Judgment Update | Applicability of GST on merchanting sales
This is to apprise you regarding recent decision of Authority for Advance Ruling (‘AAR’), Gujarat in the case of Sterlite Technologies Limited, 2020-VIL-150-AAR on the issue of applicability of GST on merchanting sales.
- The Applicant proposed to place an order on a foreign vendor for direct supply of goods to a foreign buyer. The goods would be directly dispatched from foreign vendor to foreign customer without bringing them in India.
- The questions before the AAR was regarding GST implications on purchase and sale of such goods by the Applicant.
The AAR noted that Section 2(5) and Section 2(10) of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) defines the terms ‘export’ and ‘import’ of goods as under:
- Export of goods: Taking goods out of India to a place outside India
- Import of goods: Bringing goods into India from a place outside India
- Purchase of goods from foreign vendor
- The AAR held that since goods would not be physically brought into India, GST shall not be payable under Customs or GST law.
This part of ruling is correct that in the absence of physical movement of goods into India, GST is not leviable under Customs law.
2. Sale of goods to foreign customer
- The AAR held that this is an inter-state supply of goods with place of supply being outside India (foreign customer’s location). However, since the goods would not move from a place in India to a place outside India, there would be no export of goods. Hence, GST shall be payable in this case.
This part of ruling is grossly incorrect. AAR failed to take into consideration Entry 7 of Schedule III of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) as per which ‘supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India’ do not constitute supply of goods or services. After insertion of this Entry vide the CGST (Amendment) Act, 2018, it is clear that merchanting sale transactions are outside the purview of GST law.