goods from its group entities. Haworth is a worldwide global leader in design and manufacture of organic workspaces, including raised floors, movable wells, systems furniture, seating, storage and lighting.
2.2. In India, the Applicant has manufacturing facility and sales office in the state of Tamil Nadu. Further, the applicant has sales office in Karnataka, Maharashtra, Haryana and Telangana. All operations of the Applicant are located in Domestic Tariff Area (DTA).The outward supplies effected by the Applicant in India includes:
a. Sale of goods manufactured at the manufacturing facility; and
b. Sale of goods imported from group entities.
2.3. The Applicant is contemplating to operate the import and re-sale transaction from a Free Trade Warehousing Zone (hereinafter referred to as (FTWZ’) for operational convenience involving less documentation and swift clearance process so as to expedite project execution.
2.4. The Applicant submits that FTWZ is a Special Economic Zone wherein trading, warehousing and other activities related thereto are carried out. An FTWZ is a deemed foreign territory within the geography of India for the purpose of trade. An FTWZ, also called foreign-trade zone, formerly free port is an area within a country in which goods may be landed, handled, manufactured or reconfigured, and re- exported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. The FTWZ law allows multiple transfers of ownership transactions without removal of the goods out of FTWZ, thus ensuring the trading chain to be as close as possible and as may be required, ensuring that there is no cascade of indirect taxes / compliance and avoids increase in transaction cost.
2.5. The Applicant has submitted the flow of Transaction in FTWZ for Proposed Transaction as detailed below:
- The Applicant secures space in the FTWZ for a fee to store the imported goods from a unit holder. The Applicant executes required lease agreement with the FTWZ unit holder and deposits the goods from the port by filing Bill of Entry (BOE). FTWZ, owned and operated by independent third party merely clears and warehouses the goods imported. The FTWZ shall collect warehousing charges from the Applicant.
- On receipt of purchase order from the customer, the Applicant places an order with the overseas supplier for required goods. Once the goods are shipped, the Applicant intimates the FTWZ unit holder and provides copy of the purchase order and other documents for clearance of goods from the port and storage of the same in FTWZ. The FTWZ unit clears the goods from the port by filing Bill of Entry on behalf of the Applicant and stores the same in the warehouse. The FTWZ unit hands over the import invoice and other necessary documents to the Applicant. The FTWZ unit does not pay any import duty on clearance from the port.
- The Applicant transfers the title of goods to customer under the cover of an invoice. The customer shall either clear goods from the FTWZ or shall make further transfer of such goods to other customers. It is important to note that every transfer of title of goods does not result in physical delivery of goods. The goods shall continue to remain in FTWZ unit holder till the final customer files BOE and clears goods from FTWZ. The Applicant wishes to highlight that multiple transfers are made while goods are lying in FTWZ.
- The final customer, produces transfer of title document and files BOE for re-warehousing (SEZ) / home consumption (others) and clears the goods from the FTWZ. At this juncture goods are removed from the warehouse and is taken to the premises of the Customer.
- The applicant has furnished below the diagrammatic representation of the flow of the transaction:
3.1. The applicant has made the following factual and legal submissions in relation to the questions for which advance ruling is sought:
Question No.1
3.2. The Applicant submits that, the Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018 envisages transactions or activities which shall be treated neither as supply of goods nor as supply of services under GST. The Entry no. 8(a) of the schedule, covers supply of warehoused goods to any person before clearance for home consumption. Further, explanation to the entry provides that, ‘warehoused goods’ shall have the same meaning as assigned to it in the Customs Act, 1962.
3.3. The Applicant submits that FTWZ is a special category of Special Economic Zone as per Section 2(Za) of the SEZ Act, 2005, wherein mainly trading and warehousing and other activities related thereto are carried on. Both Customs bonded warehouse and FTWZ are required to execute bond with the Customs in order to import and store the goods in warehouse without payment of any duty. It is pertinent to note that although the provisions of bonding by a bonded warehouse and bonding by an SEZ/ FTWZ is governed by different laws with differing obligations, the rationale of bonding imported goods remains the same i.e. to avail duty benefit under the Customs Act, 1962. Thus every SEZ becomes a bonded premises under the Customs Act, 1962 by virtue of the deeming fiction created by Section 53(2) of SEZ Act and Rules mentioned above, thereby it can be construed that FTWZ is in parity with bonded warehouse under Customs Act, 1962. Therefore, that since FTWZ is equivalent to bonded warehouse, transfers within FTWZ before clearance shall fall under Schedule III of the CGST Act, 2017, thereby not attracting levy under GST.
QUESTION 2
Whether the Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is applicable to the present factual situation?
