Merchant Trade Transactions Exempted from GST: AAR [Read Order]

The Authority for Advance Ruling ( AAR ) has ruled that Merchant Trade Transaction are exempted from Goods and Services Tax ( GST ).

The Petitioner, M/s Synthite Industries Ltd, in the business of trading in spices and spice products. They have two modes of transactions. In the first kind, the applicant receives the order from a customer in the USA for the supply of spice products. They place a corresponding order to a supplier in China for supplying the goods ordered by the customer in the USA. The supplier in China, based on the request of the applicant, ship the goods directly to the customer in the USA. In other words, the goods do not come to India. The Chinese supplier issues invoice to the applicant, for which, payment will be made by the applicant in due course. Subsequently, the applicant will raise invoice on the customer in the USA, and collect the proceeds.

In the other mode of transaction, the applicant is availing storage facility in the form of a presidential warehouse in the Netherlands for storing their products and subsequent delivery to their customers in and around the Netherlands. The storage facility is open to all, and interested entities across the globe ‘can keep their products thereby paying applicable storage rent.

The applicant wants to buy materials from a company in China in bulk and store it in the presidential warehouse in the Netherlands for subsequent delivery. to various customers in and around the country as small and medium lots based

on demand. The material is not coming to India at any point. The Chinese supplier will invoice the applicant for which payment will be given in due course. Subsequently, the warehouse authorities will arrange split deliveries to their various overseas customers as per their instructions. The applicant would issue the invoice to the ultimate customers and collect the proceeds in foreign exchange.

The Authority has considered the following Questions;

1. Whether on procuring goods from China, in a context where the goods purchased are not brought into India, is GST payable by them?
2. On the sale of goods’ to the company in the USA, where goods sold are shipped directly from China to the USA without entering India, is GST payable by them?
3. On procuring goods from China not against the specific export order, in a context when the goods purchased are not brought into India, is GST payable by them?
4. On the sale of goods from Netherlands warehouse to their end customers in and around the Netherlands, without entering India, is GST payable by them?

While deciding the case, the bench comprising of Senthil Nathan 5, IRS, Joint Commissioner and N. Thulaseedharan Pillai, Joint Commissioner (General) observed that The goods are liable to IGST when they are imported into India and the IGST is payable at the time of importation of goods into India. The applicant is neither liable to GST on the sale of goods procured from China and directly supplied to the USA nor on the sale of goods stored in the warehouse in the Netherlands, after being procured from China to customers, in and around the Netherlands as the goods are not imported into India at any point.