Gujarat AAR in the case of M/s. Sterlite Technologies Ltd

Case Covered:

M/s. Sterlite Technologies Ltd pronounced by the Gujrat Authority of the advanced ruling.

In this case, the Merchant trade transaction is pronounced to be taxable in India. It means the purchase of Goods from Indian and selling them outside India without entering into the territory of India.

Schedule III of the CGST Act lists it as a No supply. But the AAR is related to a period before this amendment inserted into Schedule III. M/s. Sterlite Technologies Ltd AAR is controversial as it is a set principle that MTT are not taxable in India.

Facts of the case: M/s. Sterlite Technologies Ltd Gujrat AAR

M/s Sterlite Technologies Limited, a company Block 6, Magnet Corporate Park, Nr. Sola Flyover, Thaltej, Ahmedabad (hereinafter called the applicant) is a registered person under GST having GST Number -24AAECS8719B1ZI.

They are engaged in the development and supply of software with respect to the telecommunication qua wi-fi service management platform. OSS/BSS alongside packet core with the flexibility of modular and pre-integrated offerings etc. and trading in hardware.

They procure requisite hardware from the vendor located within India or outside India) on payment of applicable duties/taxes. Such hardware is sold as per the requirement of the customer on payment of GST, except in case of export. 

The applicant proposed to undertake transaction and supply of hardware, commercially known as ‘Merchant Trade Transaction’, wherein the applicant will receive an order from the customer located outside India, and as per their instruction, Vendor would directly ship the goods to a customer located outside India.

The vendor would issue an invoice on applicant against which payment would be made in foreign currency and the applicant would raise invoice on customer and would receive consideration in foreign currency.

In the above transaction, goods would not physically come into India but would move from place outside India to another place outside India. 

The applicant has in their application dated 24.5.2018 raised the following issues for determination before the Authority:

i) Whether GST is payable on goods procured from a vendor located outside India in a context where the goods so purchased are not brought into India?

ii) Whether GST is payable on goods sold to customers located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises?

Observations:

14.4 The term ‘export of goods’ has been defined under sub section 5 of Section 2 of IGST Act, 2017 which reads as under: Export of goods would mean—‘With its grammatical variations and cognate expressions, means taking goods out of India to a place outside India’.

The above definition indicates that the act of taking goods out of India to a place outside India qualifies as export. In the instant case, the goods have not crossed the Indian customs frontier and as such it is clear that the goods are not physically available in the Indian territory.

When the goods are not available in the Indian territory, the question of taking goods out of India does not arise. Thus, the subject transaction does not qualify as export of goods.

14.5 In view of the above, it appears that the transaction is covered under the ambit of Inter-state supply and is neither exempted nor covered under the export of services. Thus, the theory of elimination takes us to the conclusion that such supplies will be subject to the levy of IGST.

Ruling:

i) GST is not payable on goods procured from a vendor located outside India, where the goods so purchased are not brought into India?

ii) Applicable GST is payable on goods sold to a customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises.

Read & Download the full Decision in pdf: M/s. Sterlite Technologies Ltd