Goods shipped abroad, invoice raised — still not an export under GST.

When a Bengaluru Trader’s Goods Never Touch India: The GST Ruling That Rewrites the Export Playbook

M/s. Marubeni India Pvt. Ltd., a Bengaluru-based trading company, had a simple question. It wanted to buy goods from an Indian manufacturer, sell them to an overseas customer, and have the manufacturer ship the goods directly from India to the foreign buyer. The goods would never enter Marubeni’s warehouse. The manufacturer would handle all export customs. Marubeni would raise its own invoice to the foreign buyer and get paid in foreign currency. The question: is Marubeni’s sale to the overseas customer a zero-rated export supply under GST, eligible for a refund of input tax credit?

The answer, delivered by the Authority for Advance Rulings in Karnataka (GST) on March 20, 2023, was a bombshell. The transaction is not a zero-rated supply. It is not a taxable supply. It is, in the Authority’s words, “neither a supply of goods nor a supply of services.” It falls entirely outside the scope of GST. For every intermediary trader using a direct-ship model, this ruling changes the tax arithmetic completely.

The Business Model That Triggered the Ruling

Marubeni India Pvt. Ltd. is a trading company. It buys and sells goods domestically and internationally. In its proposed model, an overseas customer places an order with Marubeni. Marubeni then orders the goods from an Indian manufacturer. The manufacturer, instead of delivering to Marubeni, ships the goods directly from India to the overseas customer’s location abroad. The manufacturer files the shipping bill as the exporter, handles all export customs formalities, and obtains the bill of lading. Marubeni raises a separate invoice to the overseas customer and receives payment in foreign currency.

On September 29, 2022, Marubeni approached the Authority for Advance Rulings in Karnataka (GST) under Section 97(2)(e) of the CGST Act, 2017, seeking a ruling on whether its supply to the overseas customer qualifies as a zero-rated supply under Section 16 of the IGST Act, 2017. A personal hearing was held on that date, and an additional hearing on November 10, 2022. The Authority admitted the application and heard the matter.

What Each Side Argued

Marubeni’s position was straightforward. It argued that its sale to the overseas customer is an export of goods. The goods are being taken out of India to a place outside India. Marubeni is receiving payment in foreign currency. Therefore, the supply should be treated as a zero-rated supply under Section 16 of the IGST Act, 2017, entitling it to claim a refund of input tax credit on the goods it procured from the Indian manufacturer.

The Authority, however, saw the transaction differently. It examined the definition of “exporter” under Section 2(20) of the Customs Act, 1962, and the definition of “export of goods” under Section 2(5) of the IGST Act, 2017. The Authority noted that the Indian manufacturer, not Marubeni, is the person who files the shipping bill as the exporter. The manufacturer obtains the bill of lading. The manufacturer holds title to the goods until they cross the customs frontiers of India. Under the Customs Act, the “exporter” is the person who holds himself out to be the exporter. Here, that person is the manufacturer.

The Doctrine That Changed Everything

The Authority’s reasoning turned on two key provisions. First, Section 2(5) of the IGST Act, 2017, defines “export of goods” as “taking goods out of India to a place outside India.” The Authority held that the person who “takes goods out of India” is the exporter. Since the manufacturer files the shipping bill and holds the bill of lading, the manufacturer is the exporter. The manufacturer’s supply to Marubeni is a supply of goods from a place in India to a place outside India. Under Section 11(b) of the IGST Act, 2017, the place of supply for that transaction is outside India.

Second, the Authority applied Entry 7 of Schedule III of the CGST Act, 2017. That entry covers “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.” Since the manufacturer’s supply to Marubeni has its place of supply outside India, Marubeni’s onward supply to the overseas customer is a supply from non-taxable territory to non-taxable territory. The goods never enter India for Marubeni’s transaction. Therefore, the transaction falls under Entry 7 of Schedule III and is treated as neither a supply of goods nor a supply of services.

The Authority also referenced the UNCTAD 1971 report definition of “bill of lading” to establish that a bill of lading is a document of title to goods, enabling the consignee to take delivery or dispose of goods by endorsement and delivery. This reliance on international trade law, while not strictly necessary for the decision, signals that the Authority is willing to look beyond domestic tax statutes to determine title and ownership in complex supply chains.

THE PLAY: If your intermediary trader model uses a direct-ship arrangement where the manufacturer files the shipping bill as exporter, your onward sale to the overseas customer is not a zero-rated supply — it is outside the scope of GST entirely. No refund of input tax credit is available on that leg of the transaction.

Why This Matters in Practice

For every trading company using a direct-ship model — where goods move from the Indian manufacturer directly to the overseas buyer without passing through the trader’s warehouse — this ruling is a wake-up call. The trader cannot claim a refund of input tax credit on the goods it procures from the manufacturer because the trader’s onward supply is not a taxable supply at all. The trader’s transaction is outside the GST net.

But there is a nuance. The manufacturer’s supply to the trader is a taxable supply. The manufacturer will charge GST on its sale to the trader. The trader will pay that GST. But the trader cannot claim input tax credit on that GST because the trader’s onward supply is not a taxable supply. The trader’s cost of goods increases by the amount of GST paid to the manufacturer, with no mechanism to recover it.

This is a structural problem for the direct-ship model. The trader must either absorb the GST cost or restructure the transaction so that the trader becomes the exporter — by filing the shipping bill in its own name, obtaining the bill of lading, and holding title to the goods until they cross customs frontiers. Only then will the trader’s supply to the overseas customer qualify as an export of goods under Section 2(5) of the IGST Act, 2017, and be eligible for zero-rated treatment under Section 16.

The ruling also clarifies the interplay between the Customs Act and the GST regime. The definition of “exporter” under Section 2(20) of the Customs Act, 1962, is broad — it includes any person who holds himself out to be the exporter. But the GST regime looks to the person who actually “takes goods out of India.” That person is the one who files the shipping bill and holds the bill of lading. The two statutes are aligned, but the GST regime gives primacy to the documentary evidence of export.

The Bottom Line

If you are an intermediary trader using a direct-ship model where the manufacturer files the shipping bill as exporter, your onward sale to the overseas customer is not a zero-rated supply — it is outside the scope of GST, and you cannot claim input tax credit on the GST paid to the manufacturer. Restructure the transaction so that you become the exporter, or absorb the GST cost as a permanent business expense.