GST Liable on Foreign Dealings of Goods: AAR Gujarat

The Authority for Advance Ruling (AAR), Gujarat said that any Indian company, which is purchasing the goods from one country and selling it to another, is liable to pay GST (Goods and Services Tax) for such transaction even if such goods do not enter the territory of the Indian sub-continent. 

Under the application filed by Sterlite Technologies, the AAR ruled that it is liable for the intermediary to pay GST for the goods even if the goods were purchased from one foreign country and sold to another. The applicant had sought the ruling of the AAR to know whether the GST is required to be paid on merchant trade transactions (MTT). 

“It appears that the transaction is covered under the ambit of inter-State supply and is neither exempted nor covered under export of services. Thus, the theory of elimination takes us to the conclusion that such supplies will be subject to levy of IGST (integrated GST),” the AAR has ruled.

According to the ruling, GST will be applicable on all merchant trade transactions (MTT) if the intermediary receives an order for goods from a foreign company and directly ships the goods from another foreign country to the buyer’s country. The vendor is required to procure an invoice from the seller, the payments of which will be settled through the currency of the seller’s country and then will generate an invoice Know the step by step guide related to generating e-invoice under GST along with benefits. On 37th GST Council Meeting, FM has approved the E-invoice system for traders. Read more for the buyer,  the payments of which will be settled through the currency of the buyer’s country. 

Rajat Mohan, Senior Partner at AMRG & Associates, said, “Ruling by Gujarat AAR needs to be revalidated in light of provisions under schedule — III of the CGST act, otherwise, it could be a fetter for the entire industry.” He also informed that MTT is not liable for any taxation, let it be GST. Any intermediary is not liable to pay any taxes for MTTs. The GST Law also states that MTTs are beyond the scope of GST. Schedule-III states that transactions where “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”. So such transactions were neither goods nor services for the intermediary and hence no liability to pay GST on such transactions. 

Tanushree Roy, GST director at Nagina & Co. LLP, said, “This judgment has provided clarity on this aspect by stating that in the event that the supplier is located in India and the place of supply is outside India, such supplies would be treated as inter-State supplies and liable to GST in India. Suppliers of goods should keep this aspect in mind while entering into ‘Merchant Trade Transactions’/ back to back contracts.”