GST Not Applicable on Sale of Goods Located Outside India
The Maharashtra AAR ruled that selling goods located outside India to an Indian buyer without bringing them into India does not attract GST.
- Ruling
- NO.GST-ARA- 04/2018-19/B- 60 Mumbai dated 09.07.2018
- Dated
- 09 Jul 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- An Indian firm sold foreign manufacturing tools to an Indian buyer.
- The tools remained in Germany and never entered Indian customs territory.
- Maharashtra AAR ruled sales of goods outside India do not attract GST.
- Since no tax applies input tax credit eligibility is not applicable.
In short
The Maharashtra Authority for Advance Ruling dealt with a clear GST question in order NO.GST-ARA- 04/2018-19/B- 60. INA Bearing India Private Limited purchased specialized manufacturing tools from Germany and sold them to an Indian customer. The tools stayed physically in Germany for production and were never brought into India. The company asked whether Integrated Goods and Services Tax, or IGST, applies when selling foreign goods that never cross Indian borders.
What has changed
How it worked before
Before this ruling, businesses were uncertain whether selling foreign goods between two Indian entities triggered IGST. Many feared tax officers would demand tax simply because both the seller and buyer were registered in India.
What has changed
The authority decided that goods located outside India that do not cross Indian customs boundaries are not subject to GST in India. Under the law, IGST on imported items is collected only when customs duty is levied upon entering the country. Because these goods remained abroad, no customs duty or GST applies, making the transaction a non-taxable supply.
Who this affects
This applies to Indian companies involved in merchant trade or foreign sales where goods are purchased and sold abroad without ever entering India.
An example
Apex Tools India purchases machinery from a manufacturer in Japan and sells it to another buyer while storing the equipment in Tokyo. Apex invoices the client from its Pune office, but the machinery is delivered directly within Japan. Based on the reasoning in this ruling, Apex does not need to charge IGST because the goods never entered Indian customs territory. As a result, no input tax credit comes into play for this transaction.
What you should do
Ensure your supply chain records clearly show that the goods remained outside Indian customs boundaries throughout the transaction. Remember that an advance ruling binds only the company that requested it and its specific tax authority. If your business conducts similar overseas trades, consult a qualified advisor or file for your own advance ruling.
If you do nothing
If you assume this ruling automatically covers your operations, a local tax officer might take a different view during an audit. If the tax department decides your goods actually entered India or were improperly classified, they can issue a demand for unpaid IGST. That mistake can cost your business the full tax amount plus interest and strict penalties.
The terms explained
- input tax credit
- The tax a business pays on its purchases, which it can deduct from the tax it owes on its sales.
- integrated goods and services tax
- The GST collected on inter-state transactions and imports into India.
- non-taxable supply
- A sale of goods or services that falls outside the legal scope of GST and cannot be taxed.
The ruling in detail
Authority for Advance Ruling
INA Bearing India Private Limited
NO.GST-ARA- 04/2018-19/B- 60 Mumbai dated 09.07.2018 · Maharashtra
Questions before the authority
- Whether the sale of goods, which are located outside India, would be liable to tax in India under section 7(5) (a) of Integrated Goods and Services Tax Act, 2017?
- If answer to (a) is yes, then whether the recipient, to whom such goods are sold, be eligible to avail the input tax credit of such goods?
Facts
The Applicant purchases specialized manufacturing tools from a supplier in Germany, with the tools remaining physically in Germany for production purposes. The Applicant subsequently sells and invoices these same tools to its Indian customers while the tools physically remain located in Germany without entering India. The question arose whether this transaction of selling goods located abroad to an Indian buyer constitutes a taxable supply under Section 7(5)(a) of the IGST Act, 2017.
Ruling
| Question | What the authority ruled |
|---|---|
| Liability to IGST on sale of goods located outside India u/s 7(5)(a) | Answered in the Negative Goods do not cross Indian customs frontier |
| Eligibility of recipient to avail Input Tax Credit | Not relevant in view of answer to Question No. 1 above Redundant as principal supply is not taxable |
The Authority held that the sale of goods located outside India where the goods never cross the customs frontiers of India is **not liable to tax in India**. Consequently, the second question regarding input tax credit eligibility became redundant.
Reasoning
Although the transaction falls under Section 7(5)(a) read with Section 10(1)(c) of the IGST Act as an inter-State supply because the supplier is in India and the place of supply is outside India, taxability is governed by the proviso to Section 5(1) of the IGST Act. As per the proviso to Section 5(1), IGST on imported goods is levied and collected only when customs duties are levied under Section 12 of the Customs Act, 1962 upon physical import into India. Since the goods are delivered and retained outside India without crossing Indian customs frontiers, no customs duty or IGST can be collected. Thus, such out-and-out merchant trade transactions constitute a **non-taxable supply** under Section 2(78) of the CGST Act.
Provisions relied on
- Section 5(1) proviso of IGST Act, 2017
- Section 7(2) of IGST Act, 2017
- Section 7(5)(a) of IGST Act, 2017
- Section 10(1)(c) of IGST Act, 2017
- Section 2(47) of CGST Act, 2017
- Section 2(78) of CGST Act, 2017
- Section 12 of Customs Act, 1962
- Section 3 of Customs Tariff Act, 1975
- Circular No. 3/1/2018-IGST dated 25.05.2018
For the practitioner
This ruling establishes that **out-and-out sales of goods located outside India** (merchant trade) are not subject to IGST as they do not cross Indian customs boundaries. It confirms that levy under Section 7(5)(a) is constrained by the customs import threshold under Section 5(1) proviso. Note that later amendments (Schedule III Entry 7 of CGST Act) statutory codified this treatment.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/maha-gst-ara-04-b-60_dt._09.07.18_inabipl.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
About Patron Accounting LLP
Patron Accounting LLP is a CA and CS-led accounting and compliance firm that has been working with businesses across India since 2019. We handle the work that keeps a company correct with every department it answers to: day-to-day bookkeeping and accounting, GST registration and returns, income tax filing and assessments, TDS, payroll and PF/ESI, company and LLP incorporation, ROC and MCA compliance, statutory and internal audit, physical stock and inventory audits, trademark and other registrations, and the certificates and reports that banks, buyers and regulators ask for.
Our clients range from a first proprietorship registering for GST to established companies running operations across several states. Much of our work is exactly this: reading what a department has published and telling a business, in plain terms, whether it changes anything for them.
We operate from five offices and serve clients across the rest of India remotely:
- Pune (HQ): RTC Silver, B4-708, Sai Satyam Park, Wagholi, Pune, Maharashtra 412207
- Mumbai: 104, Rajshila Building, 597 J.S.S. Road, Marine Lines, Mumbai 400002
- Delhi: 3rd Floor, B-6/154-155, Sector 5, Rohini, Delhi 110085
- Gurugram: Pioneer Urban Square, B109, Golf Course Ext Road, Sector 62, Gurugram 122098
- Ahmedabad: Phoenix Tower, 1107, near Commerce Six Road, Drive In Road, Navrangpura, Ahmedabad, Gujarat 380009
If anything on this page affects you and you would like somebody to look at your own position, we are glad to help. Call +91 94594 56700, write to sales@patronaccounting.com, or visit patronaccounting.com. The first conversation costs nothing.