3.4. The Circular clarifies the applicability of IGST on goods supplied while being deposited in customs bonded warehouse effective from 07.04.2018 and states that Integrated tax shall be levied and collected at the time of final clearance of the warehoused goods for home consumption i.e., at the time of filing the ex-bond bill of entry and the value addition accruing at each stage of supply shall form part of the value on which the integrated tax would be payable at the time of clearance of the warehoused goods for home consumption. This circular was made applicable for supply of warehoused goods, while being deposited in a customs bonded warehouse on or after 01.04.2018.
3.5. Further, in terms of valuation the applicant stated that Section 3(8A) of Customs Tariff Act,levy of IGST on sale of goods deposited in warehouse but before clearance for home consumption, the valuation is higher of transaction value or sale value to buyer. The said provision infers that in case of goods deposited in a warehouse, only the person who is ultimately clearing the goods for home consumption is subject to tax and the transferor is not subject to tax on such transfer of warehoused goods.
3.6. The Applicant submits that in case of FTWZ/ bonded warehouse the FTWZ files `in-to bond’ BOE without payment of duty for warehousing and point of taxation under customs is deferred to time of clearance from FTWZ. Hence, under the customs provision, the transaction is subjected to levy when goods are cleared from the FTWZ. Therefore, as clarified in the Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018, taxing the transaction before clearance does not arise for supply of warehoused goods, while being deposited in a FTWZ/ customs bonded warehouse. The Applicant is of the considered view that Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is applicable for the present transaction of transfer of title of warehoused goods and is of the view that supply of goods by the Applicant to customers subsequent transfers when the goods are still lying in the custom bonded warehouse or the FTWZ is outside the purview of GST as per Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018 and is not chargeable to tax under GST provisions till the goods are cleared for home consumption.
3.7. The Applicant has also placed reliance on the advance ruling pronounced by Tamil Nadu Advance Ruling Authority in the case of:
a. The Bank of Nova Scotia – Order No. 23/ AAR/ 2018 dated 31.12.2018
b. Sadesa Commercial Offshore Dc Macau Limited – Order No. 24/ AAR/ 2018 dated 31.12.2018.
4.1. The Central Jurisdiction Officer, the Joint Commissioner, Chennai Outer Commissionerate has offered the following remarks on the questions raised by the applicant:
4.1.1. Question No.1:
From the application and circumstances narrated therein, it appears that the transaction of supply takes place within FTWZ (Free Trade Warehouse Zone). According to the Schedule III of CGST Act (Sl.No.8(b), the transaction/activity of supply of goods by the consignee to any other person by the endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance of home consumption is neither a supply of goods nor a supply of service.
According to Explanation II to Schedule III of CGST Act 2017, the expression “warehoused goods” in the schedule shall have the same meaning as assigned to it in the Customs Act 1962.
According to Section 2 (43) of Customs Act 1962 “Warehouse” means a public ware house licensed under section 57 or a private ware house licensed under section 58 or a special warehouse licensed under section 58A)
According to section 2(44) “warehoused goods” means goods deposited in a warehouse;
4.1.2. Even though the day-to-day activities like warehousing and clearing of goods for home consumption on payment of applicable customs duties are supervised /monitored by Customs officials posted in the FTWZ in accordance with SEZ Act 2005, read with Customs Act, 1962, the approval/license/administrative control for FTWZ are fully governed under the provisions of SEZ Act 2005. Therefore, FTWZ is not a warehouse licensed under Customs Act 1962.
4.1.3. Hence the transactions narrated in the application are not covered under Schedule III of the CGST Act 2017.
4.2.1 Question No.2
Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 has been issued for clarifying the scope of supply with regard to transactions in Customs bonded warehouses and hence the same is not applicable to FTWZ which is not a warehouse as defined under the Customs Act, 1962.
4.3. He further stated that no proceedings in respect of the questions raised by the applicant is pending against the applicant in his jurisdiction.
5.1. The State jurisdiction officer, the Assistant Commissioner(ST), Sriperumbudur circle has not offered any remarks.
5.2. The Joint Commissioner (ST), Intelligence- II, Chennai has informed that no proceeding is pending in respect of the applicant.
6. The Applicant has been offered personal hearing on 15.03.2023 through virtual mode and their Authorized representative Ms. R. Sukanya, Charted Accountant has attended the hearing and reiterated the submissions already made.
7.1. We have gone through the entire case records and submissions made by the applicant in their application and during personal hearing.
