Supply of Goods to Overseas Customer without Entering India is neither Supply of Goods nor Supply of Services : AAR [Read Order]

In a recent ruling, the Karnataka Authority for Advance Rulings (AAR) ruled that the supply of goods to overseas customers is neither supply of goods nor supply of services under Entry 7 of Schedule III of Central Goods and Services Tax Act (CGST), 2017.

The applicant, M/s. Marubeni India Pvt. Ltd., is a private limited business registered under the CGST/Karnataka Goods and Services Tax Act, 2017, that trades completed goods and also offers support services to clients outside of India. They planned to engage in a new business deal where the applicant would be responsible for supplying commodities obtained domestically to clients outside of India.

Also, the applicant entered into a contract with the Indian manufacturer, assigning responsibility for carrying out customs duty compliance, including submission of the Bill of Lading for Transportation of Goods to the Foreign Customer on the instruction of the applicant.

The applicant instructed the Indian Manufacturers to ship the goods from their location/factory directly to the location of the overseas customer and thus the goods would be shipped from the Indian Manufacturer’s premises to a foreign destination, without delivering goods physically to the applicant.

The bench observed that two invoices has been raised in the transaction i.e., one invoiced by the Indian Manufacturer on the applicant and the other by the applicant on Overseas customers.

Also, it was noted that the applicant is engaged in two transactions. The first transaction involves the manufacturer supplying items to the applicant, and the second involves the applicant supplying the same goods to an international client.

The panel of Dr. M. P. Ravi Prasad and Kiran Reddy T. took note of what the term “exporter” meant and explained that the person claiming to be a “exporter” is actually the owner of the goods, and that the bill of lading serves as proof of ownership when the products are given to the shipper. The manufacturer is the owner of the products and has title to them because he filed the shipping bill as an exporter and was also awarded a bill of lading.

As a result, in accordance with the observations, the manufacturer’s initial transaction of supply of goods to the applicant is the place of supply of goods, and as per section 11(b) of the Integrated Goods and Services Tax Act (IGST), 2017, this location shall be outside of India.

However in respect of the second transaction, it is observed that the goods are supplied from  a location outside India to a location outside India. That is both the places are outside India. The supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India. Thus it was ruled that the said transaction shall treated as neither as a supply of goods nor supply of services.

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