Recently, an advance ruling is held on the issue of whether GST shall be payable on Merchant Trade Transactions or not. So in this Blog, let's discuss the issue with whole concept of Merchant Trade Transactions and know whether GST is payable on such transaction or not.
First of all, let's understand what is Merchant Trade Transaction (MTT)?
- MTT is a transaction which involves supply of goods from one foreign country to another country involving an Indian Trader. For example: M/s ABC (US Company) places its order with M/s BCD (Indian Company). M/s BCD imports goods from a Company based in Netherlands and instructed it to supply the goods directly to M/s ABC instead of delivering it to India. This is called MTT. In such transaction, goods don't physically brought in the Indian territory.
In the recent matter of M/s. Sterlite Technologies Ltd., the Gujarat Authority of Advance Ruling (AAR) held that:
- GST shall be payable on supply of goods outside India directly through a vendor outside India;
- No GST payable on goods purchased from vendor located outside India as goods are not brought into India.
The applicant ( M/s. Sterlite Technologies Ltd.) proposed to enter into a transaction in which it shall receive order from a customer located outside India and as per its instructions, a vendor also located outside India shall supply the goods directly to the customer located outside India. Such vendor shall raise an invoice on the applicant and applicant shall raise an invoice to the customer. Both payment and receipt will be in foreign currency only.
In the above transaction, goods will not physically brought in India, rather it shall move from one foreign country to another foreign country.
In the ruling, the supply of goods to a non-resident customer through a non-resident vendor is not accepted as export of goods as goods didn't moved from India to outside India which is necessary as per definition of 'Export of Goods'. Rather, said transaction is treated as supply taking into account section 7 & 10 of IGST Act.
The AAR seems to have missed to look into Schedule III of CGST Act whose entry no. 7 states as under:
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.
Schedule III of CGST Act includes those transactions which shall not be treated as Supply of goods or services. Entry no. 7 as inserted via CGST Amendment Act 2018 clears that any goods supplied from a place outside India to another place outside India without touching the Indian territory shall not be treated as Supply. Thus, this ruling seems to be bad in law and require reconsideration.
Further, in year 2018 one more ruling in the matter of M/s Synthite Industries Ltd., Kerala Bench of AAR held that Company is not liable to GST on the sale of goods procured from China and directly supplied to USA.
Nowadays, MTT are very common practice and in such case if ruling of Gujarat AAR shall be treated as correct then this shall impact the the MTT. All merchant traders should take a note of this ruling and be ready if they will be asked by GST officers to pay GST on their MTT.
Source: Advance Ruling No. GUJ/GAAR/R/04/2020 dated 17.03.2020.
The author can also be reached at priyankakushwaha4@gmail.com
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