In Re : BASF India Limited
GST
2018 (7) TMI 53 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (14) G. S. T. L. 396 (A. A. R. – GST)
AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – AAR
Dated:- 21-5-2018
GST-ARA- 27/2017-18/B-36
GST
B.V. Borhade Joint Commissioner of State Tax and Pankaj Kumar Joint Commissioner of Central Tax
PROCEEDINGS
(under clause (xviii) of section 20 of the Integrated Goods and Services Tax Act, 2017 read with section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods with section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
The present application has been filed under clause (xviii) of section 20 of the Integrated Goods and Services Tax Act, 2017 [hereinafter referred to as “the IGST Act” ] read with section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act 2017 [hereinafter referred to as “
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the same except for certain provisons. Therefore, unless a mention is specifically made to such dissimilar provisons, a reference to the CGST Act would also mean a reference to the same provison under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provison under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
“STATEMENT OF RELEVANT FACTS HAVING A BEARING ON THE OUESTION(S) ON WHICH ADVANCE RULING IS REQURED.
1. BASF India Limited (hereinafter referred to as 'Applicant) having its corporate head office at, 3rd Floor, Shree Sawan Knowledge Park, Plot No D 507, MIDC, Turbhe, Navi Mumbai, India-400 705, is a subsidiary of BASF Germany and is engaged in the business of manufacturing and trading of, inter alia, chemicals and allied products.
2. The Applicant was regi
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s. The export documents such as the Bill of Lading will show the Applicant as the buyer of the goods.
e) Before the goods cross the customs frontier of India and is entered for customs clearance, the goods in question will be sold by the Applicant to its customer who are known to them;
f) The sale will be effected by executing an agreement of sale (known as high sea sale agreement) and by endorsing the bill of lading in the name of the end customer Sale invoice indicating the price at which goods are sold by the Applicant to the end customer will also be issued;
g) Therefore, the sale of goods will be by the Applicant to their customers who were identified at the time of placing order on the overseas related party.
h) The Import General Manifest ('IGM') will be filed in the name of the end customer (final buyer) by the shipping line.
i) Thereafter, the Bill of Entry will be tiled by the end customer who will discharge the applicable duties of custom
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oms becomes payable in terms of Section 12 of the Customs Act and the said IGST would be levied in terms of Section 3(7) of the Customs Tariff Act, 1975 (Customs Tariff Act)
8. However, the sale transaction by the Applicant to the customer also qualifies as an inter-state supply of goods in terms of section 7 of the IGST Act. Therefore, as as this sale is concerned, a question is arising as to whether the said sale of goods will amount to a supply subject to levy of IGST under the IGST Act, when the same goods will once again be subject to a levy of IGST under Section 3(7) of the Customs Tariff Act at the time of importation into India
STATMENT CONTAINING APPLICANT'S INTERPRETATION OF LAW AND/OR FACTS, AS THE CASE MAY BE IN RESPECT OF QUESTION(S) ON WHICH ADVANCE RULING IS REQUIRED.
A. APPLICANT'S ELIGIBILITY TO FILE PRESENT ADVANCE RULING APPLICATION.
A.1 Sub-section (c) of Section 95 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST A
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) classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act;
(c) determination of time and value of supply of goods or services or both;
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services or both;
(f) whether applicant is required to be registered;
(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.”
…Emphasis Supplied
Thus, as per the said section, advance ruling may be sought by the Applicant on the questions concerning determination of the liability to pay tax on goods or services or both and on the eligibility to avail input tax credit. The Applicant submits that the questions for determination in the instant advance ruling application concern (a) admissibilit
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visions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975.) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962. (52 of 1962.)
7. Inter-State supply. – (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier a
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ion 3(7) of the Customs Tariff Act.
C.5 In the instant scenario, the imported goods will be sold by the Applicant to its end-customer before the goods are entered for customs clearance. This leg of the transaction will also qualify as an inter-state supply in terms of Section 7 of the IGST Act. Therefore, the essential question is whether this sale of goods happening before the goods are entered for customs clearance will be subject to a levy of IGST in terms of the provisons of the IGST Act.
