GST Applicability on Overseas Merchant Trade between Two Indian Entities
1. The Core Dispute: Supply between Indian Entities vs. Non-Taxable Territory Movement
The applicant, an Indian entity, operates a “dropshipping” or merchant trade model. They purchase goods from foreign vendors (Spain/USA) and sell them to another Indian entity (Party B) for a profit. Crucially, the goods move directly from the foreign vendor to a foreign warehouse (Amazon USA) and are delivered to final customers abroad without ever entering India.
Applicant’s Stand: Argued that since the goods never enter the “taxable territory” of India, the transaction is covered under Para 7 of Schedule III, which treats supplies from a non-taxable territory to another non-taxable territory as neither a supply of goods nor services.
Revenue’s Stand: Contended that the transaction is between two persons located in India. The “supply” (transfer of title via invoice) happens within the taxable territory, even if the physical movement of goods is outside India.
2. Legal Analysis: The Difference Between “Movement” and “Supply”
The ruling hinged on the interpretation of “taxable territory” and the scope of Schedule III.
I. Supply Between Two Indian Persons
The Authority noted that the invoice is raised by one Indian company to another. Under Para 1(a) of Schedule II, any transfer of title in goods is a supply of goods. Since both the supplier and recipient are in India, the transaction originates in the taxable territory.
II. Inapplicability of Schedule III, Para 7
Para 7 of Schedule III exempts “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.”
The Ruling: This entry applies only when the supply (the transaction itself) happens between two persons outside India or in a way that doesn’t involve an Indian supplier-recipient chain. In this case, the supply (billing/transfer of title) is domestic, and only the movement is international. Therefore, the exemption does not apply.
III. Registration Requirement (Section 22)
As the transaction is a taxable supply between two units in India, the turnover from these sales contributes to the “aggregate turnover” of the applicant.
Conclusion: The applicant is making a taxable supply in the course of business and is therefore required to obtain GST registration and discharge tax liability on the margins/invoice value.
3. Final Ruling: GST Liability Confirmed
The Authority ruled that the merchant trade transaction, when conducted between two Indian residents, is a taxable supply under GST.
Verdict: GST is applicable as per Section 9 and Schedule II.
Compliance: The applicant must register under GST and pay the applicable taxes on the invoices raised to Party B.
Key Takeaways for Merchant Traders
Billing Location Matters: If you are an Indian entity billing another Indian entity, GST will generally apply regardless of where the goods are physically located.
Schedule III Narrow Scope: Do not assume all “out-to-out” (foreign-to-foreign) trades are exempt. If the chain involves a domestic leg of billing, it falls back into the taxable net.
Input Tax Credit (ITC): Traders should evaluate if they can claim ITC on any Indian services (logistics, consultancy) used to facilitate these trades, though no ITC would be available on the foreign purchase (Party C) as no IGST is paid at the time of purchase.
| 1) | Classify the above mentioned as goods or services along with HSN/ SAC code with rate of GST? |
| 2) | Clarify under which category their business will fall on the above-mentioned list and what are the documents should be maintained by them for the transactions depend upon the specified category? |
| 3) | Classify the time and value of supply of goods and services or both based on their business transactions? |
| 4) | Clarify whether they can get the refund amount from ITC credit availed? |
| 5) | Check and advice whether they arc on the correct path or they need to raise invoice under export/Nil rated/Exempted/Zero Rate or any other? If it is fall under the category of Export/Nil rated/ Exempted/ Zero rated sales/services, then whether they can get the refund of tax which is paid for previous months under B2B category. |
| 6) | In case, the above transaction is under negative list of GST Act means, are they required to register under GST Law? |
| 1) | Classify the above mentioned as goods or services along with HSN/SAC code with rate of GST? |
| 2) | Clarify under which category their business will fall on the above mentioned list and what are the documents should be maintained by them for the transactions depend upon the specified category? |
| 3) | Classify the time and value of supply of goods and services or both based on their business transactions? |
| 4) | Clarify whether they can get the refund amount from ITC credit availed? |
| 5) | Check and advice whether they are on the correct path or they need to raise invoice under export/Nil rated/Exempted/Zero Rate or any other? If it is fall under the category of Export/Nil rated/ Exempted/ Zero rated sales/services, then whether they can get the refund of tax which is paid for previous months under B2B category. |
| 6) | In case, the above transaction is under negative list of GST Act means, arc they required to register under GST Law? |
(2) The question on which the advance ruling is sought under this Act, shall be in respect of-
(a) classification of any goods or services or both;
(b) applicability of a notification issued under the provisions of this Act; (c) determination of time and value of supply of goods or services or both; (d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services or both;
(f) whether applicant is required to be registered;
(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.
| 1) | Classify the above mentioned as goods or services along with HSN/SAC code with rate of GST? |
We find that this query is Hable for admission as it gets covered under Section 97(2) (a) of CGST/TNGST Act, 2017 under “classification of any goods or services or both?. However, we find that the applicant has stated that they are dealing in household items Hke cooker, bags, electrical items, etc., and that they have not mentioned any details pertaining to the goods/services being dealt with by them. Without the detailed and specific description of the goods/services, it is not possible to classify the same under the correct HSN and the relevant rate of GST cannot be identified.
| 2) | Clarify under which category their business will fall on the above mentioned list and what are the documents should be maintained by them for the transactions depend upon the specified category? |
We find that this query is not covered under any of the clauses from (a) to (g) under Section 97 (2) of CGST/TNGST Act, 2017, on which an Advance Ruling could be sought, and as such, is Hable for rejection.
| 3) | Classify the time and value of supply of goods and services or both based on their business transactions? |
Chapter 12 of CGST Act, 2017 deals with time of supply of goods and Chapter 13 of CGST Act, 2017 deals with time of supply of services and Chapter 1 5 of CGST Act, 2017 is about Value of Supply of Goods and services.
