AAR Tamil Nadu Holds All DDP Export Expenses Must Be Included in Transaction Value for IGST Under Section 15 CGST Act

Background and Application
M/s. Arjun Knit Wear, engaged in garment manufacturing and export, sought an advance ruling from the Tamil Nadu Authority for Advance Ruling (AAR) regarding the treatment of various expenses incurred under Delivered Duty Paid (DDP) export terms. Specifically, the applicant queried whether reimbursed expenses such as ocean freight, insurance, foreign import duties, and delivery charges incurred abroad until the goods reach their destination should be included in the transaction value for IGST purposes, and whether IGST paid on such expenses is eligible for refund.

Applicant’s Submissions
The applicant explained that under DDP terms, as defined by Incoterms 2020, the seller is responsible for all costs and risks until the goods are delivered to the buyer’s designated location, including import duties and other charges. The applicant argued that, per Section 15 of the CGST Act, 2017, the transaction value should include all such incidental expenses incurred before delivery. The applicant also clarified that the pure agent concept does not apply, as invoices for these expenses are issued in the supplier’s name.

Regarding refunds, the applicant cited Section 16 of the IGST Act and Section 54 of the CGST Act, asserting that IGST paid on the transaction value—including all DDP-related expenses—should be eligible for refund, provided the relevant procedural requirements are met.

Personal Hearing and Further Clarifications
During the personal hearing, the applicant’s representatives reiterated that all DDP-related expenses are absorbed by the supplier and included in the invoice value. They confirmed that the supplier also acts as the importer at the destination port, and that the pure agent provisions do not apply.

Court’s Analysis and Reasoning
The AAR examined Section 15 of the CGST Act, 2017, which defines the value of taxable supply as the transaction value—the price actually paid or payable—where the supplier and recipient are not related and price is the sole consideration. Section 15(2)(c) specifically requires inclusion of incidental expenses, including any amount charged for anything done by the supplier in respect of the supply at or before delivery.

The AAR noted that under DDP terms, the supplier is responsible for all costs until the goods reach the buyer’s destination. Since these expenses are incurred by the supplier and intended to be charged to the recipient, the AAR held that all such charges—including reimbursed expenses like ocean freight, insurance, foreign import duties, and delivery charges—must be included in the value of taxable supply for IGST purposes.

The AAR also distinguished between GST and Customs valuation, noting that while Customs law values goods at the time and place of exportation, GST law requires inclusion of all pre-delivery expenses in the transaction value. The AAR referred to CBIC Circular No. 37/11/2018-GST, which clarifies that the value in the GST invoice should normally match the transaction value under Section 15, and that the lower of the GST invoice value or shipping bill value should be sanctioned as refund.

Ruling on Refund Query
On the applicant’s second query regarding refund eligibility, the AAR observed that matters relating to refund are outside the scope of advance ruling as per Section 97(2) of the CGST Act. Consequently, the AAR declined to answer the refund-related question.

Conclusion and Ruling
The AAR ruled that all expenses incurred by the applicant under DDP terms until the goods reach the buyer’s destination—including reimbursed expenses—are to be included in the value of taxable supply for IGST calculation on export of goods, in accordance with Section 15 of the CGST Act, 2017, read with Section 20 of the IGST Act, 2017. The question regarding refund of IGST paid on such expenses was not answered, as it falls outside the jurisdiction of the Authority for Advance Ruling.