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TMI Blog2024 (8) TMI 695X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - SMT. D. JAYAPRIYA, I.R.S., AND SMT. A. VALLI, MEMBER 1. Any appeal against this Advance Ruling order shall lie before the Tamilnadu State Appellate Authority for Advance Ruling, Chennai under Sub-Section (1) of Section 100 of CGST Act 2017/ TN GST Act 2017, within 30 days from the date on the ruling sought to be appealed, is communicated. 2. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries of products such as Consumer durables, Industrial Devices, Energy Systems, etc. In India, the Applicant has manufacturing facilities as well as sales offices in various states including Tamil Nadu. The Applicant is registered under the GST regime in various states including Tamil Nadu. The Applicant s GSTIN of Tamil Nadu is 33AAECA2190C2Z9. The Applicant has stated that they had executed an agreement with a LSP named Kerry Indev Logistics Private Limited (hereinafter referred to as TGLPL ) for clearance/handling of goods from customs and for storage of imported goods in the FTWZ unit (located in Tamil Nadu, Chennai) of the said LSP and in this regard they have filed a copy of agreement entered into by the Applicant with KILPL for providing the clearing/handling storage services. Further they have stated that M/S KILPL is a FTWZ Unit located in the J. Matadee Free Trade Zone. KILPL has obtained requisite FTWZ licenses from the relevant authorities and a copy of the licenses obtained by KILPL are also enclosed with the application. Flow of transaction as submitted by the applicant is as detailed below: The Applicant secures space in the FTWZ unit (viz. of KILPL with whom the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to overseas entity, the Company issues an export invoice as export of goods without payment of tax under Letter of undertaking or Bond. The said invoices also refers the fact that the goods are being supplied from FTWZ unit (viz. of KILPL) and mentions the On Account supply by the Applicant. The Applicant reports the said transaction in their GST return as Non-GST supply in case of supply to DTA customer-Whereas in case of exports, the Company reports the transaction as export of goods without payment of tax. The customer shall either clear goods from the FTWZ or shall make further transfer of such goods to other customers. The applicant has also brought to the notice that every transfer of title of goods may or may not result in physical movement of goods. In such cases where physical movement does not happen post transfer of title of goods, the customer of the Applicant makes suitable arrangement with KILPL or another FTWZ unit to store the goods. The final customer (who decides to clear the goods) files the BOE and clears goods from the FTWZ unit. The final customer clears the goods from the FTWZ by making the payment of the applicable customs duty including IGST duly computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act or the TNGST Act and the rules made there under? 6.1.1 In terms of Section 7 of the CGST Act, the term Supply inter-alia includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. However, as per sub-section 2 of Section 7 of the CGST Act, activities or transactions specified in Schedule III shall be treated neither as supply of goods nor a supply of services. 6.1.2 In terms of para 8 (a) of Schedule III of the CGST Act, Supply of warehoused goods to any person before clearance for home consumption shall neither be treated as a supply of goods nor a supply of services. Further as per Explanation-2 of Schedule III of the CGST Act, for the purposes of paragraph 8, the expression warehoused goods shall have the same meaning as assigned to it in the Customs Act, 1962. 6.1.3 In the instant case, the Applicant is transferring the title of the goods stored in the premises of FTWZ unit of LSP. Therefore, it is pertinent to analyze if goods stored in FTWZ qualify as warehoused goods for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as an SEZ unit, the KILPL is a SEZ unit and not a warehouse in terms of the Customs Act. 6.1.5 Further, the Applicant has stated that in terms of Section 2 (n) of the SEZ Act, FTWZ is a SEZ wherein mainly trading and warehousing and other activities related thereto are carried on and has reproduced Section 2 (n) of the SEZ Act for ease of reference: Section 2(n) of the SEZ Act - Free Trade and Warehousing Zone means a Special Economic Zone wherein mainly trading and warehousing and other activities related thereto are carried on The applicant has submitted that in terms of Section 53 of the SEZ Act, FTWZ is a deemed foreign territory for the purpose of tariff and trade. Section 53 is reproduced below for easy reference: 53. (1) A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorized operations. (2) A Special Economic Zone shall, with effect from such date as Central Government may notify, be deemed to be a port, inland container depot, land station and land customs stations, as the case may be, under section 7 of the Customs Act, 1962: From the conjoint reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2005 and read, with the Customs laws? 6.2.1 With regard to the above query, the applicant stated that FTWZ can hold the goods on behalf of inter alia DTA suppliers subject to prescribed conditions including carrying out transaction in convertible foreign currency. The said fact has been mentioned in SEZ Instruction No 60 dated 6 th July 2010. 