C.6 It is submitted by the Applicant that from a combined reading of Section 5(1) and the proviso to Section 5(1) of the IGST Act, it is evident that IGST on imported goods will be leviable only at the time of importation and at the point when duty of customs under Customs Act is leviable. Therefore, it is submitted that levying IGST once again on sale transactions which have happened prior to the importation of the same goods, does not arise.
C. 7 This view of the Applicant has als
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er-state transactions are subject to IGST. High sea sales of imported goods are akin to inter-state transactions. Owing to this, it was presented to the Board as to whether the high sea sales of imported goods would be chargeable to IGST twice i.e. at the time of Customs clearance under sub-section (7) of section 3 of Customs Tariff Act, 1975 and also separately under Section 5 of The Integrated Goods and Services Tax Act, 2017.
4. GST council has deliberated the levy of Integrated Goods and Services Tax on high sea sales in the case of imported goods. The council has decided that IGST on high sea sale (s) transactions of imported goods, whether one or multiple, shall be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, value addition accruing in each such high sea sale shall form part of the value on which IGST is collected at the time of clear
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Difficulties, in the implementation of this circular may be brought to the knowledge of the Board.
….Emphasis Supplied
C.8 Thus, the above circular also affirms the view that high sea sale of goods in the course of import into India will not qualify as a supply subject to a levy of IGST Only at the time of importation, at the point where the goods are entered for customs clearance will IGST be levied. Therefore, the question of levying IGST on high sea sale of goods before they are entered for customs clearance does not arise, In other words, IGST will be leviable only at the point of importation of goods into India and therefore only once.
C.9 In view of the above, it is submitted that no IGST will be leviable on the sale of goods made by the Applicant to its end customer. IGST will be payable only at the time of import and the same will be discharged by the customer at the point when duties of customs will be levied.
D. INPUT TAX CREDIT OF THE INPUTS INPUT SERVICE
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id taxable supplies including zero-rated supplies.
Section 2(47) of the CGST Act, defines the term “exempt supply” as under:
“2(47) exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”
D3. Section 17 of the CGST, Act states that credit shall be restricted only to so much of input tax as is attributable to taxable supplies including zero-rates supplies. In other words, input tax credit as is attributable to exempt supplies will have to be reversed.
D.4 As per Section 2(47) of the CGST Act, an exempt supply is that –
(i) which attracts nil rate of tax; or
(ii) which may be wholly exempt from under Section 11; or
(iii) wholly exempt from Tax under Section 6 of the IGST Act; or
(iv) a non -taxable supply
D.5 In terms of Section 2(79) of the CGST Act, a 'non-taxable suppl
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lained in the above para D, the said supply will not qualify as an exempt supply falling within the purview of the provisons of the IGST Act/CGST Act and thus, ITC reversal will not be required under the provisons of the same.”
03. CONTENTION – AS PER THE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
“Question – 1
As Per Proviso to Section 5 of IGST Act regarding levy and collection of-tax which reads as
“Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975.) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962. (52 of 1962.)”.
The same issue was deliberated by GST council vide circular no.33/2017-cus vide Para-4 which reads as
“The council has decided that IGST on high sea sale (s) transactions of impo
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rtly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
Section 2(47) of the CGST Act, defines the term “exempt supply” as under:
*2(47) exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;”
If the above transaction is not subjected to the levy of [GST then the same will be treated as an exempt supply for the purpose of Section 17 of the CGST Act and input tax credit will have to be reversed, to the extent of inputs, Input services and common input services used by the Applicant.”
04. HEARING
The case was taken up for preliminary hearing on dt.27.03.2018 with respect to admission or rejection of the application when Sh. R. Nambirajan (Advo
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d from the applicant's customers in India. It will be a back to back purchase order.
* As against the purchase order, the overseas party will export the products. The export documents such as the Bill of Lading will show the applicant as the buyer of the goods.
* Before the goods cross the customs frontier of India and is entered for customs clearance, the goods in question will be sold by the applicant to its customer who are known to them.
* The sale will be effected by executing a high sea sale agreement and by endorsing the bill of lading in the name of the end customer Sale invoice indicating the price at which goods are sold by the Applicant to the end customer will also be issued;
* The sale of goods will be by the applicant to their customers who were identified at the time of placing order on the overseas related party,
* The Import General Manifest will be filed in the name of the end customer (final buyer) by the shipping line
* The Bill of Entry will be fil
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ll the said goods to M/s. XYZ Lid. on high sea sales.
