2018 (7) TMI 53 – AUTHORITY FOR ADVANCE RULING – MAHARASHTRA – 2018 (14) G. S. T. L. 396 (A. A. R. – GST) – Levy of IGST – High Seas Sale – Goods purchased from overseas related party situated abroad based on purchase order received from its customers and sold when in transit to its customers before the goods are entered for customs clearance in India – reversal of Input Tax Credit (ITC).
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Whether IGST will be leviable on such sale effected by the Applicant to customers who are known to them at the time of placing order on the overseas party? – Held that:- The applicant would be importing the goods and would be selling the goods on high seas sale basis to another buyer – It is very clear that supply of goods imported into the territory of India till they cross the customs frontier shall be treated as supply of goods in the course of inter-state trade or commerce – From the proposed transactions placed by the applicant before us there is not an iota of doubt that the goods of the
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f act, 1975.
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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? – Held that:- 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 services would be required to be reversed by the applicant as per Section 17 of the CGST Act.
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Ruling:- No IGST will be leviable on such sale effected by the Applicant to customers who are known to them at the time of placing order on the overseas party
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The input tax credit to the extent of inputs, input services and common input services would be required to be reversed by the applicant as per Section 17 of the CGST
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lated party situated abroad based on purchase order received from its customers. While the goods are in transit, the goods will be sold by the Applicant to its customers before the goods are entered for customs clearance in India. Whether IGST will be leviable on such sale effected by the Applicant to customers who are known to them at the time of placing order on the overseas party? 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? At the outset, we would like to make it clear that the provisons of both the CGST Act and the MGST Act are 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 MGS
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Applicant is registered as per the provisons of the GST Laws. 4. The Applicant seeks the Ruling of the Advance Ruling Authority on the following transaction a) The Applicant is engaged in the trading of chemicals and allied products ('Products'): b) In connection with the said activity, the Applicant will be buying the Products from an overseas supplier who will be the Applicant's related party. The said transactions will be at arm's length pricing. c) The Applicant will be buying the Products from such overseas party against purchase orders received from the Applicant's customers in India. In other words, it will be a back to back purchase order. d) 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. 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
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etter understanding) 5. In trade parlance, the transaction as proposed above, is commonly referred to as a 'High sea sale transaction' 6. The proposed transaction consists of (a) sale of goods by the oversea related party to the Applicant (First sale); and (b) sale of the same goods by the Applicant to its customers for whom the goods were bought by the Applicant its related party Second sale). The customers of the Applicant will be known to them at the time of placing order on the foreign supplier itself. 7. In terms of the proviso to Section 5(1) of the Integrated Goods and Services Tax Act, 2017 ( IGST Act ) on imported Goods IGST Would be levied at the point when duty of Customs 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 sec
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ot;applicant" for the purpose to presenting an application before the Advance Ruling Authority under the GST regime copy of GST Registration certificate for the state of Maharashtra is enclosed as Exhibit-B A.3 Further, Section 97(2) of the CGST Act specify the issues for which, an advance ruling can be sought. Section 97(2) of the CGST Act reads as under: – 97. (1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought. (2) The question on which the advance ruling is sought under this Act, shall be in respect of,- (a) 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) determinati
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T 1017/CR 193/Taxation dated 24.10.2017 read with Section 99 of Maharashtra Goods and Service Tax Act, 2017. C. APPLICANT'S INTERPRETATION THE SALE OF GOODS MADE BY THE APPLICANT TO THE END CUSTOMER BEFORE THE GOODS CROSSING THE CUSTOMS FRONTIER OF INDIA ON THE BASIS OF A BACK TO BACK PURCHASE ORDER WILL NOT QUALIFY AS A SUPPLY SUBJECT TO LEVY OF IGST C.1 It is submitted that the sale or goods made prior to the customs clearance of the goods cannot qualify as a supply subject to a levy of IGST under the IGST Act. C.2 The relevant provisons under the IGST Act are being reproduced herein as under- 5. 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
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a supply of goods in the course of inter-State trade or commerce. C.3 As per Section 5 of the IGST Act read with Section 7, inter-state supply of goods will be subject to a levy of IGST Supply of goods imported into India will also qualify as an Inter-state supply of goods subject to a levy of IGST. However, in respect of the imported goods, the levy would be in accordance with proviso to Section 5(1) of the IGST Act. C.4 In other words, where goods are imported into India, IGST will be levied at the point of levy of duty of customs in accordance with the provisons of the Customs Act, 1962 and the IGST will be levied under Section 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 happ
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oard. 'High Sea Sales' is a common trade practice whereby the original importer sells the goods to a third person before the goods are entered for customs clearance. After the High sea sale of the goods, the Customs declarations i.e. Bill of Entry etc is filed by the person who buys the goods from the original importer during the said sale. In the past, CBEC has issued various instructions regarding high sea sales appropriating the contract price paid by the last high sea sales buyer into the Customs valuation [Circular No. 32/2004-Cus., dated 11-5-2004 refers]. 3. As mentioned earlier, all inter-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 Int
