TMI Blog2018 (12) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... s frontiers of India. The 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 - there is no doubt that the goods of the applicant would be imported goods if they are brought from outside the country into India and it is clear that when the said goods are delivered/supplied from a place outside India to a place outside India, 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. The subject transaction in question is 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 - the 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 pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling, a reference to such a similar provision 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 THE RELEVANT FACTS HAVING A BEARING ON THE QUESTIONS AS PROVIDED IN ANNEXURE 1 Brief Background of the Transaction: Jotun Group is a leading supplier of paints and powder coatings. The affiliates of the group has worldwide presence. The Applicant i.e. Jotun India Private Limited, being one of the Group entities, is a supplier, exporter and manufacturer of paints and powder coatings. The Applicant supplies paints and coatings that are specially designed for unique conditions to the various customers. Broadly, the paints supplied by the applicant can be categorized in Solvent based paints and Water based paints. One of the major supplies by Applicant are marine paints. Composition of such marine paint being manufactured by Applicant makes it suitable for ships during building stage and even during maintenance. Thus the applicant is involved in supplying the said goods for the vessel at the time of ship bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST provisions to understand possibility of levying IGST A1. In order to deliberate on the question being sought, it is pertinent to analyse applicability of provisions of IGST Act, 2017 in terms of nature of the transaction. A2. Section 7 of IGST Act, 2017, makes provision to treat the transactions as interstate supply . In this regard, the Applicant hereby wishes to submit following provision of IGST Act, 2017 which would be relevant in analysing the needful: Section 7(5) of IGST Act, 2017 which reads as under: (5) Supply of goods or services or both, - (a) when the supplier is located in India and the place of supply is outside India; (b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or (c) in the taxable territory, not being an intra-State Supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce. ...(Emphasis provided A3. Basis the above emphasis, supply of any goods or services where The supplier located in India and Place of such supply is outside India would be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a vessel, the place of supply of goods in such situation would be arrived in terms of section 10(1)(e). Accordingly place of supply in such case would be location at which goods are taken on board i.e. place outside India. A7. Consequently it appears that the above transaction would be considered as inter-state supply in terms of section 7(5)(a) where supplier is located in India and place of supply is outside India. A8. However, the Applicant intends to draw your kind attention to section 1(2) of IGST Act which determines the extent of applicability of IGST Act. As per the said section IGST Act extends to whole of India except State of Jammu and Kashmir. Further India has been defined in section 2(56) of CGST Act read with section 2(24) of IGST Act to mean the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters; A9 . Hence, Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council. Explanation .-For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce. (2) .. (3) .. (4) .. (5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. B3. On plain reading of the above provisions, it can be seen that, (a) Basis clause (5) of article 269-A, the Parliament may, by law, formulate the principles for determining the place of supply and when a supply of goods or of services or both takes place in the course of inter-state trade or commerce. The power given is to formulate principles to decide when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious manner considering the constitutional empowerment and extent of its applicability to determine levy. Merely because a transaction gets covered under section 7(5)(a) would not empower Central Government to levy and collect IGST on the said transaction, unless there is express provision to that extent and unless it is covered under territorial jurisdiction of IGST Act. C3. Applicant wishes to draw your kind attention to proviso to section 8 which states that following supply of goods shall not be treated as intra-State supply - (i) Supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit; (ii) Goods imported into territory of India till they cross the Customs frontiers of India; (iii) Supplies made to a tourist referred to in section 15 The above mentioned list has been excluded from ambit of intra-State supply so that administrative and jurisdictional powers would vest with Central Government and not State Government. C4. In view of above submission, Applicant contends that section 7(5)(a) should be read only to exclude such transactions from the purview of State Government and said section should not be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me should, at least, be treated as not liable to GST since the concept of exports