GST Not Payable on Merchant Trade Goods Sold Outside India
GST does not apply when an Indian business buys and sells goods delivered entirely outside India.
- Ruling
- NO.GST-ARA- 24/2018-19/B- 75 Mumbai, dt. 26/07/2018
- Dated
- 26 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
- Company billed an Indian buyer for paint delivered outside India.
- Foreign supplier shipped paint directly without entering Indian borders.
- Tax authority ruled this transaction is not liable to GST.
- Question on claiming input tax credit became irrelevant.
In short
Jotun India Private Limited received an order from an Indian customer to supply paint to a ship stationed outside India. Jotun ordered the paint from its group company in Norway, which delivered it directly to the ship abroad. Because the goods were billed through an Indian entity but never physically entered India, the company asked whether Integrated Goods and Services Tax (IGST) applied to the transaction.
What has changed
How it worked before
Before this ruling, Indian trading businesses buying and selling goods overseas were unsettled about whether issuing an invoice from India meant they had to pay IGST under Section 7(5)(a) of the IGST Act.
What has changed
The Maharashtra Authority for Advance Ruling (AAR) decided in Order NO.GST-ARA- 24/2018-19/B- 75 that goods bought and delivered outside India do not attract tax in India. The tax authority clarified that IGST on imports applies only when goods cross the Indian customs border under the Customs Act, 1962. Since these goods never crossed Indian borders, the sale is a non-taxable supply.
Who this affects
Indian merchant traders who purchase goods in a foreign country and sell them directly to buyers outside India without bringing the goods into Indian territory.
An example
An Indian firm in Mumbai receives an order from a Dubai buyer for industrial valves. The Mumbai firm buys these valves from a supplier in Germany, who delivers them directly to Dubai without passing through India. The Mumbai firm issues an invoice to Dubai and gets an invoice from Germany. Based on the reasoning in this ruling, no GST is charged because the valves never entered Indian customs frontiers.
What you should do
Businesses involved in merchant trade should note that this ruling only binds Jotun India and its specific tax officer. While it demonstrates how tax authorities view sales outside India, you should consult a professional or file your own application before skipping GST on similar transactions.
If you do nothing
If you assume this decision applies to you automatically and stop paying GST, your local tax officer might take a different view. If audited, the tax department could demand unpaid tax along with penalty and interest charges. An advance ruling given to another business cannot legally protect you during a tax audit.
The terms explained
- Input tax credit
- A tax discount that allows businesses to reduce the GST they owe on sales by subtracting the GST they already paid on business purchases.
- Integrated Goods and Services Tax
- A tax collected on sales between different Indian states, as well as on goods brought into or sent out of India.
- Customs frontier
- The official border area where imported or exported goods are inspected and cleared by customs officers.
- Non-taxable supply
- A sale of goods or services that falls completely outside the scope of GST laws and cannot be taxed.
The ruling in detail
Authority for Advance Ruling
Jotun India Private Limited
NO.GST-ARA- 24/2018-19/B- 75 Mumbai, dt. 26/07/2018 · Maharashtra
Questions before the authority
- Whether the supply of goods which are moved from a place located outside taxable territory and are delivered at a place outside taxable territory, would be liable to tax in India under section 7(5)(a) of IGST Act?
- If answer to (a) is yes, whether the recipient of the goods i.e. person liable to pay consideration, be eligible to avail the input tax credit of the said goods?
Facts
The applicant received an order from an Indian customer to supply paint to a ship located outside India. The applicant placed a back-to-back order with its group entity in Norway, which delivered the paint directly to the customer's vessel outside India. The Norwegian entity invoiced the applicant, and the applicant invoiced the Indian customer, with the goods never physically entering India.
Ruling
| Question | What the authority ruled |
|---|---|
| Taxability of goods moved and delivered outside taxable territory under section 7(5)(a) of IGST Act | Answered in the negative Supply of goods outside India without entering Indian customs territory is not liable to IGST. |
| Eligibility of input tax credit on such supply | Not relevant in view of answer to Question No. 1 Question was conditional upon Question 1 being answered in the affirmative. |
The Authority held that the out-and-out supply of goods from a location outside India to another location outside India is **not liable to tax in India** under Section 7(5)(a) of the IGST Act. Consequently, the secondary question regarding the eligibility to claim input tax credit was rendered **not relevant**.
Reasoning
The Authority analyzed Section 7(2) and the proviso to Section 5(1) of the IGST Act, noting that integrated tax on imported goods is levied only when customs duties are levied under Section 12 of the Customs Act, 1962 upon crossing Indian customs frontiers. In an out-and-out transaction where goods are procured and delivered outside India, the goods never cross the customs frontiers of India. Consequently, such transactions constitute a **non-taxable supply** under Section 2(78) of the CGST Act. The Authority also placed reliance on Circular No. 3/1/2018-IGST dated 25.05.2018, confirming that tax is not payable until customs clearance.
Provisions relied on
- Section 7(5)(a) of the IGST Act, 2017
- Section 7(2) of the IGST Act, 2017
- Section 5(1) of the IGST Act, 2017
- Section 2(78) of the CGST Act, 2017
- Section 2(47) of the CGST Act, 2017
- Section 12 of the Customs Act, 1962
- Circular No. 3/1/2018-IGST dated 25.05.2018
For the practitioner
This ruling confirms that **merchant trade transactions** involving third-country sales where goods do not enter India are non-taxable under GST. Practitioners can rely on this principle to dispute GST liability on back-to-back cross-border trading transactions billed through an Indian entity. Note that this order predates the explicit insertion of such transactions into Schedule III of the CGST Act.
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-24-b-75_dt.26.07.18_jipl.pdf
Legibility of the scan, as read: high.
Prepared 21-10-2026.
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