NOVEMBER 27, 2017

By K Srinivasan, IRS

THE Central government always had the power under Article 286 of the Indian Constitution to formulate principles for determining when a sale or purchase of goods is said to take place in the course of inter-state trade or commerce to levy level playing field-taxes like CVD and SAD.

In the aforementioned Article 286, on introduction of GST, the words 'sale or purchase of goods' has been substituted by the words 'supply of goods or services or both' to unify all commercial transactions attracting GST into a single, common entity newly coined as 'supply'. That is good a change, but not good enough yet, it is thought.

While an explanation under the new Article 269A was inserted to equate imports to an inter-state supply, supply of goods and /services for export out of the territory of India has not been equated to an inter-state supply.

However, Article 286 has powers under it to formulate principles by Law, to specify when a supply for export takes place amounting to supply in the course of inter-state trade or commerce besides Imports and cross-border trade or commerce per se.

It is, however, not known as to why the Constitution has chosen to leave Exports out of the scope of Article 286 in deeming it also as inter-state trade or commerce as in the case of Imports, though both are found to fall within the scope of IGST levy.

It is pertinent to note that import by default has been recognized as an equivalent of inter-state supply in the Constitution itself and in addition Section7 of IGST Act also supplements it.

Whereas, exports of goods or/and services are understood to take place when the supplier is in India and the place of supply is outside India in terms of Section7 of the IGST Act.

However, it does not stipulate supply for Export to be strictly out of the territory of India.

The definition of Export under Section 2(18) of the Customs Act, 1962, with its grammatical variations and cognate expressions means taking goods out of India to a place outside India.

It is not known precisely the reason why all definitions of export under the Customs Act and the IGST Act are not in alignment with the wordings of the Constitution that export should mean taking goods out of the territory of India instead of out of India to a place outside India.

There is a semantic understanding that “out of India”need not necessarily mean out of the territory of India. For example, a person located in India causes supply of goods from Sri Lanka to Singapore.

In the above case, the earnings of the transaction may incidentally fetch foreign exchange for India and whether we can call the above transaction as Export, as the person causing the supply is located in India and the place of supply is outside India.

This is more so in the case of export of services as per the above theory of understanding.

It is again interesting to note that the IGST Act adopts the definition of Imports as found in Article 286 of the Constitution but not for exports. Why, it is not known?

Could it be that since the Customs Act itself does not adopt the definition of Export in line with the said Article of the Constitution, the IGST Act is unable to go beyond that?

In the opinion of the Author, a specific definition of Export in the IGST Act is welcome in alignment with Article 286.

It would help a great deal to employ the words 'outside the territory of India' instead of 'out of India' as found in the above Article 286 into the IGST Act.

Otherwise, it could also suggest, as some people think already, that a supply from a second country to a third country caused by a supplier located in India may also come within the ambit of Export especially when it comes to services.

There are yet others who think that in the above example, goods in place of services may qualify as a supply since the location of the third person can be construed as the place of supply in terms of Section 10(1)(b) of the IGST Act reproduced below for ready reference;

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

(a) x x x

(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;

The view in the above situation is patently wrong for Section 10 contemplates the scenario of an intra-state domestic transaction where the location of the third person takes precedence over the actual recipient to determine the place of supply as in a bill to ship to transaction equal to theE1sales under the existing Law.

The main reason for all is, in the opinion of the author, that there is no proper definition of Export in any of the Laws to clearly state the subject goods or services must be taken out of the territory of India instead of saying out of India to a place outside India to qualify as Export.

It is felt that simply stating that supplier located in India and supply made outside India would amount to export of Services as understood from Section 2(6) read with Section 7(5) of the IGST Act, would not do.

It is also the view of the Author that Article 269A can, perhaps, include under the explanation another deeming provision for supply of goods or services or both made for export to also equate to supply in the course inter-state trade or commerce as done in the case of Imports.

The intention in the end after all, is to enable the levy and collection of IGST on Imports and Exports after clearly distinguishing them from domestic inter-state supplies, as deemed fit, by the Government from time to time.

(The author is Assistant Commissioner, GST, Chennai and the views expressed are strictly personal.)