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TMI Blog2025 (1) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... may be. It is noticed that the applicant s queries for advance ruling in the instant case is restricted to the first stage, i.e., when the imported goods are supplied to any person before they are cleared for home consumption, while they still remain warehoused. Accordingly, 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. Whether the Integrated Tax (IGST) Circular No. 3/1/2018 dated 25.05.2018 is applicable to the present factual situation? - HELD THAT:- The reversal of proportionate input tax credit of common inputs/input services/Capital goods is not warranted at the hands of the Applicant 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, 2017, as long as it does not relate to supplies from Duty Free Shops at arrival terminal in international airports to the incoming passengers. Conclusion - i) The transfer of title of goods by the Applicant to its customers or multiple tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following questions: 1. In the facts and circumstances of the case, whether the transfer of title of goods by the Applicant to its customers or multiple transfers within the FTWZ would result in bonded warehouse transaction covered under Schedule III of the CGST Act, 2017 r/w CGST Amendment Act, 2018? 2. Whether the Integrated Tax (IGST) Circular No. 3/1/2018 dated 25.05.2018 is applicable to the present factual situation? 2.1. The Applicant has submitted the following in their Statement of relevant facts having a bearing on the question(s) raised: The Applicant is a wholly owned subsidiary of Haworth, Inc. United States and is engaged in manufacture and sale of office furniture under the brand name Haworth . The Applicant procures raw materials indigenously as well as from international market (from group entities). The Applicant imports certain finished goods from its group entities. Haworth is a worldwide global leader in design and manufacture of organic workspaces, including raised floors, movable wells, systems furniture, seating, storage and lighting. 2.2. In India, the Applicant has manufacturing facility and sales office in the state of Tamil Nadu. Further, the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling Bill of Entry on behalf of the Applicant and stores the same in the warehouse. The FTWZ unit hands over the import invoice and other necessary documents to the Applicant. The FTWZ unit does not pay any import duty on clearance from the port. The Applicant transfers the title of goods to customer under the cover of an invoice. The customer shall either clear goods from the FTWZ or shall make further transfer of such goods to other customers. It is important to note that every transfer of title of goods does not result in physical delivery of goods. The goods shall continue to remain in FTWZ unit holder till the final customer files BOE and clears goods from FTWZ. The Applicant wishes to highlight that multiple transfers are made while goods are lying in FTWZ. The final customer, produces transfer of title document and files BOE for re-warehousing (SEZ) / home consumption (others) and clears the goods from the FTWZ. At this juncture goods are removed from the warehouse and is taken to the premises of the Customer. 3. The applicant has made the following factual and legal submissions in relation to the questions for which advance ruling is sought: Question No.1 In the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply shall form part of the value on which the integrated tax would be payable at the time of clearance of the warehoused goods for home consumption. This circular was made applicable for supply of warehoused goods, while being deposited in a customs bonded warehouse on or after 01.04.2018. 3.4. Further, in terms of valuation the applicant stated that Section 3(8A) of Customs Tariff Act, levy of IGST on sale of goods deposited in warehouse but before clearance for home consumption, the valuation is higher of transaction value or sale value to buyer. The said provision infers that in case of goods deposited in a warehouse, only the person who is ultimately clearing the goods for home consumption is subject to tax and the transferor is not subject to tax on such transfer of warehoused goods. 3.5. The Applicant submits that in case of FTWZ/ bonded warehouse the FTWZ files in-to bond BOE without payment of duty for warehousing and point of taxation under customs is deferred to time of clearance from FTWZ. Hence, under the customs provision, the transaction is subjected to levy when goods are cleared from the FTWZ. Therefore, as clarified in the Circular No.3/1/2018-IGST dated 25.05.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEZ Act 2005, read with Customs Act, 1962, the approval/license/administrative control for FTWZ are fully governed under the provisions of SEZ Act 2005. Therefore, FTWZ is not a warehouse licensed under Customs Act 1962. Hence it was stated therein that the transactions narrated in the application are not covered under Schedule III of the CGST Act 2017. 4.1.3. As far as the Question No. 2 was concerned, Circular No.3/1/2018 dated 25.05.2018 has been issued for clarifying the scope of supply with regard to transactions in Customs bonded warehouses and hence the same is not applicable to FTWZ which is not a warehouse as defined under the Customs Act, 1962. 4.1.4. He further stated that no proceedings in respect of the questions raised by the applicant is pending against the applicant in his jurisdiction. 