TREATMENT OF SUPPLY OF IMPORTED GOODS TO THE CUSTOMERS ON HIGH SEA SALES BASIS UNDER GST ACT

[Mr. M. GOVINDARAJAN]

In re ‘Coperian Ideal Private Limited’ – 2022 (12) TMI 496 - APPELLATE AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH, the appellant is engaged in designing, engineering, fabrication and supply of Pneumatic Conveying System (‘PCS’ for short) and its parts for transportation of material through pipes from one location to another using gas pressure for moving the goods. The appellant imported components from outside India and supplied the same to the customers in India on High Sales basis in transit before crossing the customs frontiers of India. The said supply is carried out by transferring the title in goods to the customers in India while the goods in High Seas. The customs will clear the said goods on the arrival of the goods at the customs frontiers in India, on payment of customs duty including integrated tax. The appellants will raise invoices on customers towards supply of domestic components as well as for imported goods sold on High Sea Sales.

The appellant filed an application before the Authority for Advance Ruling on 27.10.2021 as to whether supply of components of pneumatic conveying system by the appellant to its customers on High Sea Sales basis will be treated neither as supply of goods nor as supply of service by virtue of Entry No. 8 to the Schedule III of the Central Goods and Services Tax Act, 2017 (‘Act’ for short).

The Authority for Advance Ruling held that the question for which advance ruling was sought does not fall within the purview of Section 97(2) of the Act since the taxability of goods on High Sea Sales is determined on the basis of ‘place of supply’ which does not come under the purview of the Act but under the Customs Act, 1961.

Against the order of Authority for Advance Ruling the appellant filed the present appeal before the Appellate Authority for Advance Ruling. The appellant submitted the following before the Appellate Authority for Advance Ruling-

• The question for which advance ruling sought by the appellant is within the purview of Section 97(2) of the Act and therefore the Authority for Advance Ruling has jurisdiction to decide the ruling.
• The appellant never sought ruling for determination of place of supply of High Sea Sales transactions. The appellant sought clarification as to whether the High Sea Sales transactions would continue to be treated as neither as supply of goods nor supply of services in terms of Entry 8 to Schedule III of the Act.
• The Authority for Advance Ruling declined to pass a ruling on the premise that the issue of taxability of High Sea Sales transactions relates to import of goods which involves determination of place of supply.
• The Authority for Advance Ruling completely misconstrued itself in holding that the issue under consideration falls under the Customs domain and hence outside the purview of Section 97(2) of the Act.
• The question for which advance ruling was sought squarely covered by Section 97(2) (e) and (g) of the Act and the Authority for Advance Ruling materially erred in declining that the question is out of the purview of Section 97(2) of the Act.
• It was a settled position of law that no sales tax was payable on the sales effected on High Sea Sales.
• The activity of sale of PCS components on High Sea Sales is nothing but supply of goods by the appellant to its buyers, by endorsement of document titles when the goods are in transit and is squarely covered by Entry 8(b) of Schedule III according which such supply shall neither be treated as a supply of goods nor a supply of services.

The appellant relied on an advance ruling given by Authority for Advance Ruling, Telangana in re ‘AIE Fiber Resource and Trading (India) Private Limited’ – 2021 (12) TMI 1265, in which the Authority for Advance Ruling held that the imported goods supplied on High Sea Sales are squarely covered under Entry 8(b) to Schedule III of the Act and hence no IGST is payable on such transactions by the applicant.

The appellant also relied on the circular No. 33/2017, dated 01.08.2017, issued by the Central Board of Indirect Taxes, which clarifies that the transit before crossing the Customs frontiers of India and before their clearance for house consumption would not be considered as either supply of goods or supply of services as per Entry 8(b) of Schedule III to the Act and outside the purview of GST.

The Appellate Authority for Advance Ruling considered the submissions made by the appellant. The Appellate Authority for Advance Ruling observed that the expression ‘High Sea Sales’ has not been defined in the Act. It further analyzed the provisions of Entry 8 of Schedule III to the Act. The Appellate Authority for Advance Ruling interpreted that High Sea Sales is a sale through endorsement of title to the goods after the goods have dispatched from the port of origin located outside India before crossing Customs frontiers of India and before their clearance for home consumption. The original importer merely transfers the title and ownership of the goods to the buyer of the original importer and subsequently clears the goods through customs by paying applicable import duties and taxes.

The Appellate Authority for Advance Ruling analyzed the provisions of Section 97(2) of the Act. The Appellate Authority for Advance Ruling held that the Authority for Advance Ruling has erred in denying the ruling sought by the appellant on the ground that the import as well as High Sea Sales is determined on the basis of place of supply which is not covered under Section 97(2) of the Act at all and outside the purview of the Authority for Advance Ruling.

The Appellate Authority for Advance Ruling next considered deciding the question as to whether supply of components PCS by the appellant to its customers on High Sea Sales basis will be treated neither as supply of goods nor supply of services by virtue of Entry 8 of Schedule III to the Act.

The Appellate Authority for Advance Ruling analyzed the tender document and the contract executed by the appellant with the customer. The Appellate Authority for Advance Ruling observed that a number of activities are undertaken by the appellant which involve supply of goods as well as supply of services, including post import and after sale services including optional services which are integral part of the supply. From a plain reading of Entry 8(b) to Schedule III it is clear that only supply of goods by the consignee by way of endorsement of documents of title to the goods during their sale on high sea sales basis for delivery in India is covered there and the services are not covered.

The Appellate Authority for Advance Ruling ruled that supply of imported goods i.e., components needed for Pneumatic Conveying System made by the appellant to its customers on High Sea Sales basis will not be treated as supply of goods by virtue of Entry 8(b) of Schedule III to the Act. However the supply of service, if any, will fall under the purview of supply as defined under Section 7 of the Act.