could be deemed to be covering a case where the goods are consumed/ used outside India. D9. Under erstwhile Service Tax legislation, if the place of provision of service was outside India but other conditions of Export were not getting fulfilled then the export linked benefits were not made available to such services. However, at the same time, they would still not be liable to service tax. Accordingly, Applicant pleads that even if transaction in question may not be considered as Export of goods , the same should be considered as not liable to IGST even though any benefits of Zero rated supply may not be granted. E. Place of supply of Service specifically covers case where recipient is located outside India, unlike Place of supply of Goods E1. Applicant submits that Section 12 and Section 13 of IGST Act delineates place of supply of service in cases where location of both supplier and recipient is in India as well as cases where either of the party is located outside India. However in case of goods, place of supply is to be determined in terms of section 10 or 11 of IGST Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be liable to GST. However, in case of goods location of supplier and recipient is not relevant and levy would then get linked to location of goods. Thus, in case of transaction in question, since location of goods is outside India the levy should not arise in India in the absence of specific provision in this regard. F. Circular issued for High Sea Sales will be applicable to the transaction under consideration F1. Under Circular No 33/2017 - Customs dated August 01, 2017, a clarity was provided as regards tax implications on High Seas Sales. Based on the same, it was decided that levy of IGST on High Seas transactions of imported goods, shall be only at the time of importation i.e. when import declarations are filed before Customs authorities for clearance purposes. Accordingly, IGST liability arising on such transactions would be disposed of only once, by the ultimate importer who clears the goods for home consumption. Consequently first leg of High Seas Sales, where goods are supplied out of India, would be exempted from payment of IGST. F2. The relevant para of the circular is reproduced below: 4. GST Council has deliberated on the levy of Integ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions carried out by him in his GST returns i.e. GSTR-1 and GSTR-2 . Further, the supplier of goods and/ or services has to mention State code of place of supply for each invoice in the GSTR-1 while reporting the outward supply. G2. Without prejudice to the aforesaid, even if the transaction is made taxable in GST, the place of supply, in accordance with section or 10(1)(e) of IGST Act, 2017, is outside India. There is no mechanism in the GST returns to report the transaction in GSTR-1 mentioning the place of supply to be a place outside India while levying IGST on the same. G3. Accordingly, the collection mechanism of such IGST is unclear and consequently it is unclear as to whether only Central Government or both Central and State Government would receive this revenue. G4. In the absence of ambiguity around collection mechanism and revenue Sharing of Such GST, it appears that intention of legislatures was never to levy and collect IGST on such type of transaction. H. The transaction was not taxable under erstwhile indirect tax laws and hence, the same should not be liable to GST H1. GST has been introduced with a view to subsume majority of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable under erstwhile Indirect Tax laws, the GST should not be payable on the said transaction. The intention behind introduction of GST was to bring uniformity in tax laws keeping the taxability principles as is. Hence Applicant pleads that such transaction should also not be made liable to tax under GST regime. I. The said transaction is kept outside the purview of United Kingdom VAT Legislation I1. Value Added Tax (VAT) was introduced in the UK on April 1, 1973. Although Value Added Tax Act 1994 (VATA) provides the main framework of the tax, the detailed interpretation of the same are found in statutory instruments either in the form of orders made by Treasury or Regulations made by Her Majesty s Revenue and Customs (HNIRC). HMRC has published several Notices and Leaflets affecting law. Though these Notices are not part of the law but they clarify HMRCs interpretation of the law. I2. The Applicant would like to draw your attention to the VAT provisions laid in United Kingdom as regards out to out supplies. Following is the extract of such germane provisions: Section 4(1) of VATA: Scope of VAT on taxable supplies VAT shall be charged on any supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices or both to him unless, (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (b) he has received the goods or services or both. Explanation .-For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise (c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39: Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment: Provided further that where a recipient fails to pay to the suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions under consideration. 