JUNE 20, 2020

By Rishab J, Advocate, Shivadass & Shivadass (Law Chambers), Bangalore

THE title is as contradictory as the recent decision of the Advance Ruling Authority in the case of M/s Sterlite Technologies Ltd ¹ to the provisions of GST Laws. We have time and again seen adverse rulings from the Advance Ruling Authorities, but the present ruling attempts to occupy the top slot in, to put it mildly, "ridiculousness".

A transaction of goods in the nature of 'Bill to Ship to' supply wherein the supplier is located outside India, the recipient of goods is located outside India (ship to party) and a person who is located in India, facilitates the supply (bill to party). In such a transaction, goods do not even cross the Customs Frontier. The Advance Ruling Authority has somehow still held that the said supply is exigible to GST.

A simple diagrammatic representation of the transaction is as follows:

In the words of AAR:

The activity of arranging the goods is clearly a supply covered under provisions of Section 7 of the CGST Act as it is undertaken for a consideration and in the course or furtherance of business. [without considering the exclusion of Schedule-III transactions, as provided under Section 7(2) of the CGST Act ]. Further, since the supplier is located in India [bill to party] and recipient is located outside India [Ship to party], it is clearly an inter-state supply.

The Authority has then analyzed the provisions relating to place of supply [Section 10(1) of the IGST Act] which provides that the place where the movement of goods terminates will be the place of supply for such supply of goods. After coming to a conclusion that the supply is an inter-state supply and the destination of the good is the place of supply, the Authority has proceeded to analyze the definition of 'Export' [as per Section 2(5) of the IGST Act] to conclude that the present supply does not come within the ambit of export as transaction wherein the goods are taken out of India only qualifies as export and in the present case, the goods have not even entered into India for them to be taken out of India. Therefore, once it is determined that it is a supply - an inter-state supply and not a zero-rated supply - consequently GST is applicable to the transaction.

Schedule - III entry for the said supply

The Authorities have also traveled a reasonable scope of analysis, especially when there is a contradictory Advance Ruling on the same issue by means of M/s Synthite Industries Ltd., Ernakulam ². A reference herein is made to Entry 7 of Schedule - III of the CGST Act ³ which reads as under:

"Supply of goods from a place in the non-taxable territory to another place om the non-taxable territory without such goods entering into India"

A simple and unambiguous entry to indicate that the present transaction is covered under the aforesaid entry and on application of Section 7(2), the aforesaid transaction is neither a supply of goods nor a supply of service. Hence, when a bare reading of the provision leads to a conclusion that the transaction is not even construed to be covered as taxable activity, the analysis undertaken by the Advance Ruling to bring it within the ambit of GST seems to be high-handedness.

It would pertinent to note that M/s. Synthite Industries Ltd ., supra, even before the introduction of Entry 7 to Schedule-III, had analyzed the Circular No. 33/2017-Custom dated 01.08.2017, wherein the Board had clarified that for a transaction in nature of 'High Sea Sales', the levy of IGST is triggered only on the actual import of goods, i.e. when the goods cross the Customs frontier and any sale prior to such point is not liable to tax under GST. The Authority, in that case, extending the analogy of the said Circular held that when goods do not cross the Customs Frontier in a transaction which was similar to the present case, then there cannot levy of GST on such transaction.

Thoughts to Ponder

The Advance Rulings thus far have never been pro-assessee but with this ruling, the Authorities seem to have left no stone unturned to hold that a transaction is exigible to GST.

If 'ease of doing business' is the mantra that the Government sincerely wishes to provide to its taxpayers then it is high time that the concept of AAR is qualitatively improved or gets a decent burial else litigation would be the only 'supply' that the applicant's receive on payment of the application fees!

[The views expressed are strictly personal.]  

¹ 2020-TIOL-124-AAR-GST

² 2018-TIOL-02-AAR-GST

³ Inserted by CGST (Amendment) Act, 2018