Case Study:
Procedure to be followed for Activity of sending / taking the goods out of India for exhibition or on consignment basis (hereinafter referred to as said activity) for export promotion. Such goods sent / taken out of India crystallise into exports, wholly or partly, only after a gap of certain period from the date they were physically sent / taken out of India.
Relevant Legal Provisions:
Section 31(7) of The CGST Act, 2017 which reads as follows
” 31 (7) Notwithstanding anything contained in sub-section (1), where the goods being sent or taken on approval for sale or return are removed before the supply takes place, the invoice shall be issued before or at the time of supply or six months from the date of removal, whichever is earlier.
Explanation.––For the purposes of this section, the expression “tax invoice” shall include any revised invoice issued by the supplier in respect of a supply made earlier.”
Section 16(1) of The IGST Act, 2017 has been reproduced below
(1) “zero rated supply” means any of the following supplies of goods or services or both, namely:––
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.”
Interpretation and Clarification
The said activity is in the nature of “sale on approval basis”wherein the goods are sent / taken outside India for the approval of the person located abroad and it is only when the said goods are approved that the actual supply from the exporter located in India to the importer located abroad takes place.
The said activity is covered under the provisions of sub-section (7) of section 31 of The CGST Act, 2017 read with rule 55 of The CGST Rules, 2017
As per section 7 of the The CGST Act, 2017 , for any activity or transaction to be considered a supply, it must satisfy twin tests namely
(i) it should be for a consideration by a person; and
(ii) it should be in the course or furtherance of business.
The said activity do not constitute supply as it does not fall within the scope of section 7 of the CGST Act as there is no consideration at that point in time. however there is an exception to it i.e. it will be treated as supply even in the absence of consideration when such activity satisfy the tests laid down in Schedule I of The CGST Act, 2017.
Since such activity is not a supply, the same cannot be considered as “Zero rated supply” as per the provisions contained in section 16 of the IGST Act.
Answers to certain Queries
| What records are required to be maintained by registered person for sending / taking specified goods out of India? | The registered person has to maintain a record of such goods in the format. link of such format has been mentioned below |
| What is the documentation required for sending / taking the specified goods out of India? | The Movement of goods abroad on approval basis shall be accompanied with a delivery challan in accordance with the provisions contained in Rule 55 of The CGST Rules, 2017 |
| When is the supply of specified goods sent / taken out of India said to take place? | The said goods sent/taken outside india are required to be either sold or brought back within the stipulated period of six months from the date of removal (as per provisions of Section 31(7)) |
| Deemed supply if goods not sold within the stipulated period | The supply would be deemed to have taken place, on the expiry of six months from the date of removal, if the specified goods are neither sold abroad nor brought back within the said period.
If the specified goods are sold abroad, fully or partially, within the specified period of six months, the supply is effected, in respect of quantity so sold, on the date of such sale. |
| What will be the effective date of supply if goods are sold or partialy sold within the specified period of six months?
|
If the said goods are sold abroad either fully or partially, the supply is effected, in respect of quantity so sold, on the date of such sale.
|
| Wheather Tax Invoice to be issued ? | a. If the said goods are sold either fully or partially within the specified period of six months
The sender shall issue a tax invoice in respect of such quantity of specified goods which has been sold abroad. b. If the said goods are not sold either fully or partially within the specified period of six months the sender shall issue a tax invoice on the date of expiry of six months from the date of removal, in respect of such quantity of specified goods which have neither been sold nor brought back. In both of the above cases Tax Invoice has to be issued in accordance with the provisions contained in section 12 and section 31 of the CGST Act read with rule 46 of The CGST Rules, 2017 |
| Whether the refund claims can be preferred in respect of specified goods sent / taken out of India but not brought back? | It is clarified accordingly that the sender can prefer refund claim even when the specified goods were sent / taken out of India without execution of a bond or LUT, if he is otherwise eligible for refund as per the provisions contained in sub-section (3) of section 54 the CGST Act read with sub-rule (4) of rule 89 of the CGST Rules, in respect of zero rated supply of goods after he has issued the tax invoice on the dates as clarified above.
It is further clarified that refund claim cannot be preferred under rule 96 (Refund of IGST paid on goods or services exported out of India) of CGST Rules as supply is taking place at a time after the goods have already been sent / taken out of India earlier. |
The Views expressed above are supported by Circular No. 108/27/2019-GST Dated 18th July, 2019. the said circular also gave two illustrative and practical examples to clarify. Readers may refer same for better understanding of the concept.
[Disclaimer: Views expressed herein are based on our short readings of the Circular, I assume no responsibility therefore. In no event, I shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information]
Mr. Setia is a CA by Profession and expert in the field of Indirect Taxation Based in Delhi. Rich experience of over 5 year.