On a general reading of the above said Chapters,
Time of supply of Goods can be the carficst of the following dates:
the date of issue of invoice by the supplier or the last date on which he is required to issue invoice or the date on which the supplier receives payment with respect to the supply.
Time of supply of Services can be the earliest of the following dates:
the date of issue of invoice by the supplier or the date of the provision of service, if the invoice is not issued within the prescribed date or the date on which the recipient shows the receipt of services in his books of account.
The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply arc not related and the price is the sole consideration for the supply.
We arc therefore of the opinion that the Time and value of goods or sendees’ is liable to be determined by the applicant based on their each of the business transactions in line with the provisions of Section 12, 13 & 15 of CGST Act 2017.
| 4) | Clarify whether they can get the refund amount from ITC credit availed? |
We find that this query is not covered under any of the clauses from (a) to (g) under Section 97 (2) of CGST/TNGST Act, 2017, on which an Advance Ruling could be sought, and as such, is liable for rejection. However, it is to be stated that the eligibility to Refund or otherwise, under the CGST/TNGST Acts, 2017, shall be decided by the propcr/jurisdictional officer based on an application for refund, if any, filed by the applicant.
| 5) | Check and advice whether they are on the correct path or they need to raise invoice under export/Nil rated/Exempted/Zero Rate or any other? If it is fall under the category of Export/Nil rated/ Exempted/Zero rated sales/services, then whether they can get the refund of tax which is paid for previous months under B2B category. |
WE find that this query is not covered under any of the clauses from (a) to (g) under Section 97 (2) of CGST/TNGST Act, 2017, on which an Advance Ruling could be sought, and as such, is liable for rejection.
| 6) | In case, the above transaction is under Negative List of GST Act means, are they required to register under GST Law? |
It is brought to notice of the applicant, that there is no Negative List under GST Act, and only exemption notifications are available separately for goods and services. However, it is to be stated here that Schedule III of CGST Act, 2017 deals with activities or transactions which can neither be treated as supply of goods nor treated as supply of services.
In this regard, we observe that as per Para 7 of Schedule III of CGST Act, 2017 “Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India3‘ is outside the scope of ‘Supply’ under GST. Considering the peculiar nature of the applicant’s business transactions, we note that the Invoice is raised by the applicant on another Indian company as could be seen from the sample copies oflnvoice submitted. However, wc also note that in the instant case, the movement of goods take place outside India. At this juncture, wc refer to Schcdulc-II 1(a) of CGST Act, 2017, which states as follows:
“ACTIVITIES OR TRANSACTIONS TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF SERVICES
1. Transfer
(a) any transfer of the title in goods is a supply of goods”
Therefore, under the applicant’s business model, transfer of title happens when the applicant raises invoice on Party B (located in India). As such, the transaction between applicant and Party B is ‘supply of goods’, even though goods arc sourced from and delivered to a place, both located outside India. Wc therefore, come to understand that in the instant case, the ‘supply of goods’ takes place between two persons in India, and only the movement of goods take place outside India. Further, it is to be noted that under para 7 of Schedule III, GST is not applicable if goods do not enter India, only in respect of those cases where a “Supply of goods” takes place from a place in the non-taxable territory to another place in the non-taxablc territory. Hence, Para 7 of Schedule III is not applicable to the instant ease, as “Supply’ takes place from one person in the taxable territory to another person in the taxable territory. Therefore, as the supply is between two units within the taxable territory i.c., supplier and receiver arc in India, GST is applicable as per Para 1(a) of Schedule II of CGST Act, 2017. Hence, registration under GST and payment of taxes under GST is required to be carried out in the instant ease.
| 1) | Classifying the goods and services under HSN and rate of GST could not be done as the specific details of the goods and services dealt with arc not furnished by the applicant. |
| 2) | Question on clarification as to the category under which the applicant’s transaction would fall is not covered under any of the issues on which the Advance Ruling can be sought under Section 97 (2) of CGST/TNGST Act, 2017 and as such, is liable for rejection. |
| 3) | “Time and value of goods or services’ could not be “Classified’ as requested by the applicant and that the same is liable to be determined by the applicant in line with the provisions of Section 12, 13 & 15 of CGST Act 2017. |
| 4) | Question on clarification as to getting refund of ITC availed is not covered under any of the issues on which the Advance Ruling can be sought under Section 97 (2) of CGST/TNGST Act, 2017 and as such, is liable for rejection. |
| 5) | Question on clarification as to the correct path about their business transaction is not covered under any of the issues on which the Advance Ruling can be sought under Section 97 (2) of CGST/TNGST Act, 2017 and as such, is liable for rejection. |
| 6) | As the supply is between two units within the taxable territory i.c. supplier and receiver arc in India, GST is applicable as per Para 1 (a) of Schedule II of CGST Act, 2017. Hence, registration under GST is required to be carried out. |