Conditions for Export of Goods Under GST

Third Party shipment or triangular trade is a common practice in international trade whereby goods move from one country to another without touching India, only invoicing is done by the registered person in India.

We shall understand the same with below example :

‘X international Limited’ receives an order from ‘B Ltd.’ in England. X international Limited ordered that goods that from ‘C Ltd.’ in USA and directly dispatch the goods from USA to England without entering into India.

X International Limited in India: This is an Indian registered company that receives an order from 'B Ltd.' in England for certain goods.

C Ltd. in the USA: This is a supplier or manufacturer of the goods that X International Limited needs to fulfill the order.

The Triangular Trade Process:

Order Placement:

B Ltd. in England places an order with X International Limited in India for specific goods.

Purchase Order:

X International Limited places a purchase order with C Ltd. in the USA for the same goods, specifying the shipping details to England.

Goods Dispatch:

C Ltd. in the USA directly ships the goods to B Ltd. in England as per the purchase order's instructions. The goods never physically enter India; they move directly from the USA to England.

Invoicing:

X International Limited in India generates an invoice for B Ltd. in England for the cost of the goods, possibly including a markup or commission for their role as an intermediary. This invoice is for the value of the goods and any associated services provided by X International Limited.

Payment:

B Ltd. in England makes payment to X International Limited in India as per the invoice terms. X International Limited, in turn, pays C Ltd. in the USA for the cost of the goods.

The GST impact on third-country shipments

Non-Application of Customs Regulations :

The goods do not physically enter India in this process, so they are not subject to Indian customs or import regulations.

GST Treatment:

Paragraph 7 of the schedule-III of the CGST Act provides that the supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India (third country shipments) is treated neither as a supply of goods nor a supply of services. Thus, there is no GST liability on such supply.

No ITC Reversal:

Further, value of such third country shipments is not included in the value of exempt supply for the purpose of reversal of ITC under rules 42 and rule 43 of CGST Rules (Explanation to section 17(3) of the CGST Act.

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