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last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction. In case of a doubt regarding the truth or accuracy of the declared value, the department may reject the declared transaction value and determination the price of the imported goods as provided in the Customs Valuation rules. 6. Field formations are requested to decide the cases of high sea sales of imported goods accordingly. 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 wi
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not have to be reversed_ D.2 Relevant provisons under the Central Goods and Services Tax Act, 2017 ( CGST Act') is reproduced herein as under – 17. Apportionment of credit and blocked credits. (1) ……. (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly 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; D3. Section 17 of the CGST, Act states
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Since the said supply is not an exempt supply, it is submitted that input tax credit in respect of the inputs, input services and common input services used in connection with the proposed transaction is not required to be reversed. Applicants understanding E.1 As explained in the above para C, the proposed transaction of sale which will be undertaken by the Applicant will qualify as a high sea sale and will not be subject to levy of IGST. IGST will be leviable on the said goods only at the point of import into India. E.2 As explained 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 inte
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rities for custom clearance purpose for the first time is exigible to levy of IGST tax. Question 2 : – A:- Relevant provisons under the Central Goods and Services Tax Act, 2017 ( CGST Act) is reproduced herein as under – 17. Apportionment of credit and blocked credits. (1) ……. (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly 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
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-619), Large Tax Payers Unit -Il, Mumbai was present on both the occasions and has made written submissions in the matter. 05. OBSERVATIONS We have gone through the facts of the case. The issue put before us is thus – The applicant will be buying products from an overseas supplier who will be the applicant 'srelated party, The said transactions will be at arm 's length pricing. The applicant will be buying the Products from such overseas party against purchase ordersreceived 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
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re entered for customs clearance in India. Whether IGST will be leviable on such sale effected by the Applicant to customers who are known to them at the time of placing order on the overseas party? To proceed, we would see certain clauses from the draft High Sea Sales Agreement as furnished by the applicant – Whereas the seller has placed an order to buy certain goods from M/s. BASF Malaysia hereinafter called the foreran supplier, hereby agrees to sell 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) Insu
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al sales tax will be charged under the provison of Central Sales Tax Act and rules thereof However, in the event of any amendments, modifications, notifications to the contrary the liability If any shall be borne by the buyer. 8. Consideration In consideration of this sale, the buyer shall pay to the seller (as per payment terms enumerated above in clause) as detailed below: Sl No. Particulars Amount 1. Cost of Material 2. 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 o
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ling the goods on high seas sale basis to another buyer. In view of this we would be required to refer to the provisons of IGST Act, 2017. First of all to confirm the nature of supply of present goods i.e. whether inter-state or intra-state we are required to refer to Chapter IV of the IGST ACT, 2017, which reads as under:- CHAPTER 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 lo
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applicant before us there is not an iota of doubt that the goods of the applicant are imported goods and when the applicant is selling these goods on high seas sale basis, these goods have not crossed the customs frontiers of India, Thus clearly the transaction in these goods are in the nature of inter-state supply as per 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
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the recipient of such goods or services or both 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. (4) The integrated tax in respect of the supply of taxable goods or services or both by a supplier, 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 re
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Act, 1962 Thus from the above it is clear that integrated tax on goods imported into India is to be levied and collected in accordance with Section 3 of the Customs Tariff Act, 1975 and Section 12 of the Customs Act, 1962 and the same is to be levied and collected at the time of import into India. The goods are considered 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 t
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Goods and Services Tax (CGST) Act, 2017, "non-taxable supply" means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act" Thus it is very clear that the goods which are sold on high seas sale basis are non-taxable supply as no tax is leviable on them 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
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ers. While the goods are in transit, the goods will be sold by the Applicant to its customers before the goods are entered for customs clearance in India. Whether IGST will be leviable on such sale effected by the Applicant to customers who are known to them at the time of placing order on the overseas party? A.1 Answered in the negative. Q. 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? A. 2 Answered in the affirmative. An appeal against this order will lie with the Appellate Authority, Advance Ruling Maharashtra, 15th floor, Air India Building, Madame Cama Road, Churchgate, Mumbai- 400020, as provided under Section 100 of the GST Act, 2017 The appeal should be filed in Form GST ARA-02 accompanied by a fee of ₹ 10,000/- pertaining to
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