4.2. The State jurisdiction officer, the Assistant Commissioner (ST), Sriperumbudur circle, has not offered any comments. However, the Joint Commissioner (ST), Intelligence-II, Chennai informed that no proceeding is pending in respect of the applicant. 5.1 The Applicant was offered a personal hearing on 15.03.2023 through virtual mode, and their authorized representative Ms. R. Suka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the instant case as well. He however stated that the ruling pronounced in so far as it relates to the query on proportionate reversal of ITC in the case of M/s. Panasonic Life Solutions India Private Limited is not proper as the recent amendments to Rules 42 and 43 of the CGST Rules, 2017, suggest that the same is applicable only to the supply of goods from Duty Free Shops in international airports. 6.2 It is seen that in the additional submissions dated 11.12.2023 made before the Appellate Authority for Advance Ruling (AAAR), the applicant had stated that the principal question in this case is whether the expression warehoused goods employed in Schedule III of the CGST Act in Entry 8 (a) would cover warehousing under the SEZ Act, 2005 and the SEZ Rules, 2006 in the case of a unit in a FTWZ. In support of their claim that it would cover, they submitted that- That there is no inconsistency between the provisions of the Customs Act, 1962 and the SEZ Act, 2005 and the SEZ Rules, 2006 with respect to warehousing. SEZ Act, 2005 defines FTWZ as follows: 2(n) Free Trade and Warehousing Zone means a Special Economic Zone wherein mainly trading and warehousing and other activities related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd (ACAAR No. 27/2015-16 dated 22.06.2015). Chapter XA of the Customs Act, 1962 was omitted by the Finance Act, 2007 in view of the Special provisions made by separate SEZ legislation which had adopted the definition of warehousing by way of legislation by reference as stated above. Provisions of the IGST Act and Sch III of the CGST Act (Entry 8 (a) have to be construed harmoniously 3.1. Proviso to Sec 5(1) of the IGST Act states the integrated tax on goods other than the goods as may be notified by the Government on the recommendations of the Council imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (CTA) 3.2. Sec 7 (2) states that 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. It is therefore clear that until the goods in CBW or FTWZ unit is cleared on payment of Customs Duties under the CTA, 1975 the same are treated in the course of import and there could be no incidence of tax on any transfers while the goods lay stored in the warehouse. This accords ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CGST Act? 6.5 Further, apart from reproducing the averments already made, the applicant put forth the following points as well in the additional submissions made on 21.08.2024, for consideration, viz., QUESTION 1 Whether in the facts and circumstances the activities and transactions would fall under paragraph 8 (a) or 8 (b) of Schedule III of CGST Act and remain non-taxable? 6.5.1 The Applicant submits that FTWZ is a special category of Special Economic Zone as per Section 2(za) of the Special Economic Zones Act, 2005 ( SEZ Act ). As per Section 2(n) of the SEZ Act, FTWZ means a SEZ wherein mainly trading and warehousing and other activities related thereto are carried on. Since warehousing in the above definition is not defined in the SEZ Act, reference is required to be made to Section 2(zd), which reads as follows: 2(zd) all other words and expressions used and not defined in this Act but defined in the Central Excise Act, 1944, the Industries (Development and Regulation) Act, 1951, the Income-tax Act, 1961, the Customs Act, 1962 and the Foreign Trade (Development and Regulation) Act, 1992 shall have the meanings respectively assigned to them in those Acts. 6.5.2 Thus, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing cases, wherein it has been held that transfer of title of goods within the FTWZ are squarely covered under Paragraph 8 (a) of Schedule III of the CGST Act. a. M/s. AIE Fiber Resource and Trading (India) P.Ltd. [2021 (12) TMI 1265 - AUTHORITY FOR ADVANCE RULING, TELANGANA]. b. Panasonic Life Solutions India Private Limited [2024 (8) TMI 695 - AUTHORITY FOR ADVANCE RULING, TAMIL NADU] (para 20). c. Sunwoda Electronic India Private Limited [2024 (6) TMI 11 FOR ADVANCE RULING, TAMIL NADU] (para 9.14). Although the above Rulings have been rendered in relation to other assessees, the decisions are on interpretation of the law and lay down a position of law. Therefore, they have persuasive value. 6.5.6 Alternatively the Applicant submits that the proposed transaction is squarely covered under Paragraph 8 (b) of Schedule III of CGST Act. The Applicant submits that the Applicant secures space by executing a lease agreement in the FTWZ in exchange for a fee to store the imported goods. The FTWZ, owned and operated by independent third party, merely clears by filing BOE for warehousing the imported goods. The subsequent sale transactions are proposed to happen within the FTWZ by endorse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not deemed to be a supply, it cannot be characterised as exempt supply for the purposes of ITC. Further, the Applicant submits that the legislative intent is clarified in the memorandum explaining the Finance Bill 2023, which is provided below: Explanation to sub-section (3) of section 17 of the CGST Act is being amended so as to restrict availment of input tax credit in respect of certain transactions specified in para 8 (a) of Schedule III of the said Act, as may be prescribed, by including the value of such transactions in the value of exempt supply. 