GST Implications on Merchant Trading Transactions executed prior to February 2019

by | Jul 20, 2022 | Outlook | 1 comment

We intend to apprise you on recent dispute being raised by revenue regarding GST implications on Merchant Trading Transactions (‘MTT’) executed prior to February 2019.

  • MTT is a common business model where an Indian entity receives an order for supply of goods from an Overseas customer and arranges direct shipment of goods from Overseas supplier to Overseas customer. Indian entity pays purchase price to Overseas supplier and receives sales consideration from Overseas customer. The transaction is diagrammatically represented as under:

  • In this context, it is relevant to note that an entry at Serial No.7 was inserted in Schedule III to the CGST Act,  2017 effective February 1, 2019. This entry provides that supply of goods from a non-taxable territory to another non-taxable territory without such goods entering into India, shall not constitute supply. Consequently, post this amendment, MTT transactions were clearly brought out of purview of GST levy.
  • Notably, revenue has been raising demand of GST on MTT transactions executed between July 2017 to January 2019.

NITYA Comments: Section 1(2) of the IGST Act states that it extends to whole of India. Hence, IGST can be levied only to supplies within territorial jurisdiction of the IGST Act i.e. within India. Basis this, GST is not leviable on MTT irrespective of amendment being made from February 2019 since movement of goods takes place outside India in MTT transactions. This view has also been affirmed in several Advance Rulings on this issue. On merits, taxpayers can contest this issue.

Considering revenue’s attempt to levy GST on MTT, taxpayers should make representations before GST Council requesting them to issue clarification for non-levy of GST on MTT. 

Hope you find this an interesting read! Please feel free to share your comments / feedback.

1 Comment

  1. Manish Agarwal

    NITYA’s updates are very useful. We are facing similar issue in GST audit with the department. This update will surely help us. Thanks to NITYA and team


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