Vat on movement of goods

This query is : Resolved

Sanket (Querist)
Follow

25 August 2013 Hello,
We are the into manufacturing business. We have got an order from customer based in Singapore. He requested us to dispatch the goods to his customer based in India.
Since the movement of goods is going to be in the same state, do we need to charge VAT to him?

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
Follow

25 August 2013 This is an interesting issue.Never faced earlier. Once you dispatch your products to a dealer in India,as it has not crossed the borders of India, it can not be considered as an export sale and no exemption is avilable. Also,it can not be an import for the Indian customer as it has not come from an outside country.Here the payments may be made in Singapore Rupaiah and yet it is not entitled for exemption from VAT,as per my opinion. So,vat/cst has to be charged for this transaction.This matter has been discussed and decided in the cse of Coffee Board Vs St of Karnataka in 1990.Similar problems arise for a sale in the course of export also..mjk

Sanket

Sanket (Querist)
Follow

25 August 2013 If we ask our customer to give order on Ex-works term to us. In that case, our liability ends as soon as we remove goods from our factory.
Our customer take possession of goods and take the goods to bonded warehouse and from bonded warehouse, he transfer the ownership to his customer and ask his customer to take the goods.
Do we still need to charge VAT to our customer?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

02 August 2025 This is a nuanced VAT issue. Let me break it down clearly:

---

### Scenario Summary:

* You manufacture goods in India.
* Your customer is based in Singapore but asks you to dispatch goods **within India** (to their Indian customer).
* The goods never cross Indian borders.
* Payment may be from Singapore.

---

### VAT Applicability:

1. **Is this an export?**
No. Because the goods do **not leave India**, this is **not an export** under VAT law.
VAT exemption on exports applies only if goods physically leave the country.

2. **Is this a local sale?**
Yes. Since goods move within India, it is treated as a **local sale** and VAT is applicable.

3. **Do you have to charge VAT to the Singapore customer?**
Yes. Even if the customer is foreign, if the goods are delivered within India, VAT applies.

4. **Can you avoid VAT by invoicing on Ex-works basis?**
If you sell on Ex-works terms, your responsibility ends when goods leave your premises. The buyer arranges transport from there.
However, since the goods never cross Indian borders, the ultimate destination is within India. So, VAT **must be charged** at the Ex-works point.

---

### Key Legal Reference:

* The case **Coffee Board vs State of Karnataka (1990)** confirms that goods not physically exported from India attract VAT.
* VAT is destination-based tax on goods movement within the state or country.

---

### What you should do:

* **Charge VAT on your sale** to the Singapore customer if goods move within India.
* If goods physically exit India (actual export), VAT exemption applies.
* Consider invoicing on Ex-works terms to clearly define your liability ends at factory gate.
* Maintain clear documentation on place of supply and terms of delivery.

---

If you want, I can help draft sample invoices or agreements reflecting Ex-works terms and VAT treatment! Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now