2024 (8) TMI 695 - AAR - GST

Transfer of title of goods stored in FTWZ Unit by the Applicant to its customers in Domestic Tariff Area (DTA) or multiple transfers within the FTWZ followed by a subsequent removal from FTWZ Unit - Bonded warehouse transaction covered under para 8 (a) of Schedule III of the CGST Act or the TNGST Act and the rules made there under - levy of IGST on goods stored in FTWZ unit and supplied to its customers in DTA unit, in addition to the customs duty payable by the customer in DTA on removal of goods from the FTWZ unit in accordance with Section 30 of Special Economic Zone - reversal of input tax credit of common inputs/input services/Capital goods is required at the hands of the Applicant in terms of recent amended Section 17 (3) of the CGST Act. Whether the transfer of title of goods stored in FTWZ Unit by the Applicant to its customers in Domestic Tariff Area (DTA) or multiple transfers within the FTWZ followed by a subsequent removal from FTWZ Unit would result in bonded warehouse transaction covered under para 8 (a) of Schedule III of the CGST Act or the TNGST Act and the rules made there under? - HELD THAT - As per the nature of services being provided to the applicant by M/s. Kerry Indev Logistics Private Limited, which is a unit of FTWZ, it is clear that the basic activity of a FTWZ unit is warehousing of the goods belonging to its client. Further, the definition of FTWZ as per Section 2(n) of the Special Economic Zones Act, 2005, carries the phrase wherein mainly trading and warehousing and other activities related thereto are carried on , confirms the fact that warehousing is one of the most important activity undertaken by an unit in FTWZ. Further, in such cases where the goods are imported and warehoused by the LSP (M/s. Kerry Indev Logistics), on behalf of the client (the applicant), it is observed that the LSP normally files a Bill of Entry for warehousing , in which the details of both the SEZ entity (LSP) and the Indian client would be mentioned. Special Economic Zones are deemed to be considered as ports, airports, inland container depots, land stations, outside the Customs territory of India, under Section 7 of the Customs Act, 1962, which deals with the appointment of ports, airports, etc. Hence, it is a deemed territory outside the Customs territory of India. The Free Trade Warehousing Zone (FTWZ) is part of SEZ scheme and it is a Customs bonded, warehouse. Warehousing of goods that are imported without payment of appropriate Customs duties are carried out in these zones. SEZ is a specifically delineated duty free enclave which is deemed to be a foreign territory for the purposes of trade operations and duties and tariffs. Normally, the applicant imports goods and stores them in FTWZ till he finds a local customer who will purchase the goods and such purchaser clears the goods under the provisions of the Customs Act. In the instant case, the goods imported by KILPL belonging to the applicant are reported to have been deposited and warehoused in FTWZ unit for further modes of transfer. As far as the activities relating to transfer of title of goods by the applicant to customers in DTA , and multiple transfers within the FTWZ are concerned, both these activities get squarely covered under para 8 (a) of Schedule-Ill of the CGST Act, 2017. In respect of the activity relating to followed by a subsequent removal from FTWZ unit, it is observed that the same relates to the customer in whose name the title of goods has been transferred, as it is connected through the phrase followed by a to the other two main queries referred above. Thus, the transfer of title of goods stored in FTWZ Unit by the applicant to its customers in Domestic Tariff Area (DTA) or multiple transfer within the FTWZ, gets covered under para 8 (a) of Schedule-III of the CGST Act, 2017. Whether Integrated Goods and Service Tax(IGST) is payable by the applicant on the goods stored in FTWZ unit and supplied to its customers in DTA unit in addition to the Customs Duty payable by the customer in DTA on removal of goods from FTWZ unit in accordance with Section 30 of Special Economic Zone (SEZ) Ad, 2005 read with the Customs laws? - HELD THAT - This query need not be answered, as the answer to first query is answered in the affirmative. Irrespective of whether supply of goods lying in FTWZ unit to DTA customers is covered under Schedule-Ill of the CGST Act or not whether any reversal of input tax credit of common inputs/Capital goods is required at the hand of the applicant in terms of recent amended Section 17 (3) of the CGST Act? - HELD THAT - Prior to amendment of Section 17 of CGST Act, 2017, carried out under the Finance Act, 2023 (8 of 2023), the explanation to Section 17 (3) of the CGST Act, 2017, did not include the activities listed in Schedule-Ill as exempt supply . Hence, all the activities listed in Schedule-Ill were excluded for the purpose of apportionment of credit. With the amendment to Explanation of Section 17 (3) of the CGST Act, 2017, apart from paragraph 5 of Schedule-Ill to the Act, clause (a) to paragraph 8 of the said schedule have been mentioned as an exception to Section 17 (3) of the Act. Accordingly, proportionate reversal of ITC of common inputs/capital goods/services availed, if any, is required to be made by the applicant in terms of the amended Section 17 (3) of the CGST Act, 2017, and the rules made thereunder.