6.2.2 In the instant case, KILPL is holding the goods in the FTWZ unit on account of the Applicant. Hence, when the goods are deposited into the FTWZ unit, BOE is filed for moving the goods to the FTWZ unit and accordingly, the customs duty is not being paid. They have also stated that the customs duty is being paid at the time of DTA clearance by the customers purchasing such goods from the Applicant. Further, the applicant has stated that removal of goods from the FTWZ unit are akin to import of goods and therefore, subject to custom duly in terms of proviso to Section 5 (1) of the IGST Act. In terms of section 7 (2) of the IGST Act, Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce and in terms of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s IGST, Section 3 (8) read with Section 3 (12) of the Customs Tariff Act clarifies that IGST shall be payable on the transaction value of goods at the time of importation i.e. clearance from SEZ to DTA. In the instant case also, it is submitted that IGST is discharged by the DTA buyer on the transaction value of goods at the time of clearance of goods from the FTWZ unit. In light of the above discussion, removal of goods from FTWZ unit to DTA unit is treated at par with import of goods and accordingly, Custom duty is discharged by the end customer in accordance with Section 30 of the SEZ Act read with the proviso to Section 5 (1) of the IGST Act read and Section 3 of the Customs Tariff Act. 6.2.6 The applicant stated that the provision of SEZ Act shall have overriding effect on the provisions of any other law in case of inconsistent provisions. In terms of Section 51 of the SEZ Act, the provisions of the SEZ Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, The applicant has submitted that despite clear provisions as discussed above as regards taxability on supply of goods stored in the FTWZ unit, even if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted into SEZ unit to a unit within the same SEZ or in another SEZ without payment of duty. 6.2.10 Even otherwise, transfers within a bonded customs warehouse before clearance are not liable to GST. The liability arises only at the time of clearance for home consumption. Reference in this respect is drawn to following para of Circular No. 3/1/2018-IGST dated 25th May 2018:- 4. It may be noted that as per sub-section (2) of section 7 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act ), the supply of goods imported into the territory of India, till they cross the customs frontiers of India, is treated as a supply of goods in the course of interstate trade or commerce, Further, the proviso to sub-section (1) of section 5 of the IGST Act provides that the integrated tax on goods imported into India would be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (hereinafter referred to as the CTA ). Thus, in case of supply of the warehoused goods, the point of levy would be the point at which the duty is collected under section 12 of the Customs Act, 1962 (hereinafter referred to as the Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case at hand, the Applicant proposes to effect sale when the goods are bonded and then DTA customer files Bill of Entry for Home Consumption and clears the goods from the FTWZ on payment of appropriate Custom duties (BCD IGST).Therefore, as clarified in the Circular No.3/ 1/2018-IGST dated 25th May 2018, the payment of IGST again at the point of clearance from the FTWZ to DTA do not arise for supply of warehoused goods, while being deposited in a customs bonded warehouse/FTWZ on or after 01.04.2018. In the event the Applicant is exclusively conducting the activity described in their Application of exporting goods to FTWZ and which are subsequently sold to Indian customers who clear the same on payment of appropriate customs duties, they are not liable to registration under Section 23(1) of CGST Act and TNGST Act ......................... ii. Similar ruling was pronounced in the case of M/s. THE BANK OF NOVA SCOTIA [Order No. 23/AAR/2018 dated 31 December 2018]. 6.2.12 The applicant has drawn reference to proviso to Section 5 (1) of the IGST Act and submitted that levy of IGST on imports (including clearance from SEZ/FTWZ) is a countervailing measure to levy tax as is leviable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d senior counsel are right in their submission that if such an erroneous impression is not corrected and if such a trend continues, then in future even the other components of supply of goods, such as, insurance, packaging, loading/unloading, labour, etc, may also be artificially vivisected by the delegated legislation to once again levy the GST on the supply on which the tax is already collected. [.. .] 