2. If at all the transaction is made taxable, the recipient should be eligible to avail the input tax credit. In addition to submissions made earlier, applicant also intends to submit the following: A. Recent rulings laid by the Hon ble Authority of Advance Ruling A.1. Under the recent ruling of the Hon ble Authority of Advance Ruling of Maharashtra in case of BASF India Limited = 2018 (7) TMI 53 - AUTHORITY FOR ADVANCE RULING - MAHARASHTRA (Annexure 1), it was observed 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 Customs Tariff Act, 1975. Further the authorities were of the view that the tax position on the said transaction was also confirmed under circular no 3/1/2018 - IGST dated 25.5.2018 issued by Central Board of indirect Taxes and Customs (Annexure 2). A.2. Under the said circular, a clarity was provided as regards to tax implication on clearance of warehouse goods for home consumption. Based on the same, it was clarified that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, entity of Jotun group located at Norway would be serving the said order by supplying paints to that ship thereafter raising an invoice on the applicant in this regard. Going by the principle of mutual agreement as said in the above paragraph it is not Clear why Jotun Norway is not raising the invoice. In Annexure-3 the applicant has quoted relevant provisions of law. He has said that IGST cannot be extended beyond the territorial jurisdiction of the said legislation. He has quoted Section 7(5) of IGST Act, 2017.Emphasis in this provision is given on supplier located in India and place of such supply is outside of India would be considered as interstate supply. The applicant has taken the reference of term Supplier . But if we go through the Section 20 of IGST Act, 2017 it doesn t covers definition of Supplier. The applicant has taken the reference of Section 10 of IGST Act, 2017. In the specific type of transaction mentioned in the application the applicant is challenging the jurisdiction of levy of IGST by taking reference of Section 2(56) of CGST Act, 2017 read with Section 2(24) IGST Act, 201% The applicant contends that the provisions of GST are travelling beyond it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipient will be eligible for ITC. Thus the answer for the question raised in advance ruling are as follows: a) IGST will be applicable on the peculiar nature of transaction mentioned in the application. b) ITC will be available to the recipient and recipient can be entitled to Input Tax Credit if you satisfy the below-mentioned conditions. 1) You must be registered as a taxable person under GST. 2) Goods services on which you want to claim ITC should have been used only for business purposes. 3) Input Tax Credit can be claimed on taxable zero-rated supplies (exports). 4) If the constitution of registered taxable person changes due to sale, merger or transfer of business, then unused ITC shall be transferred to the sold, merged or transferred business. 5) To claim ITC, you need supporting documents like tax invoice, debit note, supplementary invoice, etc. 6) You can claim Input Tax Credit if you have actually received some goods services. 7) To claim ITC the Input Tax must be paid through electronic cash ledger or electronic credit ledger. 8) It is mandatory to file all the applicable GST returns. 9) For goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to tax in India under section 7(5)(a) of IGST Act? b) If answer to (a) is yes, whether the recipient of the goods i.e. person liable to pay consideration, be eligible to avail the input tax credit of the said goods? In this connection among the various submissions made by the applicant, they have also contended that :- i. The levy of IGST on said transaction mentioned above would be ultra vires the IGST Act. ii. It is outside the jurisdictional powers of the GST law to determine the place of supply for goods when such goods are not located in India. iii. The provisions of section 7(5)(a) of the IGST Act, 2018, are ultra vires the Constitution of India law (reasons mentioned in their submissions). We do not feel the need to discuss the above aspects (i) to (iii) since the same is not within the purview and scope of Advance Ruling as per the provisions of the CGST Act, 2018 and the SGST Act, 2018. In view of the submissions made by the applicant we find that it is clear that the applicant would be purchasing goods from Jotun Norway on the bas1S of purchase orders received from their customer in India and the said goods would be delivered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 no doubt that the goods of the applicant would be imported goods if they are brought from outside the country into India and it is clear that when the said goods are delivered/supplied from a place outside India to a place outside India, 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 subject transaction in question is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are clearly in the nature of inter-state supply would come in the category of exempt supply as no duty is leviable on them except in accordance with proviso to Section 5(1) of the IGST Act. We find that in the definition of exempt supply as given in Section 2(47) of the CGST Act is as under:- Section 2(47) of the Central Goods and Services Tax (CGST) Act, 2017, 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 . Further we find that Section 2(78) of the CGST Act defines non-taxable supply which is as under:- As per Section 2(78) of the Central 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 sold in the subject transaction 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, ..... 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