SEPTEMBER 17, 2024

By B.N.Gururaj, Advocate.

AFTER reading the order of Andhra Pradesh Authority for Advance Ruling in In re.MCM Pacific Pte Ltd, 2024-TIOL-16-AAR-GST, I was compelled to recall one of the basic legal maxims, which even lay persons are aware: Caveat emptor: Buyer beware. An applicant who decides to risk approaching any AAR under the GST law must know what he is getting into. An order of AAR is a marriage without divorce.

In this proceeding, the applicant is a company registered under the laws of Singapore. It decided to buy the power generation plant owned by a company under liquidation, M/s. Lanco Kondapalli Power Ltd. The applicant intended to export the dismantled plant from India to Myanmar. Under the terms of sale by the Liquidator, the buyer must dismantle and transport the power generation plant. Further, neither the company nor the liquidator would bear the incidence of GST on the transaction. Being the successful bidder, after paying the sale consideration, the applicant approached the AAR of AP with the following question:

- Whether the outward supply of goods procured by the Applicant from an Indian company undergoing liquidation (M/S Lanco Kondapalli Power Limited) as per the Companies Act, 2013 (These goods are intended to be exported to Myanmar) shall be treated as Zero-Rated Supplies as per Section 16 of IGST Act. Whether the same can be exported under Zero-Rated supplies without payment of tax against Letter of Undertaking ("LUT").

From the question framed, it is clear that the applicant company wants to know whether it can export the dismantled plant without payment of GST? Any reasonable person would expect the AAR to declare whether the applicant would be entitled to export without taxes, or is required to pay tax before export (and thereafter claim refund of tax paid). Instead, the AAR rules thus:

Answer : The supply covered under this application subject to the agreement, facts and information furnished by the Applicant is neither exempted nor export of goods/ services, The stated transaction is not treated as Zero rated supplies.

The answer confounds the reader. Applicant has clearly stated that it intends to export the plant to Myanmar. How does the AAR conclude that the subject transaction is neither exempt, nor export, nor zero rated supply? Before going into understanding this aspect of the order, another fact should be noticed. Para 2 of the AAR order clearly records that the applicant is registered under the AP GST Act, 2017. But at two places (Para 2, page 5 and Para 8, page 6), the AAR records that the applicant is not registered under GST law. Never mind that the summary of the order at the commencement clearly gives the GSTIN of the applicant!

But how did the AAR conclude that the transaction was not export, much less a zero rated supply, when the applicant clearly declared the intent to export to Myanmar? The answer lies in the undernoted sub-para under para 8, page 5:

In the instant case, the applicant as successful bidder taking possession of the assets and removing the same from the premises of the Corporate Debtor. Further, the applicant has the responsibility of dismantling, transporting and exporting the Assets to Myanmar. Here it involves two transactions, One is possession of asset and the same asset was in the territory of India. The delivery of goods made in the territory of India to the applicant. It is an undisputed fact that the supply involves movement of goods and therefore the place of supply would be the termination for deliver to the recipient. The applicant purchases from LANCO, Kondapalli and the goods are procured from India and delivered in the territory of India. Hence the place of supply is location of point where goods delivered to applicant i.e, premises of Lanco Kondapalli Powder Ltd, plant office: IDA, Kondapalli, Ibrahimpatnam Mandal-521 228, Krishna District, A.P, India.

Entire order is beset with poor grammar and syntax. Be that as it may, the italicized phrase treats possession of asset as one of the transactions. The question is, possession by whom? The liquidator? How possession per se can become a transaction under the GST law? More importantly, when the applicant wants to know whether export to Myanmar can be made without payment of tax, the AAR is determining the place of supply between the liquidator and the applicant. For good measure, the AAR also gives the PIN code of the place of supply! Instead of ruling on the export transaction proposed by the applicant, the AAR has ruled on the transaction between the Liquidator and the applicant.

While the applicant has clearly declared that it is the intending exporter, the AAR wisely concludes that neither Lanco nor the Liquidator are exporters (page 5). Talk about stating the obvious! Even though the applicant clearly states that it intends to export goods from India, the AAR order goes on to examine the provisions of the IGST Act governing export of services. The order buttresses this irrelevant discussion by copiously extracting from a CBIC circular.

Lastly, this observation caught my attention:

In the instant case, the applicant is not having any GST registration in India. Hence, the transaction done by the applicant does not fall under the definition of export of goods.

If an exporter is not registered under the GST law, will his export cease to be export? It would be illegal export!

Generally, the quality of the orders of AAR do not merit much discussion. The time can be spent on worthier issues. But this particular order suffers from deplorable quality.

[The views expressed are strictly personal.]