WS Retail Services (P.) Ltd. v Union of India (Punjab & Haryana)- where the assessee supplied goods to customer of Punjab, which it brought from its warehouse situated outside State of Punjab to its delivery hub located in Punjab and mentioned its TIN of Punjab in VAT- 36 return, it was held that the said supply shall have to be treated as inter-state supply.
As far as the present case is concerned, which is governed by the provisions of the Central Sales Tax, 1956 and the PVAT Act. It has been repeatedly held that irrespective of which state the property in the goods passes, a sale which occasions the “movement of goods from one State to another” is a sale in course of inter-state trade. All that is required is that the inter-state movement must be the result of the sale. It is not even necessary for the contract of sale to expressly state or provide for the movement of the goods from one State to the other. It can be implied from the contract itself. Nor is it necessary that the sale must precede the movement in order that the sale may be deemed to have occasioned such movement.
Full Text of the High Court Judgment / Order is as follows:-
1. Respondent Nos. 2 and 3 are the State of Punjab and the State of Karnataka. Respondent Nos. 4 and 5 are the Excise & Taxation Commissioner and the Excise and Taxation Officer-cum-Assessing Authority (ETO).
2. The petitioner seeks a writ of certiorari to quash two show cause notices dated 16.10.2014 and 05.06.2015, an assessment order dated 03.08.2015 and a demand notice dated 18.08.2015. The petitioner also seeks a writ of mandamus directing respondent No. 3- State of Karnataka to refund the Central Sales Tax (CST) collected from the petitioner.
The impugned order dated 03.08.2015 is an assessment order made by respondent No. 5 (ETO) for the accounting year 2012-13 under section 29(2) of the Punjab Value Added Tax Act, 2005 (PVAT Act) as it stood at the relevant time. The impugned order dated 18.08.2015 is a tax demand notice directing the petitioner to pay a sum of Rs. 55,21,230/- pursuant to the assessment order. The assessment order assessed the balance tax due at Rs. 1,30,84,500/-. Interest under section 32 of the PVAT Act was levied and penalty under sections 56 and 60 of the PVAT Ac twas imposed.
An assessment was also made under the Central Sales Tax Act, 1956 (CST Act) at Rs. 15,73,000/-. Interest and penalty were also levied and imposed.
3. We would normally have relegated the petitioner to the alternate remedy of filing an appeal. We have, however, entertained this writ petition for two reasons. Firstly, there has been an exponential growth in online trading. The indication is that online trading will increase. There are certain questions of law which have been dealt with in several judgments of the Supreme Court and of certain High Courts concerning the legal issues that arise in these cases. These have neither been noticed nor considered in the impugned orders. They relate, at least to a large extent, to the jurisdiction of the officers concerned initiating the proceedings under the PVAT Act. The Kerala and the Madras High Courts have dealt not only with a similar case but with the petitioner’s case regarding other transactions. In the facts and circumstances of this case, it is desirable that there is clarity on the issues of law.
4. We have refrained from expressing any views on merits of each transaction for there are far too many of them. This judgment deals with the legal issues leaving it to the assessing authority to pass a fresh assessment order in accordance with this judgment.
5. The facts, so far as the questions we intend dealing with are concerned, are as follows:
The petitioner carries on business of selling goods through an online portal www.flipkart.com to customers for their personal use. The petitioner also provides logistic services to various parties which also carry on the business of selling goods through the said online portal. The goods sold and transported by the petitioner to parties in the State of Punjab were subject to CST in the State from where the goods were despatched. The goods were brought to Punjab from other States. The petitioner’s warehouses are located outside the State of Punjab. They are located in the States of Karnataka, Tamil Nadu, Maharashtra, Haryana, Uttar Pradesh, Delhi and West Bengal. The petitioner had paid the CST in respect of such goods. As the petitioner did not undertake any sale transaction in the State of Punjab, it did not have a taxable turnover for the purpose of assessment under the PVAT Act and, therefore, filed ‘nil’ returns for the Assessment Year 2012-13 on quarterly basis in Form VAT-15. Based on these returns, the annual statements, as required under Rule 40 in Form VAT-20, were also filed.
6. The State of Punjab enacted the Punjab Value Added Tax Act, 2005. It provides for the levy and collection of Value Added Tax (VAT) and turnover tax on the sale and purchase of goods and for the matters connected therewith and incidental thereto and for the repeal of the Punjab General Sales Tax Act, 1948. The petitioner registered itself as a taxable person/registered person under the PVAT Act as it intended setting up a warehouse in the State of Punjab. However, for reasons which are not material, the petitioner did not set up a warehouse for undertaking any business of sale or purchase of goods in the State of Punjab.
7. It would be useful to refer to the essential features relating to online transactions undertaken between the petitioner and its customers.
The customer logs on to the online portal “www.flipkart.com.” The customer then selects goods to be purchased. Upon agreeing to purchase the goods, the customer places an order on www.flipkart.com. The order is received by the sellers such as the petitioner. The petitioner provides a pick up confirmation to www.flipkart.com. The petitioner then despatches the good(s) from one of its warehouses.
The petitioner has delivery hubs in the State of Punjab. This is necessitated on account of the voluminous transactions of a similar nature. The hubs only facilitate the distribution and delivery of the goods ordered by the customers in the State of Punjab. The goods delivered to the hubs are on account of the transactions that were earlier entered into by the customers’ selecting the goods and agreeing to purchase them by logging on to the online portal www.flipkart.com. Delivery boys then pick up the goods from the hubs and deliver them to the customers. The petitioner furnished the following flow chart to the authorities as well as before us:-
“Customer places an
order on flipkart.com
↓
WS Retail gets pick up
information from
flipkart.com
↓
WS Retail receives pick
up information
↓
Products are given to
WSR by sellers
↓
Products are brought to
the central WH locations
↓
Products are sent from
warehouse to delivery
hubs
↓
Products are received at
Delivery Hubs &
Individual packets are
segregated.
