Input tax credit in respect of goods transportation services for export goods

This is to apprise you regarding a recent Input Tax Credit (‘ITC’) issue that has arisen in respect of goods transportation services for export goods post amendment in the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) effective from February 1, 2019.

Background

The applicability of CGST / SGST or IGST on a supply depends upon its place of supply. Section 12 of the IGST Act deals with the place of supply of services where location of supplier and recipient is in India. The place of supply of services by way of transportation of goods, including by mail or courier merits a specific mention under Section 12(8) of the IGST Act.

Notably, a proviso has been inserted to Section 12(8) of the IGST Act effective from February 1, 2019. The said proviso adverts that where the service relates to transportation of goods to a place outside India, place of supply shall be the place of destination of such goods. Hence, in respect of GTA service or courier service involving transportation of export goods, place of supply will be outside India.

Important to highlight that even though place of supply of such transportation service has been made outside India, GST will continue to apply on this transaction since supply will not qualify as export of service (since recipient is located in India and consideration is not received in foreign currency). Further, since supplier is in India and place of supply is outside India, it shall be an inter-state supply attracting levy of IGST.

Here, it is also pertinent to note the Advance Rulings in the cases of IMF Cognitive Technology Private Limited, 2019-VIL-34-AAR (RAJ) and Storm Communications Private Limited, 2019-VIL-17-AAR (WB) wherein the AAR denied ITC where place of supply was in a State other than the State of registration of recipient. Basis these advance rulings, the department may proceed to deny credit to the recipient of goods transportation service for export goods.

NITYA Comments: The purpose behind this amendment (which is clear from the agenda of 28^th GST Council meeting) was to eliminate GST on these services instead of levying IGST. Presently, the intention of this amendment stands completely defeated. In addition, while there is no provision under GST laws which mandates that ITC will be available only when place of supply is in the State of registered recipient, the authorities are expected to dispute credit eligibility in such cases.

In the light of above, taxpayers should consider filing representation for exempting such service to avoid disputes in future.