DCW Ltd. {AUTHORITY FOR ADVANCE RULINGS, TAMILNADU}

DCW Ltd. {AUTHORITY FOR ADVANCE RULINGS, TAMILNADU} :

Date of Order : 28-03-2024

simplified explanation of the ruling by the Authority for Advance Rulings (AAR) Tamil Nadu regarding GST liability on export freight in FOB (Free on Board) exports:

Background:

• Assessee: DCW Ltd., exporter of chemical products.
• Issue: DCW Ltd. sought an advance ruling on the GST liability related to export freight in FOB exports.

Key Points of the Case:

1. FOB Exports: In FOB exports, the responsibility of the exporter ends once the goods are delivered on board the ship. The export freight, in this case, is arranged and paid for by the overseas buyer.
2. GST Liability on Export Freight:
   • Provider of Service: DCW Ltd. is neither the provider nor the recipient of the export freight service. The freight is arranged by the overseas buyer, not by DCW Ltd.
   • RCM Basis: Since DCW Ltd. does not provide or receive the export freight service, it is not liable to pay GST on a reverse charge mechanism (RCM) basis for the export freight.
3. Unrelated Queries Not Addressed:
   • The ruling did not address queries related to whether the shipping line is liable to pay GST on RCM basis because the shipping line was not the applicant and does not transact with DCW Ltd. in FOB exports.
   • Queries about whether export freight is liable to GST on RCM basis and whether it constitutes an inter-state supply were also not answered because they were not directly related to DCW Ltd.’s transactions.

1. Legal Framework:
   • The ruling referred to Sections 69, 95(a), 97(2)(b), (e), (g) of the CGST Act, 2017, and relevant sections of the IGST Act, 2017, to determine the GST liability on export freight.
   • It noted changes in the place of supply rules for export freight services effective from 1st October 2022 and 1st October 2023, emphasizing the place of supply as the location of the recipient of the service.

Conclusion:

• DCW Ltd. was not liable to pay GST on export freight in FOB exports because it neither provides nor receives the export freight service.
• The ruling clarifies the GST liability specifically concerning FOB exports where the overseas buyer arranges and pays for the export freight independently.
• It highlights the importance of understanding the roles and responsibilities of parties in international trade transactions under GST regulations, especially regarding the place of supply rules and the applicability of GST on services related to exports.