Summary

Issues Involved:
1. Whether the transfer of title of goods stored in FTWZ Unit by the applicant to its customers in Domestic Tariff Area (DTA) or multiple transfers within the FTWZ followed by a subsequent removal from FTWZ Unit would result in bonded warehouse transaction covered under para 8(a) of Schedule III of the CGST Act or Tamil Nadu GST and Service Tax Act, 2017.
2. Whether Integrated Goods and Services Tax (IGST) is payable by the applicant on goods stored in FTWZ unit and supplied to its customers in DTA unit, in addition to the customs duty payable by the customer in DTA on removal of goods from the FTWZ unit.
3. Whether any reversal of input tax credit of common inputs/input services/capital goods is required at the hands of the applicant in terms of the amended Section 17(3) of the CGST Act.

Detailed Analysis:

Issue 1:
The applicant queried whether the transfer of title of goods stored in FTWZ Unit to customers in DTA or multiple transfers within the FTWZ followed by a subsequent removal would be covered under para 8(a) of Schedule III of the CGST Act. The applicant argued that FTWZ is not a warehouse licensed under sections 57, 58, or 58A of the Customs Act and is instead governed by the SEZ Act, making it a SEZ unit rather than a warehouse. The applicant also cited various legal provisions and case laws to support their contention that the goods stored in FTWZ do not qualify as "warehoused goods" under the Customs Act.

The ruling clarified that FTWZ is part of SEZ and is considered a Customs bonded warehouse. The SEZ Act deems SEZs, including FTWZ, as territories outside the customs territory of India for trade operations and duties. The ruling concluded that the transfer of title of goods stored in FTWZ Unit by the applicant to its customers in DTA or multiple transfers within the FTWZ falls under para 8(a) of Schedule III of the CGST Act, 2017.

Issue 2:
The applicant questioned whether IGST is payable by them on goods stored in FTWZ and supplied to DTA customers, in addition to the customs duty payable by the DTA customer upon removal from FTWZ. The applicant argued that removal of goods from FTWZ is akin to import and should be subject to customs duty, including IGST, at the time of clearance for home consumption by the DTA customer.

The ruling stated that since the transfer of title of goods stored in FTWZ is covered under para 8(a) of Schedule III of the CGST Act, the applicant is not liable to pay IGST as long as the goods remain warehoused. The DTA customer is responsible for paying applicable customs duties, including IGST, upon removal of goods from FTWZ. Therefore, the query was not answered as the answer to Issue 1 was affirmative.

Issue 3:
The applicant sought clarification on whether any reversal of input tax credit (ITC) of common inputs/input services/capital goods is required in terms of the amended Section 17(3) of the CGST Act, irrespective of whether the supply of goods lying in FTWZ to DTA customers is covered under Schedule III of the CGST Act or not.

The ruling explained that prior to the amendment, the explanation to Section 17(3) did not include activities listed in Schedule III as "exempt supply." Post-amendment, para 8(a) of Schedule III is included as an exception to Section 17(3), necessitating the proportionate reversal of ITC of common inputs/capital goods/services availed by the applicant. The ruling concluded that the applicant is liable to reverse the proportionate ITC in terms of the amended Section 17(3) of the CGST Act, 2017.

Ruling:
1. The transfer of title of goods stored in FTWZ Unit by the applicant to its customers in DTA or multiple transfers within the FTWZ is covered under para 8(a) of Schedule III of the CGST/TNGST Acts, 2017.
2. The query regarding IGST payable by the applicant is not answerable since the first query was answered affirmatively.
3. The applicant is liable to reverse the proportionate ITC of common inputs/capital goods/services availed, if any, in terms of the amended Section 17(3) of the CGST Act, 2017.