Advance Ruling on How Goods kept Outside India shall not be Liable for Goods & Services Tax

A look at whether IGST or CGST shall be levied on any goods located outside the jurisdictional scope provided within the statute.

Govt. Agencies and Taxation | Comments (0)


Recently an application was filed under section 97 of the Central Goods and Services Tax Act, and the Maharashtra Goods and Services Tax Act, 2017  by lNA Bearing India Private Limited, being the applicant,. The applicant primarily sought seeking an advance ruling with respect to certain specific questions over the applicability of GST and over whether goods placed outside India shall come within the ambit of imported goods to be taxed under GST.

The questions which followed have been reiterated below:-

  1. Whether the sale of goods which are located outside of India would be liable for taxation in India under Section 7(5) of the Integrated Tools and Securities Act, 2017.
  2. In case such goods are taxable under the above mentioned section then whether he recipient to whom these goods are sold, would be eligible to claim the input tax credit over these goods.

It is important to note here that he provisions under both, the CGST Act as well as the GST Act are the same apart from certain distinctions within a few provisions within these Acts. Hence, unless a specific mentioning has been provided specifically over he dissimilar provisions, all references to the CGST Act shall also imply a reference to the exact same provision under the MGST Act as well. Furthermore, with respect to this and for the purposes of Advance Rulings any reference to the similar provisions within the CGST Act or the MGST Act shall be mentioned as being within the ambit of the GST Act henceforth.

Facts of the case

  • The applicant, INA Bearings India Private Limitedis a corporation which is engaged in the supply of bearings and tools as a part of its business. The Applicant basically provides such bearings to a large number of customers which also happen to include, Original Equipment Manufacturers (OEM).
  • It is important to note here that the manufacture of the bearings for the specific customer requires a special kind of a tool. Such tools have been developed in a manner specific to the needs of the specified customer. Through the usage of these tools, child parts are manufactured and thus supplied o the customer. Two purchase order were hence raised for the same.
  • This in turn, led to the applicant raising a purchase order on The Applicant in-turn raised a purchase order on Scaheffler Technologies AG & Co. KG for the supply of tools. The tools which were required for manufacturing these is developed outside India by Scaheffler Germany. And once the tool had been developed, Scaheffler Germany had raised an invoice dated 16.03.2018 over the Applicant for the tools and the ownership of the said tools to be transferred to the Applicant. However, there was no physical movement of tools meaning, that the same continued to remain in the possession of Scaheffler Germany.
  • This in turn led to the applicant raising an invoice 1603.2018 over their customer in India and thereby the ownership of the tools eventually got transferred to the customer. IT is still pertinent to note that the continued to physically remain within the possession of Scaheffler Germany.

Issues and Contentions

  • The main issue of concern here was the fact f whether the transfer of ownership to the customer without any physical movement of such goods from Germany, would imply that the transaction is liable to GST in light of the provisions give under section 7(S)(a) of Integrated Goods and Services Tax Act, 2017 (IGST Act, 2017) and therefore in consequence, if the applicant would be required to charge IGSA over the tools that it sells to their customers in India.
  • It is further to be cleared, that in case IGST is applicable over the transactions under consideration, then does that imply that the applicant’s customer would now be eligible to avail tax credit of ICST charged by the applicant.
  • In view of the above, the applicant submitted a detailed report over why IGST shall not be applicable over the transactions under consideration.
  • With reference to the facts of the applicant, the transaction involving the supply of tools to the customer in India, needs to be evaluated on the basis of the IGST Act in order t completely and thoroughly understand any and all implications regarding the nature of the transaction at hand and also to evaluate the applicability of the IGST. It has already been made clear under the law that the levy of IGST cannot be extended beyond territorial jurisdictions of any legislation.
  • In view of the above, Section 7 of the IGST Act, 2013 has provided principles which clearly lays down the rules for determining the nature of the transaction as being inter-state. With regard o this, it is important to draw attention to the prvisins under Sectin 7(5) of the Act, which prvides for the following:-

Supply of goods or services or both:-

  1. When the supplied or goods is in India but the place of supply is located outside of India.
  2. To or by a Special economic zone developer or a Special Economic Zone unit.
  3. Or within a taxable territory, not being an intra-state supply and not being covered anywhere else within this section, shall thus be treated to be the suppy of goods and services or both within the course of inter-state trade or commerce.

Decision Held

It is important to note here that even though the tools are supplied to customers, the goods continue to remain outside India implying that the same can be construed to be delivered to the customer outside of India. Under the IGST Act and after due analyses of the statute it was thus concluded that no tax can be payable over the transaction under consideration since the goods over which the tax would be applicable is located outside of India making it clearly above and beyond the jurisdictional extent of the IGST Act, 2017. Furthermore, no tax can be collected unless it is constitutionally valid to collect the same and being outside the scope of jurisdiction clearly results in the unconstitutionality over any tax collection of the same.
Therefore it was held that no tax shall be levied over goods located outside of India since they fall beyond the jurisdictional ambit given within the statute.

Tags: Customer, Supplier, IGST, CGST, Advance Ruling, India, Goods, Jurisdiction, inter-state, intra-state, Constitutional

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