2024 (12) TMI 1220 - AAAR - GST

Classification of supply - transfer of title of goods stored in FTWZ by the appellant to its customers in DTA or multiple transfers within the FTWZ - to be covered under paragraph 8 (a) or under paragraph 8 (b) of Schedule III of the CGST Act, 2017? - scope of warehoused goods used in paragraph 8 (a) of Schedule III of the CGST Act, 2017 - Applicability of IGST on goods stored in FTWZ and supplied to DTA customers - reversal of input tax credit (ITC) under amended Section 17(3) of the CGST Act for supplies from FTWZ to DTA customers. Classification of supply - transfer of title of goods stored in FTWZ by the appellant to its customers in DTA or multiple transfers within the FTWZ - to be covered under paragraph 8 (a) or under paragraph 8 (b) of Schedule III of the CGST Act, 2017? - HELD THAT - The transfer of title of goods lying in FTWZ takes place admittedly as per the Statement of facts of the case furnished by the appellant, whereas the provisions of 8 (b) of Schedule III of the CGST. Act, 2017 talks about Supply of goods. by the consignee to, any other person, by endorsement of documents of title to the goods . It is to be noted here that the above phrase specifically refers to the term by endorsement of documents in absolute terms, and not just transfer of title to the goods in general. It is opined that the term by endorsement assumes significance in the context of the instant case. On a conjoint reading of the phrases, along with its properties and specifications, i.e., by endorsement and documents of title to the goods , it becomes clear that the activity relating to Supply of goods, by endorsement of documents of title to the goods as enumerated under para 8 (b) of Schedule III of the CGST Act, 2017 refers to the mode of transaction for a specific activity, as against the practice adopted for normal sale transactions - paragraph 8 (b) of Schedule III is conceptually linked to High Sea Sale . The appellant raises invoices to transfer the title of the goods to the customer while the goods are lying within the FTWZ unit in the instant case, and that they are not into endorsement of any document of title to goods in the nature of a bill of lading, dock-warrant, warehouse keeper s certificate, multimodal transport document etc. - The document in the instant case being a commercial invoice, the same is to be treated as a proper document for sale, and it cannot be treated as a case of Supply of goods, by endorsement of documents of title to the goods , by any means whatsoever. Accordingly, it becomes clear that the transaction involved in the instant case is to be considered as a mere transfer of title , and thereby it does not get covered under paragraph 8 (b) of Schedule III of the CGST Act, 2017, as it is meant to cover a specific situation/activity. Once the application of paragraph 8 (b) of Schedule III of the CGST Act, 2017 to the instant case is effectively ruled out, it becomes imperative to examine as to whether the provisions of paragraph 8 (a) of Schedule III of the CGST Act, 2017, viz., Supply of warehoused goods to any person before clearance for home consumption , applies to the instant case or not. A Free Trade Warehousing Zone , as the name suggests, is a bonded premises providing warehousing facility, much in parity with the bonded warehouse under the Customs Act. Further, when the goods are imported and brought into a FTWZ unit, they are basically warehoused first and then traded or subjected to other authorized operations as the case may be - the provisions of 8 (a) of Schedule III of the CGST Act, 2017, viz., Supply of warehoused goods to any person before clearance for home consumption applies to the instant case, and there are no reason to modify the ruling pronounced by the AAR. Applicability of IGST on goods stored in FTWZ and supplied to DTA customers - HELD THAT - This query is not answerable, since the first query is answered in the affirmative., and therefore the ruling does not require any modification. Whether any reversal of ITC is warranted in the instant case in view of the recent amendment to Section 17 (3) of the CGST Act, 2017? - HELD THAT - The reversal of proportionate input tax credit of common inputs/input services/Capital goods is not warranted at the hands of the Appellant in terms of the amended Section 17 (3) of the CGST Act, 2017 read with Explanation 3 of Rule 43 of the CGST Rules, 2017, even when the activity/transaction in question is covered under paragraph 8 (a) of Schedule III of the CGST Act, as long as it does not relate to supplies from Duty Free Shops at arrival terminal in international airports to the incoming passengers.

Summary

Issues Involved:

1. Whether the transfer of title of goods stored in FTWZ to customers in DTA or multiple transfers within FTWZ falls under paragraph 8(a) or 8(b) of Schedule III of the CGST Act.
2. Applicability of IGST on goods stored in FTWZ and supplied to DTA customers.
3. Requirement of reversal of input tax credit (ITC) under amended Section 17(3) of the CGST Act for supplies from FTWZ to DTA customers.

Issue-wise Detailed Analysis:

1. Classification of Transfer of Goods under Schedule III:

The primary issue was whether the transfer of title of goods stored in a Free Trade and Warehousing Zone (FTWZ) to customers in the Domestic Tariff Area (DTA) or multiple transfers within FTWZ falls under paragraph 8(a) or 8(b) of Schedule III of the CGST Act, 2017. The appellant argued that the FTWZ does not qualify as a customs warehouse under the Customs Act, and therefore, the transactions should not be considered under paragraph 8(a). Instead, they contended that these transactions fall under paragraph 8(b), which pertains to the supply of goods by endorsement of documents of title before clearance for home consumption. However, the judgment clarified that the term "warehoused goods" in paragraph 8(a) includes goods stored in FTWZ, which are akin to customs bonded warehouses. Therefore, the transfer of title within FTWZ before clearance for home consumption is covered under paragraph 8(a) of Schedule III.

2. Applicability of IGST on Supplies from FTWZ to DTA:

The second issue concerned the applicability of Integrated Goods and Services Tax (IGST) on goods stored in FTWZ and supplied to DTA customers. The judgment upheld the AAR's ruling that since the transaction falls under paragraph 8(a) of Schedule III, it is not considered a supply, and therefore, the query regarding IGST applicability was not answerable. The ruling affirmed that the provisions of paragraph 8(a) apply, and thus, the supply is not subject to IGST at the stage of transfer within FTWZ.

3. Reversal of Input Tax Credit (ITC):

The final issue addressed whether the appellant is required to reverse ITC on common inputs/input services/capital goods under the amended Section 17(3) of the CGST Act. The AAR had ruled that reversal of ITC was necessary. However, the judgment modified this ruling, clarifying that the reversal of ITC is not warranted unless the transactions involve supplies from Duty-Free Shops at arrival terminals in international airports. The judgment emphasized that the amendment to Section 17(3) and the corresponding rules specifically target Duty-Free Shops, and not general transactions under paragraph 8(a) of Schedule III.

Conclusion:

The appellate authority upheld the AAR's ruling regarding the classification of transactions under paragraph 8(a) of Schedule III and the non-applicability of IGST. However, it modified the ruling on ITC reversal, stating that such reversal is not required for the appellant's transactions, as they do not involve Duty-Free Shops.