CBIC clarifies on taxability of goods sent/ taken out of India for exhibition or on consignment basis for export promotion
Indian exporters engage in several business promotion activities outside India in order to expand their outreach globally and increase volumes. Certain activities may require physically showcasing the goods to the potential buyers in order to strike deals and finalise sale orders.
In this connection, the goods would have to be taken outside India for demonstration to the potential buyers either directly in exhibitions, trade fairs, business congregations, industry meets etc. or indirectly through distributors/ agents on consignment basis.
The goods would crystallise into exports either wholly or partly, only after a certain period from the physical movement outside India.
In this context, Central Board of Indirect Taxes and Customs has received several representations from trade and industry regarding procedure to be followed in respect of such goods taken out of India. Vide Circular No. 108/27/2019-GST dated 18 July 2019, the CBIC has provided clarifications on the same.
In this context, the CBIC has clarified that the time of supply would be the date of actual sale or expiry of six months from removal. Further, such goods would not be eligible for refund under the IGST route, but eligible for refund under the ITC route.
The summary of the Circular is given below:
As per section 7 of the Central Good and Service Act, 2017 (‘CGST Act’), for any activity or transaction to be considered a supply, the following twin tests should be satisfied:
The exceptions to Section 7 of the CGST Act are enumerated in Schedule I of the CGST Act, wherein the CGST Act presumes certain transactions to be supplies even if made without consideration. Similar provisions also exist in Section 2(21) of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) as well.
As per Section 16 of the IGST Act, ‘Zero rated supply’ means supplies of the goods or services or both by way of exports or to Special Economic Zone (‘SEZ’) developer or a SEZ unit.
Based on the above analysis, the activity of sending / taking the goods out of India for exhibition or on consignment basis for export promotion does not constitute supply and hence cannot be considered as a zero-rated supply as per the provisions of the IGST Act. The critical factor for this determination is that there is no consideration arising at the point of taking the goods out of India.
In view of the above position taken by the CBIC, the following procedural clarifications have been issued on issues relating to maintenance of records, issuance of delivery challan / tax invoice etc.
The registered person shall be required to maintain a record of as per the format as Annexure to the Circular as under:
Invoice has to be issued at the time of supply of goods as explained above in accordance with Section 12 and Section 31 of the CGST Act read with Rule 46 of the CGST Rules.
These clarifications by the CBIC are much appreciated and would clear the administrative and documentation hurdles involved in taking goods physically outside India without having a sale. Further, the option for refund of accumulated ITC by the Indian exporters has been kept open, even if the IGST route for refund claim is not available. The documentation requirements recommended by CBIC are also not cumbersome and indeed a step in the right direction.
Read more on CLARIFICATION ON ISSUES RELATING TO REFUND.