6.5.10 Thus, the afore-mentioned amendment indicates that the ITC reversal for supply of warehoused goods is only in specific instances, which would be prescribed in the CGST/TNGST Rules, In this regard the Applicant highlights Explanation 3 of Rule 43 of the CGST Rules, in terms of which the value of activities or transactions mentioned in paragraph 8 (a) of Schedule III of the CGST Act which is required to be included in the value of exempt supplies under clause (b) of the explanation to Section 17 (3) of the CGST Act shall be the value of supply of goods from Duty Free Shops (DFS) at arrival terminal in international airports t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d examine afresh whether the activities proposed to be undertaken by the Applicant are covered by entry 8 (a), 8 (b) or any other entry in Schedule III of CGST Act, 2017 or otherwise. All aspects of the matter are kept open for decision by the AAR. , the applicant rephrased the queries for answer as follows:- 1. Whether in the facts and circumstances the activities and transactions would fall under paragraph 8 (a) or 8 (b) of Schedule III of CGST Act and remain non-taxable? 2. Whether irrespective of the activities and transactions falling under paragraph 8 (a) or 8 (b) as aforesaid input tax credit would be available without any reversals since no prescription has been notified for purpose of Explanation (ii) below Section 17 (3) of CGST Act? 7.2 As regards the first query, The AAR in the original ruling dated 20.06.2023 had opined that as the warehouses in question were governed under the provisions of SEZ Act, 2005 and not licenced under the Customs Act, 1962, the transactions in question will not be covered under paragraph 8 (a) of the Schedule III of the CGST Act, 2017. Therefore the moot point for consideration is the whether the transfer of title of goods stored in FTWZ by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 8 (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. ; Explanation 2.- For the purposes of paragraph 8, the expression- warehoused goods shall have the same meaning as assigned to it in the Customs Act, 1962. Accordingly, as per Section 2 (44) of the Customs Act, 1962, (44) warehoused goods means goods deposited in a warehouse And, as per Section 2(43) ibid, (43) warehouse means a public warehouse licensed under section 57 or a private warehouse licensed under section 58 or a special warehouse licensed under section 58A. 7.5 Therefore, as per the definition of warehouse , as in the Customs Act, 1962, only a public warehouse licensed under section 57, or a private warehouse licensed under section 58, or a special warehouse licensed under section 58A, is seen to have been covered. Inspite of the same, the applicant is of the opinion that there is no inconsistency between the provisions of the Customs Act, the SEZ Act and the SEZ Rules with respect to warehousing, in view of the provisions of Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is called an endorser , and the person to whom negotiable instrument is transferred by endorsement is called the endorsee . Essentials of a valid endorsement The following are the essentials of a valid endorsement: 1. It must be on the instrument. The endorsement may be on the back or face of the instrument and if no space is left on the instrument, it may be made on a separate paper attached to it called allonage. It should usually be in ink. 2. It must be made by the maker or holder of the instrument. A stranger cannot endorse it. 3. It must be signed by the endorser. Full name is not essential. Initials may suffice. Thumb-impression should be attested. Signature may be made on any part of the instrument. A rubber stamp is not accepted but the designation of the holder can be done by a rubber stamp. 4. It may be made either by the endorser merely signing his name on the instrument (it is a blank endorsement) or by any words showing an intention to endorse or transfer the instrument to a specified person (it is an endorsement in full). No specific form of words is prescribed for an endorsement. But intention to transfer must be present. ------------------- -------------------. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f title to the goods , by any means whatsoever. We are therefore of the opinion that the transaction in question, 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 in the nature of High Sea Sale . 7.12 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. 7.13 In this regard, we observe that as discussed already above, the definition of warehouse as in the Customs Act, 1962, gets restricted to the Customs bonded warehouses under Sections 57, 58 and 58A of the Act, ibid. At this juncture, it becomes imperative to take note of the fact that while SEZ is considered as a duty free enclave in simple terms, and FTWZ is one category of SEZ that specializes in warehousing and trading operations. The definitions of SEZ and FTWZ under the SEZ Act, 2005 are reproduced for facilitation, viz., 2(za) Spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce provided customs duty has not been paid and goods have not been cleared from Customs or cleared and placed in the Bonded Warehouses. 