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04 September 2017

GST/VAT liability in case of chain of successive supplies

In a case involving supply of goods by a taxable person in the first State where, before such supply transaction is entered into, the purchaser, who is a taxable person in the second State, expresses an intention to resell the goods immediately, before transporting them from the first State to a taxable person established in a third State, the Court of Justice of the European Union has held the first transaction to be liable to VAT, as they constituted internal supplies. [It may be noted that intra-community transactions (supplies between Member countries of EU) are exempt from VAT in EU.]

Relying on precedents, the Court in its Order dated 26-7-2017, was of the view that the whole transaction forms a chain of two successive supplies that give rise to only a single intra-Community transport, and hence the intra-Community transport can be ascribed to only one of the two supplies, which will alone be exempted under Article 138(1) of the VAT Directive. It was held that since the second supply, has taken place before the intra-Community transport occurs, the intra-Community transport cannot be ascribed to the first supply to the first person acquiring the goods.

Further, dismissing the argument that the middleman (first purchaser from the second State) was registered in different State and hence the transaction would be liable to VAT twice (with the first purchaser declaring its acquisitions in the second State), the Court observed that the place where a trader is identified for VAT purposes is not a criterion for classification of an intra-Community supply or intra-Community acquisition. It was also held that processing of goods in the first State after the first supply would also not affect the liability to VAT.