2025 (6) TMI 1234 - AAR - GST

Requirement to obtain a registration in the state of Tamilnadu under the CGST Act which squarely gets covered under Section 97 (2) (f) of the CGST Act 2017 - applicant is engaged in trading of pharmaceutical rubber stopper products and importing such goods through a Free Trade Warehousing Zone (FTWZ) unit located in Tamil Nadu - HELD THAT - As per the nature of services being provided to the applicant by M/s. DHL Logistics Private Limited a logistics service provider (LSP) which is a unit of FTWZ it is clear that the basic activity of a FTWZ unit is warehousing of the goods belonging to its client. Further the definition of FTWZ as per Section 2(n) of the Special Economic Zones Act 2005 carries the phrase wherein mainly trading and warehousing and other activities related thereto are carried on. confirms the fact that warehousing is one of the most important activity undertaken by an unit in FTWZ. Special Economic Zones are deemed to be considered as ports airports inland container depots land stations outside the Customs territory of India under Section 7 of the Customs Act 1962 which deals with the appointment of ports airports etc. Hence it is a deemed territory outside the Customs territory of India. A combined reading of the above provisions shows that Free Trade Warehousing Zone (FTWZ) is part of SEZ scheme and it is a Customs bonded warehouse. Warehousing of goods that are imported without payment of appropriate Customs duties are carried out in these zones. SEZ is a specifically delineated duty free enclave which is deemed to be a foreign territory for the purposes of trade operations and duties and tariffs. Normally the applicant imports goods and stores them in FTWZ till he finds a local customer who will purchase the goods and such purchaser clears the goods under the provisions of the Customs Act. In other words the goods would become exigible to tax under the domestic enactments only when they are cleared and supplied to DTA from FTWZ for home consumption. Even before the amendment to Schedule III of the CGST Act 2017 the legal position was that the supply of goods before their clearance from the warehouse would not be subject to the levy of Customs duty or integrated tax and that the same would be levied and collected only when the warehoused goods are cleared for home consumption from the customs bonded warehouse. Accordingly once it is clear that the activity of the applicant involved in the instant case i.e. sale of goods lying in the FTWZ warehouse before clearance for home consumption are not be treated as Supply the question of payment of Customs duty and IGST on the said transaction does not arise at all - the legal position even before the insertion of clause (a) of Para 8 of the Schedule III to the CGST Act 2017 in the year 2018 was that the supply of goods before their clearance from the warehouse would not be subject to the levy of Customs duty or integrated tax and that the same would be levied and collected only when the warehoused goods are cleared for home consumption from the warehouse. The GST registration reported to have been obtained by the applicant in the state of Telengana would be sufficient enough to take care of tax compliances if any that may arise due to clearance of imported goods into DTA suo-moto by the applicant. Other than the said activity since no liability to pay IGST by the applicant arises while making sale of goods lying in the FTWZ warehouse to any customer (before clearance for home consumption) the requirement of a registration under Section 22 of the CGST Act 2017 for this purpose in the state of Tamilnadu where the port of clearance is located does not arise. Conclusion - The applicant is not required to obtain a separate registration under GST in the state of Tamil Nadu as per Section 22 of the CGST Act for the operations undertaken from the FTWZ unit at Chennai Tamilnadu.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Authority for Advance Ruling (AAR) was whether the applicant, engaged in trading of pharmaceutical rubber stopper products and importing such goods through a Free Trade Warehousing Zone (FTWZ) unit located in Tamil Nadu, is required to obtain GST registration in Tamil Nadu under Section 22 of the Central Goods and Services Tax (CGST) Act, 2017 for the operations undertaken from the FTWZ unit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Whether the applicant's trading activities through the FTWZ unit in Tamil Nadu constitute a taxable supply requiring GST registration under Section 22 of the CGST Act, 2017.

Relevant Legal Framework and Precedents:

The analysis involved several statutes including the CGST Act, 2017, Integrated Goods and Services Tax (IGST) Act, 2017, Customs Act, 1962, and Special Economic Zones (SEZ) Act, 2005. Key provisions examined included:

• Section 22 of the CGST Act, which mandates registration for persons making taxable supplies from a state.
• Section 23 of the CGST Act, which exempts persons engaged exclusively in non-taxable or wholly exempt supplies from registration.
• Schedule III of the CGST Act, particularly clause 8(a), which excludes supply of warehoused goods before clearance for home consumption from the definition of supply.
• Section 7(2) and Section 5 of the IGST Act, which treat import of goods as interstate supply and levy IGST on imports.
• Sections 2(n), 3(4), and 4(1) of the SEZ Act, defining FTWZ as a special category of SEZ focused on trading and warehousing activities.
• Section 26(1)(a) of the SEZ Act and Rule 27 of SEZ Rules, exempting FTWZ units from customs duty and IGST on imports.
• Section 46(1) of the Customs Act, requiring filing of Bill of Entry for warehousing when goods enter FTWZ.
• Section 53 of the SEZ Act, deeming SEZs as outside the customs territory of India and as ports or customs stations under the Customs Act.
• CBIC Circular No. 3/1/2018-IGST clarifying levy of IGST only on clearance of warehoused goods for home consumption.
• Finance Act, 2018 amendment to Schedule III of the CGST Act, inserting clause 8(a) to exclude supply of warehoused goods before clearance for home consumption from supply.
• Proposed retrospective amendment in Finance Bill, 2025 to clarify that supply of goods warehoused in SEZ or FTWZ before clearance for exports or Domestic Tariff Area (DTA) is neither supply of goods nor services.

