Goods supplied to an overseas customer by an overseas vendor of an Indian firm will attract IGST, says AAR

Integrated Goods & Services Tax (IGST) will be applicable on goods directly shipped to overseas customers from vendors’ premises outside India, an Authority for Advance Rulings (AAR) has said.

The applicant, Sterlite Technologies approached Gujarat AAR with two queries for advance ruling. The first question was whether GST is payable on goods procured from vendor located outside India in a context where the goods purchased are not brought into India.

The second question was whether GST is payable on goods sold to customers located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.

The applicant proposed to undertake transaction and supply of hardware, commercially known as ‘Merchant Trade Transaction’, wherein the applicant will receive an order from the customer located outside India and as per their instruction, its vendor (also located overseas) would directly ship the goods to the customer located outside India.

The vendor would issue an invoice on the applicant against which payment would be made in foreign currency and the applicant would raise invoice on the customer and would receive consideration in foreign currency.

In the above transaction, goods would not physically come to India, but would move between one place and another, both outside India.

After hearing all parties, the AAR observed that the supplier is located in India and the place of supply is outside India and as such the same would be inter-State supply in terms of the IGST Act.

Thus, it is very clear that the transaction undertaken by the applicant is tantamount to supply and is an inter-State supply. It needs to be noted 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 according to law.

IGST law defines export as ‘With its grammatical variations and cognate expressions, means taking goods out of India to a place outside India.’ In this 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.

Based on these facts, AAR ruled that such supplies will be subject to levy of IGST. Also, it clarified that that GST is not payable on goods procured from vendor located outside India, where the goods purchased are not brought into India.

According to Tanushree Roy, Director (GST) at Nangia & Co, as the GST is still evolving, it cannot be concluded with certainty from the provisions of the GST legislation whether the supply of goods takes place from the place/State from where the tax invoice is raised or from where the movement of goods start.

“This judgment has provided clarity on this aspect by stating that in the event that the supplier is located in India and the place of supply is outside India, such supplies would be treated as inter-State supplies and liable to GST in India. Suppliers of goods should keep this aspect in mind while entering into ‘Merchant Trade Transactions’/back to back contracts,” she said.

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