QUESTION

An assessee in India is a subsidiary of foreign company in France. The assessee are registered both under Central Excise Act and Finance Act, 1994. The assessee received a purchase order from a customer in Zambia. The assessee purchased the goods from a fellow subsidiary in China and supplied the goods from China to Zambia under the Packing List issued by China but the assessee in India raised the Export Invoice on the Customer in Zambia. The assessee in India asked the customer in Zambia to pay the amount (to the assessee in India) and the assessee in India received the sale-consideration. This transaction occurred during the GST period of the Financial Year 2017-18. The assessee showed the revenue as obtained from `Traded` goods in their Notes to the Financial Statements for the Financial Year 2017-18. Is the assessee liable to pay GST on the consideration received by them? The assessee received consideration for traded goods during the Financial Years 2015-16 and 2016-17 also. Please clarify the implications under Cenvat Credit Rules, 2004.

ANSWER

Facts of the case: An assessee in India is a subsidiary of foreign company in France received a purchase order from a customer in Zambia. The assessee in turn purchased the goods from a fellow subsidiary in China and supplied the goods from China to Zambia under the Packing List issued by China but the assessee in India raised the Export Invoice on the Customer in Zambia as well as received the sale-consideration. The assessee showed the revenue as obtained from `Traded` goods in their Notes to the Financial Statements for the Financial Year 2017-18. Whether assessee liable to pay GST on the consideration received by them? The assessee received consideration for traded goods during the Financial Years 2015-16 and 2016-17 also.

Law Applicable: SECTION 1 OF CGST ACT

(1) This Act may be called the Central Goods and Services Tax (Amendment) Act, 2018.
(2) It extends to the whole of India.

SECTION 2 OF CGST ACT

(56) 'India' means 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;

SCHEDULE III OF CGST ACT  

7. 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.

Interpretation: GST Act extends only to the whole of India, and India means 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.

In the instant case, the goods have not crossed the Indian customs frontier and as such it is clear that the goods are not physically available in the Indian territory. When the goods are not physically available in the Indian territory, the question of taking goods out of India does not arise. Thus, the subject transaction does not qualify as export of goods.

Therefore supply of goods from a  territory out of India (China) to another territory out of India (Zambia) without such goods entering into India shall be treated neither as a supply of goods nor a supply of services vide amendment with effect from 01.02.2019 as per clause 7 of Schedule III.

Although this clause is inserted in 2019, however the logic of inserting this clause in the schedule was applicable from the date when the GST Act was introduced. 

So far as pre GST regime is concerned, the Central excise was to be levied on the manufacture (not on trading) of goods  in India and service tax was a tax on services not on the trading. Therefore this transaction is not covered In excise as well as in service tax.

Conclusion: Supply of goods from China to Zambia without such goods entering into India shall be treated neither as a supply of goods nor a supply of services as per clause 7 of Schedule III. (Reply dt. 03/03/2021)