Court's Interpretation and Reasoning:

The Authority observed that FTWZ units are a special category of SEZs and are considered customs bonded warehouses located outside the customs territory of India. Goods imported into FTWZ are not cleared for home consumption and thus exempt from customs duty and IGST at the time of import. The applicant's activities involved importing goods into the FTWZ, warehousing them, and subsequently selling them to customers in India. The sale invoice is raised from Telangana, with goods shipped from the FTWZ in Tamil Nadu. The customers clear the goods from FTWZ to DTA by filing a Bill of Entry for home consumption and paying applicable customs duties and IGST.

The Authority emphasized that the supply of warehoused goods before their clearance for home consumption is specifically excluded from the definition of supply under Schedule III of the CGST Act, clause 8(a). This exclusion was introduced retrospectively from July 1, 2017, by the Finance Act, 2018 and further clarified by the Finance Bill, 2025. The CBIC Circular No. 3/1/2018-IGST also confirmed that IGST is leviable only at the time of clearance of warehoused goods for home consumption, not at the time of transfer while goods remain in the warehouse.

The Authority further noted that the applicant does not have any physical presence or business establishment in Tamil Nadu beyond the FTWZ unit operated by a licensed service provider. The applicant's operations at FTWZ are supervised from Telangana, and the FTWZ service provider handles customs clearances, warehousing, packaging, and logistics under appropriate licenses. The applicant raises invoices from Telangana and does not clear goods into DTA themselves.

Given that the sale of goods lying in the FTWZ warehouse before clearance for home consumption is not a supply under GST law, the applicant's activity in Tamil Nadu does not amount to making taxable supplies from Tamil Nadu. Consequently, the applicant is not liable to obtain GST registration in Tamil Nadu under Section 22.

Key Evidence and Findings:

• Documents including Bill of Entry for warehousing (import into FTWZ), Bill of Entry for home consumption (clearance from FTWZ to DTA), commercial invoices from the applicant to customers, and logistics agreements with the FTWZ service provider were examined.
• The Bill of Entry for warehousing showed the applicant as importer for warehousing purposes, while the Bill of Entry for home consumption named the customer as importer for customs clearance and duty payment.
• The applicant's GST registration in Telangana was active and covered their taxable supplies.
• No presence or business establishment of the applicant in Tamil Nadu beyond the FTWZ unit was established.
• Reliance on multiple advance rulings from various states supporting the view that trading through FTWZ does not require separate GST registration in the FTWZ state.

Application of Law to Facts:

The Authority applied the legal provisions to the facts and held that since the sale of warehoused goods before clearance for home consumption is not a supply under GST law, the applicant's sales from the FTWZ do not attract GST liability in Tamil Nadu. The applicant's existing GST registration in Telangana suffices for compliance. The FTWZ unit is treated as a customs bonded warehouse outside the customs territory, and the goods only become taxable when cleared into DTA by the customer. Therefore, the applicant is not required to register separately in Tamil Nadu.

Treatment of Competing Arguments:

The Authority considered the applicant's interpretation of various statutes and circulars, and also noted the absence of any adverse remarks or pending proceedings from Central or State authorities. The applicant's reliance on prior rulings from other Advance Ruling Authorities was acknowledged. The Authority did not find any competing argument or evidence to the contrary that would require the applicant to obtain GST registration in Tamil Nadu.

Conclusions:

The Authority concluded that the applicant's operations through the FTWZ unit in Tamil Nadu do not constitute a taxable supply under GST law requiring registration in Tamil Nadu. The supply of warehoused goods before clearance for home consumption is not a supply under Schedule III of the CGST Act. Customs and IGST liabilities arise only upon clearance of goods into DTA by the customer. Hence, the applicant's existing GST registration in Telangana is sufficient, and no separate registration in Tamil Nadu is required.

3. SIGNIFICANT HOLDINGS

The Authority's ruling included the following crucial legal reasoning preserved verbatim:

"The supply of warehoused goods to any person before clearance for home consumption shall be neither a supply of goods nor a supply of services."

"Free Trade Warehousing Zone (FTWZ) is part of SEZ scheme and it is a Customs bonded warehouse. Warehousing of goods that are imported without payment of appropriate Customs duties are carried out in these zones."

"Goods would become exigible to tax under the domestic enactments only when they are cleared and supplied to Domestic Tariff Area from FTWZ for home consumption."

"The GST registration reported to have been obtained by the applicant in the state of Telangana would be sufficient enough to take care of tax compliances, if any, that may arise due to clearance of imported goods into DTA."

"The requirement of a registration under Section 22 of the CGST Act, 2017 for this purpose, in the state of Tamil Nadu where the port of clearance is located, does not arise."

"The said situation is ideally covered under the provisions of Section 23(1)(a) which exempts any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax."

Core principles established by this ruling include:

• The import of goods into FTWZ is treated as import into a customs bonded warehouse outside the customs territory of India, exempt from customs duty and IGST at import stage.
• Supply of warehoused goods before clearance for home consumption is not a supply under GST law and hence not taxable.
• GST registration is required only in the state where taxable supplies are made; no registration is required in the state where FTWZ unit is located if the goods are not cleared into DTA by the applicant.
• FTWZ units are treated as SEZs and customs bonded warehouses under the SEZ Act and Customs Act.
• Customs and IGST liabilities arise only upon clearance of goods from FTWZ to DTA by the customer, who is the importer on record.

Final determination on the issue was that the applicant is not required to obtain GST registration in Tamil Nadu for operations undertaken from the FTWZ unit.