2025 Supreme(Online)(AP) 16539

HIGH COURT OF ANDHRA PRADESH
SUBHENDU SAMANTA,R RAGHUNANDAN RAO
M/s. SEIL Energy India Limited – Appellant
Versus
THE PRINCIPAL COMMISSIONER OF CENTRAL TAX – Respondent
WP 31119/2024

A supply of goods to an intermediary for onward supply to a foreign buyer is not an 'export of goods' under the IGST Act unless the supplier has direct privity of contract with the foreign buyer and the supply itself occasions the export.

Headnote:(A) Constitution of India - Article 286 - Goods and Services Tax - Integrated Goods and Services Tax Act, 2017 - Section 16 [Zero Rated Supply], Section 2(5) [Export of Goods], Section 2(6) [Export of Services] - Central Goods and Services Tax Act, 2017 - Section 54 [Refund of Tax] - Central Goods and Services Tax Rules, 2017 - Rule 89(4) [Refund formula] - Central Sales Tax Act, 1956 - Section 5 [Sale in course of export/import].

(B) Export of goods - Test for - Under Section 2(5) of the IGST Act, 2017, the test for export of goods is whether the supply results in the goods being taken out of India. The absence of a condition that the supply must occur outside India, unlike the definition of export of services under Section 2(6), means that any supply within India which results in goods being taken out of India constitutes an export supply forming a 'zero rated supply' under Section 16. (Paras 33, 34)

(C) Penultimate supply or sale for export - Not an export supply - A supply of goods in contemplation of, or for the purpose of, a separate export supply by another entity is not itself an export supply. Such a transaction is a 'home transaction' and does not qualify for the exemption under Article 286(1)(b) or as a zero-rated supply under the IGST Act. The sale that directly occasions the movement of goods out of India is the export sale, and prior sales in the chain are separate domestic supplies. (Paras 25, 27, 36, 38, 39)

(D) Privity of contract - Requirement for integrated transaction - Without privity of contract between the initial supplier and the foreign buyer, a penultimate supply cannot be treated as part of a single integrated export transaction. While meetings and mutual agreements to ensure smooth supply may exist, they do not create a direct contractual relationship unless the underlying agreements are varied. A dealer who is not a party to the contract between an intermediary and the foreign buyer cannot claim the supply to the intermediary as an export supply. (Paras 15, 38, 39)

Facts of the case:
The petitioner, engaged in generating and supplying electricity, supplied electricity both directly to the Bangladesh Power Development Board (Bangladesh Board) and indirectly through Power Trading Corporation India Limited (PTC). For the indirect supply, PTC had an agreement to supply electricity sourced from the petitioner to the Bangladesh Board. The petitioner sought a refund of Input Tax Credit (ITC) for these supplies, claiming they were zero-rated export supplies under Section 16 of the IGST Act. The tax authorities rejected the claim for the supplies made to PTC, holding them to be domestic supplies, not exports. The petitioner argued the contracts formed a single integrated transaction and privity of contract existed with the Bangladesh Board.

Findings of Court:
The court dismissed the writ petitions. It held that the supply of electricity by the petitioner to PTC is a separate domestic supply and not an export supply under the IGST Act. The supply by PTC to the Bangladesh Board is the export supply. The court found no privity of contract between the petitioner and the Bangladesh Board. The court ruled that the petitioner must resubmit its refund applications treating the supplies to PTC as domestic supplies within the formula in Rule 89(4).

Issues: The primary issue was whether the supply of electricity by the petitioner to PTC, for onward supply to the Bangladesh Board, constitutes a 'zero rated supply' (export of goods) under Section 16 of the IGST Act, 2017, thereby entitling the petitioner to a refund of input tax credit.

Ratio Decidendi: The court reasoned that under Section 2(5) of the IGST Act, the test for export of goods is movement out of India, but this must be read in light of Article 286(1)(b) and the principles established in State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory. A sale for export is distinct from a sale in the course of export. Since the supply to PTC did not itself occasion the movement of electricity out of India, and there was no contractual privity between the petitioner and the foreign buyer, the supply to PTC is a domestic transaction and cannot be treated as an integral part of the export supply. Result : Writ petitions dismissed. Petitioner permitted to resubmit refund applications treating supply to PTC as domestic supply, within four weeks, to be decided by authorities without limitation objection within six weeks.