Details
2. Payment
The buyer agrees to make payment for the goods by the seller on High Sea through advance cheque.
3. Delivery
The seller will transfer the rights Title of the goods to the buyer by endorsing the Bill of Lading in favour the buyer after realization of the cheque.
4. Freight & Insurance
a) Freight
Considering the fact, that current shipment is on Ex-works terms, the seller shall be responsible for the payment of insurance with respect to this High Sea Sales.
b) Insurance
Considering the fact. that current shipment is on Ex-works terms, the seller shall be responsible for the payment of freight other related expenses with respect to this high sea sales.
5. Customs Clearance
In view of disposal of goods on high sea sales basis and transfer of title by the seller in favour of the buyer, the buyer shall arrange clearance of goods from Customs at its sole risk and responsibilities. The buyer shall be responsib
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Freight
3.
Insurance
4.
Consideration
This amount shall present the entire amount payable by the buyer to the seller and shall include all cost of the seller.
The Bill of Lading and draft invoices raised in the transactions have details thus –
* Bill of Lading
Consignor – BASF (Malaysia), Sdn. Bhd.
Consignee (not negotiable unless consigned to order) – BASF India Limited, Navi Mumbai, Maharashtra
Notify address (Carrier not responsible for failure to notify, see clause 20(1 ) hereof): XYZ Ltd.
Port of lading – Hamburg
Port of Discharge – Nhava Sheva
One original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier in exchange for the Good or delivery order in accepting this Bill of Lading the Merchant expressly accepts and agrees to all its terms and conditions whether printed, stamped or written, or otherwise Incorporated notwithstanding the non-signing of this Bill of Lading by the Merchant.
* Draft bill rai
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IV DETERMINATION OF NATURE OF SUPPLY
Inter-State supply
7. (1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of goods in the course of inter-State trade or commerce.
(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.
Intra-State supply.
8. (1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply:
Provided that the following supply of goods shall not be treated as intra-State supply, namely:
(i) supply of goods to or by a Special Economic Zone developer or a Special Economic
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r Section 7(2) of the IGST Act
Now when we are clear that the sale on high seas of these goods are in the nature of inter-state sales, the liability to tax in respect of these goods would be as per Section 5 of the IGST Act which reads as under:-
CHAPTER III LEVY AND COLLECTION OF TAX
Levy and collection.
5. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of
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upplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an ele
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onsidered to be imported into India only after they clear the customs frontier after compliance of applicable procedures and payment of duty as applicable.
Thus as per Section 7(2) of the IGST Act and proviso to Section 5(1) of the IGST Act it is very clear that in respect of import goods there is no levy and collection except in accordance with the provisons of Section 12 of the Customs Act, 1962 and Section 3 of the Customs Tariff Act, 1975. Section 12 of the Customs Act, 1962 provides that custom duties which includes integrated tax in respect of imported goods would be levied only at the time of import or export of goods.
Thus in case of goods sold on high seas sale basis there is no levy till the time of their customs clearance in compliance with Section 12 of the Customs Act and Section 3 of the Customs Tariff Act. In view of this the import goods sold on high seas sale basis, though they are clearly in the nature of inter-state supply would come in the category of “exempt supp
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till the time of customs clearance in accordance with and compliance of Section 12 of the Customs Act, 1962 and Section 3 of the Customs Tariff act, 1975.
We find that the above legal position is further reiterated and confirmed by Circular No. 3/1/2018 – IGST dated 25.05.2018 issued by the Central Board of Indirect Taxes and Customs, GST Policy Wing.
Question 2
Whether input tax credit will have to be reversed, to the extent of inputs, input services and common input services used by the Applicant, in case the above transaction is not subjected to the levy of IGST by treating the same as an exempt supply for the purpose of Section 17 of the CGST Act?
Yes. In view of the detailed discussions and observations in respect of Question I above, the goods sold on High Seas sale basis being non-taxable supply as per Section 2(78) of the CGST Act and being exempt supply as per Section 2(47) of the CGST Act, the input tax credit to the extent of inputs, input services and common input servi
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