7.2. The basic point to be determined is that the admissibility of the application. In terms of Section 97(2) of the GST Act, the question on which advance ruling is sought under the act shall be in respect of,-
a) classification of any goods or services or both;
b) applicability of a notification issued under the provisions of this Act;
c) determination of time and value of supply of goods or services or both;
d) admissibility of input tax credit of tax paid or deemed to have been paid;
e) determination of liability to pay tax on any goods or services or both;
f) whether the applicant is required to be registered;
g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
7.3. The Applicant has sought ruling on the following questions:
1. In the facts and circumstances of the case, whether the transfer of title of goods by the Applicant to its customers or multiple transfers within the FTWZ would result in bonded warehouse transaction covered under Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018?
2. Whether the Integrated Tax (IGST) Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is applicable to the present factual situation?
The above questions fall within the scope of Section 97(2) of the CGST Act, 2017, as stated supra and therefore the application is admissible.
7.4.1. The first question raised by the applicant necessitates to see the Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018, which is as follows:
SCHEDULE HI.
[ See section 7
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.
2. Services by any court or Tribunal established under any law for the time being in force.
3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause.
4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
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.
8. (a) Supply of warehoused goods to any person before clearance for home consumption;
(b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption.
Explanation 1.-For the purposes of paragraph 2, the term “court” includes District Court, High Court and Supreme Court.
Explanation 2.- For the purposes of paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962 (50 of 1962)
[Sl.No.7 and 8(a) and (b) are inserted by s.32 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) – Brought into force w.e.f 01st February, 2019.]
7.4.2. From the above it can be seen that, as per paragraph 8(a) above, supply of warehoused goods to any person before clearance for home consumption is an activity/transaction which shall be treated neither a supply of goods nor a supply of services. As per the explanation 2 for the paragraph 8, the expression “warehoused goods” shall have the same meaning as assigned to it in the Customs Act, 1962. According to Section 2(43) of Customs Act, 1962, ‘Warehouse’ means a public warehouse licensed under Section 57 or a private Warehouse licensed under Section 58 or a special warehouse licensed under Section 58A of Customs Act, 1962. According to Section 9(44) ‘Warehoused goods’ means goods deposited in a `warehouse’.
7.4.3. Section 57, Section 58 and Section 58A of Customs Act, 1962, reads as below:
57. Licensing of public warehouses.–The Principal Commissioner of Customs or Commissioner of Customs may, subject to such conditions as may be prescribed, license a public warehouse wherein dutiable goods may be deposited.
58. Licensing of private warehouses.—The Principal Commissioner of Customs or Commissioner of Customs may, subject to such conditions as may be prescribed, license a private warehouse wherein dutiable goods imported by or on behalf of the licensee may be deposited.
58A. Licensing of special warehouses.—(1) The Principal Commissioner of Customs or Commissioner of Customs may, subject to such conditions as may be prescribed, license a special warehouse wherein dutiable goods may be deposited and such warehouse shall be caused to be locked by the proper officer and no person shall enter the warehouse or remove any goods therefrom without the permission of the proper officer.
7.4.4. Whereas, Free Trade Warehousing Zone is a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on. It is a deemed foreign territory within the geography of India for the purpose of tariff and trade. The Special Economic Zones Act, 2005 and the Special Economic Zones Rules, 2006 are the legal framework for FTWZ. Instructions are also issued by the Ministry of Commerce 85 Industries from time to time to clarify various operational aspects of FTWZ. Even though the day to day activities like warehousing and clearing of goods for home consumption on payment of applicable custom duties are supervised/monitored by Customs officials posted in the FTWZ in accordance with SEZ Act, 2005 read with Customs Act, 1962, the approval/license/administrative control for FTWZ are fully governed under the provisions of SEZ Act, 2005. Therefore, FTWZ is not a warehouse licensed under Customs Act, 1962. Therefore, paragraph 8(a) in the Schedule III is specific to the warehoused goods lying in the warehouses licensed under Customs Act, 1962.
7.4.5. Whereas the transactions narrated in the application are in FTWG, which are warehouses governed under the provisions of SEZ Act, 2005 and not licensed under Customs Act, 1962. Therefore, the transactions in the FTWG narrated in question no.1 of the ARA , will not be covered under Schedule III of CGST Act, 2017 read with CGST Amendment Act, 2018.
7.5.1. Question 2 raised in the application which states – Whether the Integrated Tax (IGST) Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018 is applicable to the present factual situation?
Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018has been rescinded vide Circular No. 3/1/2018 – Integrated Tax (IGST) dated 25.05.2018, in view of the amendment made in Schedule III of the CGST85 TNGST Act, 2017, by inserting Paragraph No. 8(a), so as to provide that the ‘ supply of warehoused goods to any person before clearance for home consumption’ shall be neither a supply of goods nor a supply of service.
RULING
1. In the facts and circumstances of the case, the transfer of title of goods by the Applicant to its customers or multiple transfers within the FTWZ will not be covered under Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018.
2. As discussed in para 7.5.1. above.
