Meaning of Cross border transaction
When goods are procured from vendors located outside India and the goods so purchased are not brought into India. They are sold directly to a customer located outside India. Goods are shipped directly from the vendor’s premises to the customer’s premises (located outside India). This transaction is called Cross border transaction.
Let’s understand the same with an example. E.g. A Company registered under GST in India procures material from a vendor in China and Ships the same to a customer in the USA without bringing the goods in India.
The important question here arises is about the taxability of the above said two transactions as per GST Laws in India i.e. purchase outside India and sales outside India.
This matter has been clarified by the GST department through clarification and two advance rulings however, instead of simplifying, this matter has created a lot of confusion because of the two contradictory AAR’s.
Analysis of matters discussed
Whether the Cross-border transaction is within the ambit of section 7 of CGST Act, 2017 and GST is payable on goods procured from vendor located outside India, where the goods so purchased are not brought into India?
Here in this article, we would understand this with the help of rulings given by AAR Gujarat and AAR Kerala. Although, AAR is binding only upon the taxpayer seeking the ruling, however it becomes basis for adjudicating actions by the department.
| Matters discussed | AUTHORITY FOR ADVANCE RULING, GUJARAT IN RE: M/S. STERLITE TECHNOLOGIES LTD. | AUTHORITY FOR ADVANCE RULING – KERALA IN RE : M/S SYNTHITE INDUSTRIES LTD., ERNAKULAM | Our remarks |
| Whether GST is payable on goods procured from vendor located outside India in a context where the goods so purchased are not brought into India? | GST is not payable on goods procured from vendor located outside India, where the goods so purchased are not brought into India | 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. | Both the authorities including the clarification by CBEC have clarified that GST is not payable on goods not imported in India and thus there is no GST applicable till the time goods physically enter the Indian customs border. |
| Whether GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises? | Applicable GST is payable on goods sold to customer located outside India, where goods are shipped directly from the vendor’s premises (located outside India) to the customer’s premises. | The applicant is neither liable to GST on the sale of goods procured from China and directly supplied to USA nor on the sale of goods stored in the warehouse in Netherlands, after being procured from China, to customers, in and around Netherlands, as the goods are not imported into India at any point. | Both the rulings give a different view point with regards to taxation on sale of goods directly from China to USA as per our example and thus opens an opportunity for GST officers to adjudicate matters as per the revenue favouring view issued by Gujarat authorities |
Conclusion:
GST law was introduced in India to harmonize the Indirect tax laws and varied practices being followed across different states. Two different rulings on Cross Boarder transactions by AAR Gujarat and AAR Kerala are not uniform with the spirit of the law. AAR is supposed to reduce litigations but, with such controversial ruling it will end up an increase in the legal battle. In our opinion, the rulings decided by Kerala authorities seems logical as GST law is consumption-based tax and in cross border transaction nothing is getting consumed in India. Also, the purchases are outside the scope of GST so how can a sale be taxed in India with no physical goods coming in India. Accordingly, such cross-border transactions should be considered as non-GST supply and be treated accordingly. However, these controversial rulings may lead to litigations and difficulty in doing business for some large international trading houses.