28 (4) The Unit or Developer may also procure goods required for the authorized operations, without payment of duty, from International Exhibitions held in India or from bonded warehouses set up under the Foreign Trade Policy and under the Customs Act in the Domestic Tariff Area; 7.16 In its most fundamental sense, a bonded warehouse is one of the types of warehouses sanctioned by customs authorities, specifically designed to house imported goods without the immediate burden of import duties or taxes. This allows business enterprises to store their goods without paying duties until they are ready to be released into the domestic market. On the other hand, in non-bonded facilities, duties on the items imported and kept, are already paid for. Accordingly, the bonded warehouses and unbonded warehouses differ significantly in terms of tax status. 7.17 However, it is to be noted here that warehouses as discussed within the legal framework of SEZ/FTWZ, are nothing but bonded warehouses , very much akin to customs bonded warehouses . Further, we observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, it could be seen that the legal provisions, identify and accommodates both types of bonded warehouses, whether set up under the Foreign Trade Policy (warehouses under SEZ/FTWZ), or under the Customs Act (Customs bonded warehouses). Both the customs bonded warehouses and the warehouses under the duty-free zones are special warehousing regimes that offer logistics solutions tailored to international trade, each with their own advantages and benefits. While the customs warehouse stands out for its focus on secure warehousing and efficient inventory management, the warehouses in duty-free zones are notable for its commercial freedom and tax advantages. In effect, both the types of bonded warehouses offer financial respite to the business houses in the form of tax deferral. 7.19 It is to be noted here that while the terms warehouse and warehoused goods have been defined under Section 2(43) and 2 (44) of the Customs Act, 1962, the same have not been defined under the SEZ Act, 2005. However, Section 2 of the SEZ Act, 2005, that contains the definition of certain words/expressions under the said Act, also carries a provision under Section 2(zd) of the SEZ Act, which states that all othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er prescribes that General and Warehouse details pertaining to the import is required to be provided in Segment-1 of the said web form. This apart, the Directorate General of Systems and Data Management through para No. 2 of the Advisory No.32/2023 dated 23.12.2023, has stated as follows:- In this regard, modifications have been made in the System, for mandatory declaration of warehouse code by the importer at the time of filing into-bond bill of entry. A check has also been placed in the System that at that time of clearance of warehouse bill of entry, the warehouse code mentioned should be active and valid. 7.22 Accordingly, it could be seen that the allotment of eight digit warehouse code for Customs Bonded warehouses in effect extends to other bonded warehouses under SEZ/FTWZ as well, and the scheme of Integration of SEZ cargo delivery systems through SEZ online with Customs EDI System (ICES) further proves the fact that the procedural requirement under the SEZ Act and the Customs Act are inextricably interwoven that they are bound to travel together without any inconsistency. Normally, the into-bond bill of entry is filed as Bill of Entry for Warehousing, irrespective of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. 7.25 Prior to the amendment to Section 17 of the CGST Act, 2017, carried out under the Finance Act, 2023 (8 of 2023), the explanation to sub-section (3) of Section 17, read as follows:- Explanation . For the purposes of this sub-section, the expression value of exempt supply shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule; Under Section 139 of the Finance Act, 2023 (8 of 2023), an amendment to Section 17 of the CGST Act, 2017 has been proposed as follows :- In section 17 of the Central Goods and Services Tax Act,- (a) in sub-section (3), in the Explanation, for the words and figure except those specified in paragraph 5 of the said Schedule , the following shall be substituted, namely:- except, (i) the value of activities or transactions specified in paragraph 5 of the said Schedule; and (ii) the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule. . The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is reproduced as below:- ii. For future, there is a need to exclude refund in respect of ITC on inputs/input services pertaining to Duty Free Shops at Arrival Terminal by amending Explanation to sub-section (3) of section 17 of CGST Act by including certain transactions under paragraph 8 (a) of Schedule III of CGST Act in the value of exempt supply. The Law Committee recommended;- b. To amend sub-section (3) of Section 17 of CGST Act, 2017 by substituting the existing explanation with the explanation proposed in the Agenda. c. Post amendment in sub-section (3) of Section 17 of CGST Act, the supplies from Duty Free Shops at arrival terminal to the incoming passengers to be prescribed through the Rules so that value of such supply are not excluded for calculation of value of exempt supply for the reversal of ITC. 7.28 Under the facts and circumstances of the case, we are of the considered opinion that reversal of proportionate input tax credit of common inputs/input services/Capital goods is not warranted at the hands of the Applicant 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/trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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