6.2.13 In light of the above discussions, the Applicant reiterated that supply of goods lying in FTWZ unit by Panasonic India shall be subject to tax at the time of removal of goods by the end customer in terms with Section 30 of the SEZ Act read with the proviso to Section 5 (1) of the IGST Act read and Section 3 of the Customs Tariff Act. Additionally, the applicant is of the view that the supply made by Panasonic India shall deemed not to be a supply by virtue of para 8 (b) of Schedule m of CGST Act. 6.3 Query 3 - If the supply of goods lying in FTWZ unit is not covered under para 8 (a) of Schedule III of the CGST Act, 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 recent amended Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th GST council meeting which also clarifies that the intention of the amendment is to disallow ITC to DFS located at the arrival terminal and by doing so, consequently, to eliminate the question of allowing refund of ITC to DFS located at the arrival terminal. The applicant has reproduced the relevant extract of the agenda meeting for reference as below: ....In view of this, in order to deny benefit of refund of input tax credit in respect of supplies made from Arrival DFS, the input tax credit in respect of Arrival DFS may be required to be reversed under sub-section (2) of section 17, read with sub-section (3) of the said section, by including transactions under para 8 (a) of Schedule III in the value of exempt supply by substituting Explanation to sub-section (3) of section 17 of CGST Act, 2017 as proposed below:.... From the above submissions the applicant is of the view that, irrespective of whether or not the FTWZ or the SEZ is covered under paragraph 8 (a) of Schedule III, the Applicant would not be required to reverse ITC. 7. It is seen that the applicant submitted the following documents in support of their contentions, viz.,- (i) Agreement made on 25 th Oct, 2017 with M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant on the value of goods as per the Customs tariff which were stored in FTWZ and supplied to its customers in DTA unit after clearance for home consumption. As regards the third query, it was stated that the goods lying in FTWZ unit is considered as goods within the Customs jurisdiction. Once the goods crosses the customs jurisdiction after clearance for home consumption, the provisions of the Act applies and the Joint Commissioner (ST), Intelligence, Chengalpet has also remarked that no proceeding relating to the question raised by the applicant is pending in their jurisdiction. 11. PERSONAL HEARING 11.1 Shri. K. Sivarajan, CA, Shri. Kailash Gera, CA, Ms. Usha Kumar, CA and Aashish Chadha, Indirect Tax Department, M/s. Panasonic Life Solutions India (P) Ltd., appeared as authorised representatives (AR) for the Personal Hearing held on 26.06.2024. The AR explained that the applicant has executed an agreement with M/s. Kerry Indev Logistics (P) Ltd., a logistics service provider for clearance / handling of goods from Customs and for storage of imported goods in the warehousing unit of the logistics service provider situated in a Free Trade Warehousing Zone (FTWZ) at Chennai, India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in terms of recent amended Section 17 (3) of the CGST Act? 12. The applicant made additional submissions as discussed during the personal hearing, vide their letter 01.07.2024, wherein the applicant submitted their additional submission in relation to Query Number 2. The applicant vide para 4.24 to 4.33 of then-original application dated 9 January 2024, have stated that removal of goods from the FTWZ unit are akin to import of goods and therefore, subject to custom duty in terms of proviso to Section 5 (1) of the IGST Act. In this regard, they have filed additional submissions as follows: In terms of Section 2 (10) of IGST Act as well as Section 2 (23) of Customs Act, import of goods with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India. As per Section 2 (4) of the IGST Act, customs frontiers of India means the limits of a customs area as defined in section 2 of the Customs Act, 1962. Further, as per Section 2 (11) of Customs Act read with Section 2 (12) and 2 (13) of Customs Act, customs area would include any port appointed under Section 7 (a) of Customs Act. Moreover, in terms of Section 53 (2) of SEZ Act, SEZ (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as imports 13.2 The applicant has drawn reference to the Guidance Note issued by ICAI on GSTR-9 and 9C, in which it has been clarified that supplies from SEZ to DTA is treated as import of goods and accordingly, GST shall be levied in accordance with proviso to Section 5 (1) of the IGST Act, 2017. Relevant extract is as follows: Customs territory of India is nothing but Customs area as per Section 2 (11) of the Customs Act, 1962. As per Section 51, the provisions of SEZ Act, 2005 shall have effect notwithstanding anything inconsistent therewith contained under any other law. Thus, any supplies made from SEZ to DTA ought to be treated as import of goods into India, irrespective of who has filed the Bill of Entry. Since supplies from SEZ to DTA is treated as import of goods due to the aforesaid provisions, the said transaction shall attract the trappings of the proviso to Section 5 (1) of the IGST Act, 2017. The said tax shall be paid by the DTA under reverse charge as import of goods and hence find a mention under this clause. The applicant in this regard, has enclosed Copies of GST return instructions, CBIC FAQ, ICAI guidance note and copy of notifications in respect of ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by subsequent removal from FTWZ. If it is not covered under para-8 (a) of Schedule-Ill, whether IGST is payable on the goods stored in the FTWZ and supplied to its customers in DTA in addition to Customs duty payable. Further, irrespective of said supplies covered under Schedule-Ill of the CGST Act or not, whether any reversal of input tax credit of common inputs/input services/Capital goods is required in terms of Section 17 (3) of the CGST Act, 2017. 