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Article Dated 25th May, 2021

SALE OF GOODS FROM ONE COUNTRY TO ANOTHER WITHOUT ENTERING INTO INDIA- A CASE STUDY

In the case of Guitar Head Publishing LLP. [2021] 35 TAXLOK.COM 032 (AAR-Karnataka) Authority for Advance Ruling held that supply of books from warehouse located in USA (non-taxable territory) to a customer located in USA, UK and Canada (non-taxable territory) is covered under Schedule III which are neither supply of goods nor a supply of service.

The matter before the authority was whether the supply of books from the warehouse located in USA (non-taxable territory) to the customers located in USA, UK and Canada (non-taxable territory) without such books entering into India by the applicant are treated as supply under GST??

a. Section 7 of the IGST Act, 2017 lays down the principle to determine the nature of transaction as inter-state transaction. In this regard, the provisions of section 7(5) which reads as under:

(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.

b. In order to evaluate applicability of section 7(5)(a), the applicant states that it is pertinent to evaluate following aspects of transaction in question-

• Supplier

• Place of Supply

Supplier: IGST Act has not separately defined the term 'supplier' and hence the definition of CGST Act can be adopted in terms of section 2(24) of the IGST Act. Section 2(105) of CGST Act defines supplier as “supplier in relation to any goods or services shall mean the person supplying the said goods or services and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied”.

Accordingly, the books are supplied to the customer located in USA, UK and Canada (non-taxable territory) and hence the applicant would be construed as “supplier”

Place of Supply: Section 10 of the IGST Act provides for various scenarios to determine the place of supply of goods. In the present case, the supply involves movement of goods. The applicant states that, without prejudice to the applicant's submission herein below, it appears that the said supply would get covered under section 10(1) (a) of IGST Act which is reproduced below;

10(1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under-

(a) Where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient.

c. In view of said section 10 (1) (a) of IGST Act, 2017, the place of supply appears to be the location of goods at the time of delivery to the recipient. The printed books continue to remain outside India and hence the same to be delivered to customer located in USA, UK and Canada (non-taxable territory). Accordingly, according to the applicant, without prejudice to his submission herein below, the place of supply would be outside India.

d. From the conjoint reading of 'supplier' and 'place of supply', the applicant states that it appears that supplier is located in India and place of supply is construed as outside India. Hence, the said transaction could get covered under the ambit of “inter-state supply” in terms of section 7(5)(a) of the IGST Act.

e. According to the applicant, as the sale of books made by the applicant to the end customer before the goods crossing the customs frontier of India is treated as “High sea Sales” and are in the nature of inter-state supplies, the liability to tax in respect of books would be as per Section 5 of the IGST Act which reads as under'-

Section 5(1) of the IGST Act, lays that “there shall be a tax called integrated goods and service tax on all inter-state supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of CGST Act and such rates not exceeding forty percent, as may be notified by the Government on the recommendation of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person”

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the customs Act, 1962.

f. Thus, from the above, the applicant states that integrated tax on goods imported into India is to be levied and collected in accordance with Section 3 of the Customs Tariff Act, 1975 and Section 12 of the Customs Act, 1962 and the same is to be levied and collected at the time of import into India. The goods are considered to be imported into India only after they clear the customs frontier after compliance of applicable procedures and payment of duty as applicable. Since the goods has not cleared the customs frontier of India, it is not treated as Import of Goods.

g. The CBEC vide Circular No 33/2017-Customs dated 1st August 2017 clarified that in case of High sea sales, the levy and collection of tax will be only at the time of importation of goods in India i.e. when import declarations are filed before Customs Authorities for customs clearance for the first time. The relevant para of the circular is reproduced below:

“GST Council has deliberated on the levy of IGST on high sea sales in the case of imported goods. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i. e when the import declarations are filed before customs clearance for the first time. Further, value addition accruing in each such high sea shall form part of the value on which IGST is collected at the time of clearance.”

The circular clearly mentions that the tax is leviable only at the time of importation of Goods in India and not when the goods sold when they are in High Seas. Similarly, when the goods are printed outside India for delivery to the customers located in USA, UK and Canada (non-taxable territory), it can be said that since, the goods are outside India, no GST is applicable on the same as the subject on which tax is being levied is outside the Territory of india.

h. Further the CGST Amendment Act, 2018 applicable from 01.02.2019 has added para 7 under Schedule III which lays that “supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering India” is covered under negative list” Thus the supply of goods from a place in non-taxable territory to another place in non-taxable territory is treated as “Neither Supply of Goods nor a Supply of Services” and it is outside the scope of definition of supply.

i. Alternately the applicant draws attention to section 16 of IGST Act, which provides that 'zero rated supply' means any of the following supplies of goods:

i. Export of goods; or

ii. Supply of goods to a SEZ developer or unit

Section 2(5) of IGST Act, defines 'export of goods' with its grammatical Variations and cognate expressions, means “taking goods out of India to a place outside India”.

j. In order to identify these supplies as Zero-rated the same have been covered under the purview of inter-state supply. However, this cannot be interpreted to mean that all other supplies falling within the purview of Section 7 (5) (a) of the IGST Act, but not covered under section 16 of IGST Act would be considered as liable to IGST.

k. The term 'Export' covers the cases of taking goods out of India, however, principally even book being supplied to the customer located in USA, UK and Canada (non-taxable territory) which is outside India should get covered under the purview of the term 'Export'. Interpreting the term 'Export' to cover only supplies where goods are taken out of India would be restrictive and would disregard the principle of consumption-based tax. “Export of goods” should be interpreted in a broader way to cover such cross-border transaction where goods are delivered to a customer outside India even if not taken from India. Thus, applicant pleads for extending the interpretation for the meaning of 'export of goods' even to cases where goods are delivered to customer outside India even if not taken from India.

l. From the above provisions and interpretation, the applicant is of the view that supply of books from warehouse located in USA (non-taxable territory) to a customer located in USA, UK and Canada (non-taxable territory) is covered under Schedule III which are Neither supply of goods nor a supply of service.

Authority for Advance Ruling, Kerala held that supply of books from warehouse located in USA (non-taxable territory) to a customer located in USA, UK and Canada (non-taxable territory) is covered under Schedule III which are neither supply of goods nor a supply of service.

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