The Authority for Advance Ruling (AAR) under the GST in Kerala held that merchant trade transactions, in which traded commodities never enter the country’s tax jurisdiction, are not liable to the GST as goods are never imported to India.
In merchant trade transactions, a supplier is India procures goods from an overseas supplier and supplies directly to its overseas customer. In such transactions, goods do not come to the country.
Goods are liable to integrated GST (IGST) when they are imported to India and the IGST is payable at the time of import of goods into India, the authority said in its ruling.
“The applicant is neither liable to GST on the sale of goods procured from China and directly supplied to the US, nor on sale of goods stored in the warehouse in the Netherlands, after being procured from China, to customers, in and around the Netherlands, as the goods are not imported into India at any point,” the order said.
According to the GST Act, an advance ruling pronounced by AAR is binding only on applicant who has sought the advance ruling and on the officer concerned or the jurisdictional officer in respect of the applicant. This means that an advance ruling is not applicable to similarly placed other taxable persons in the state. It is only limited to the person who has applied for an advance ruling.
“While earlier, such transactions were not subject to VAT or service tax, there was an ambiguity under GST laws. Therefore, this AAR provides relief to industry, particularly in commodity trading where such transactions are quite common,” Pratik Jain, leader – indirect tax at PwC, said.
Jain said while it has been held that the GST is not required to be paid on such transactions, another important question which has not been asked in the application filed for this ruling is as to whether there is requirement for reversal of input credit of taxes paid on expenses attributable to such non-taxable income.