14.3 As per the fact submitted, the applicant have entered into an agreement with M/s. Kerry Indev Logistics Private Limited a unit of FTWZ (KILPL), located at J Matadee Free Trade Zone, Mannur Village, Sriperumbudur Taluk, Kancheepuram Dist - 602105 for providing the service as required by the applicant such as, storage space of 50 pallets or as required, store the products delivered at the facility, re-deliver the products from FTWZ as directed by the applicant etc. As per the agreement, KILPL is engaged by the applicant for all purpose including the provision of services of clearance of goods from Customs (CHA Services), storage and warehousing services at FTWZ, clearing and forwarding services within the FTWZ or from FTWZ t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 14.5 The SEZ link to Customs Act, is established under Section 53 of the SEZ Act, which runs as below, 53. Special Economic Zones to be ports, airports, inland container depots, land stations, etc , in certain cases.- A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations. (2) A Special Economic Zone shall, with effect from such date as the Central Government may notify, be deemed to be a port, airport, inland container depot, land station and land customs stations, as the case may be, under section 7 of the Customs Act 1962 (52 of 1962). From the above, it becomes clear that Special Economic Zones are deemed to be considered as ports, airports, inland c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the integrated tax on goods imported into India would be. levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (hereinafter referred to as the CTA ). Thus, in case of supply of the warehoused goods, the point of levy would be the point at which the duty is collected under section 12 of the Customs Act, 1962 (hereinafter referred to as the Customs Act ) which is at the time of clearance of such goods under section 68 of the Customs Act. 5. It may also be noted that sub-section (8A) has been inserted in section 3 of the CTA vide section 102 of the Finance Act, 2018, with effect from 31st March, 2018, so as to provide that the valuation for the purpose of levy of integrated tax on warehoused imported goods at the time of clearance for home consumption would be either the transaction value or the value as per sub-section (8) of section 3 of the CTA (i.e. valuation done at the time of filing the into-bond bill of entry), whichever is higher. 6. It is therefore, clarified that integrated tax shall be levied and collected at the time of final clearance of the warehoused goods for home consumption i.e., at the time of filing the ex-bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re their clearance from the warehouse would not be subject to the levy of Customs duty or integrated tax and that the same would be levied and collected only when the warehoused goods are cleared for home consumption from the customs bonded warehouse. It was made all the more conspicuous, post the amendment carried out through para 32 of the Central Goods and Services Tax (Amendment) Act, 2018 (No.31 of 2018), whereby clauses 7 and 8 were added to Schedule III of the CGST Act, 2017, along with Explanation 2, as follows:- 32. In Schedule III of the principal Act, (i) after paragraph 6, the following paragraphs shall be inserted, namely: 7. 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. 8. (a) Supply of warehoused goods to any person before clearance for home consumption; (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption. ; (ii) The Explanation shall be numbered as Explanation 1 and after Explanation 1 as so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities in the name of LSP on account of the applicant. After transhipment permission by the SEZ authorities, the goods are cleared without payment of Customs duty. The said imported goods are stored in the FTWZ unit on behalf of the applicant . However, the tide of the goods stored in FTWZ unit would remain with the applicant during the storage. During the period of warehousing , no manufacture or processing activity are carried out on the goods and the same would, be sold from FTWZ to the customers across India. On finalisation of customers, applicant would raise a tax invoice on DTA customer in foreign currency. For supply to overseas entity, goods are cleared without payment of tax under Letter of Undertaking or bond. The customer either clears the goods from FTWZ or shall make further transfer of such goods to other customers. For every transfer of title of goods, there may or may not be physical movement of goods. If there is no physical movement of goods post transfer of title, the customer makes suitable arrangement with the LSP or another FTWZ to store the goods. The final customer files the Bill of Entry and clears the goods from FTWZ by making the payment of applicable Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. In the instant case, we observe that 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 stated above. 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, as discussed in detail above, we are of the opinion that 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, we observe 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. In this regard, it is to be stated that when the removal of goods is made by a customer in DTA from FTWZ, the same can be made only on payment of applicable duties of Customs including BCD and IGST by the DTA unit concerned, in terms of Section 30 of Special Economic Zone (SEZ) Act, 2005. However, since the said activity does not concern the applicant, the same need not be considered for ..... 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