↓
The delivery boys
deliver the goods to
customers
↓
Order Delivery is
confirmed to the website
flipkart.com”
The petitioner’s case, therefore, is that the goods moved from various States to the State of Punjab on account of the contracts of sale entered into between the petitioner and various purchasers.
Invoices are issued in the State from which goods are sourced with the name and address of the customer. The invoices accompanied the goods. This, according to the petitioner, makes it clear that the movement of the goods is on account of a contract of pre-existing sale.
8. It would be convenient to note at this stage that the invoices issued by the petitioner to the customers upon the customers placing orders indicate the location of the warehouse. In the sample invoices, for instance, the warehouses are stated to be situated in Maharashtra, Karnataka, Delhi, Tamil Nadu and West Bengal. None of the invoices referred to a warehouse in Punjab. The invoices also mentioned the address of the purchasers who, in the present case, are all of Punjab. The shipping addresses accordingly also mention the addresses in Punjab. Along with the details of the products, the tax paid is also mentioned. For example, in one invoice, it is stated “12.50% in Maharashtra inter state VAT” and in another it is stated “5.50% Karnataka inter state VAT”.
As we mentioned earlier, the petitioner’s warehouses are located outside the State of Punjab. The goods were, therefore, despatched from warehouses outside the State of Punjab to the purchasers in the State of Punjab. Contending that these are, therefore, inter-state sales, the petitioner paid the CST in the State where the warehouses from which the goods were despatched are located.
9. The petitioner is also a logistic service provider. This business is also related to the online portal flipkart.com which, being an online marketing place, displays goods of various sellers, who are registered with the portal. As we mentioned earlier, the customers purchased goods identified by them from various sellers including the petitioner. In respect of the transactions between the customers and the other sellers i.e. the sellers other than the petitioner, the petitioner undertakes transportation and logistic support for such sellers under its brand name “e-kart”. Such goods are despatched for various customers and are subject to CST in the hands of the sellers in the States from where such despatches take place. In respect of these transactions, the petitioner only acts as a service provider and has no other rights in respect of the goods.
10. The petitioner filed the relevant declaration at the Information Collection Centre (ICC) in accordance with section 51 of the PVAT Act contending that it did not have any taxable turnover in the State of Punjab and also contending that it had paid the CST in respect of the goods so brought into the State of Punjab. The petitioner filed “nil” returns of VAT including for the assessment year in question, namely, 201213.
11. The Excise & Taxation Officer – respondent No. 5 issued the first notice dated 16.10.2014 alleging that as per the ICC data the petitioner had in the Financial Year 2012-13 imported goods into Punjab of the value of Rs. 10.25 crores and exported goods from Punjab of the value of Rs.1.10 crores. The notice alleged that the petitioner had, therefore, not assessed the tax liability as per the provisions of the PVAT Act and the ‘Nil’ returns filed by the petitioner were, therefore, not true and correct. The petitioner was afforded a personal hearing and was directed to produce details of the material purchased and sold along with the invoices and proof of movement of goods, balance-sheet for the year 2012-13, item-wise list of commodities imported from and exported outside the State and details of bank accounts. The petitioner was called upon to show cause why its tax liability be not calculated on the basis of the data available with the department and penal action be not taken under section 56 of the PVAT Act for suppressing the taxable turnover and evading the tax to the State’s exchequer.
The petitioner filed a reply dated 09.02.2015 in which it stated some of the facts that we have already referred to. The petitioner stated that its logistic division had inadvertently quoted the TIN (Tax Identification Number) of Punjab in respect of the said sales. The petitioner stated that the transactions fall within the ambit of section 3 of the CST Act. The petitioner enclosed sample manifest along with invoices with reference to the ICC data. The alleged export of Rs. 1.10 crores was stated to be the value of goods returned by the customers.
12. The ETO (VAT), Punjab – respondent No.5 issued a further show cause notice dated 05.06.2015 termed “FINAL NOTICE” for framing the assessment under section 29(2) of the PVAT Act and under section 9(2) of the Central Sales Tax Act, 1956 read with section 29(2) of the PVAT Act in respect of the Assessment Year 2012-13. The notice directed the petitioner to produce a copy of the agreement with Flipkart as logistic partner, the agreement with Flipkart as a seller on its platform, the terms regarding the consideration to be paid by Flipkart to the petitioner as a logistic partner and as a seller, details of items sold by the petitioner and of the bills which are manifest according to petitioner, details of tax paid by the petitioner in Karnataka and the process flow of the movement of goods from the source of supply to the destination and the remittance of consideration received from the customers.
The petitioner by its reply dated 09.06.2015 stated that it had not undertaken any trading/ sale/ purchase in or from the State of Punjab. The documents sought were furnished under cover of the reply. The petitioner reiterated what it had stated in reply to the earlier show cause notice.
13. This brings us to the impugned assessment order dated 03.08.2015.
14. In the assessment order, the ETO framed and answered seven questions. The first question was whether the petitioner had traded in goods as defined under the PVAT Act. There is no dispute that the articles dealt with by the petitioner fall within the meaning of the word “goods” as defined in section 2(k) of the PVAT Act which reads as under:-
“Definitions. 2. In this Act, unless the context otherwise requires,–
…… ….. ….. …… …… …… …….
(k) “goods” means all kinds of movable property, whether tangible or intangible, other than newspapers, actionable claims, money, stocks, shares and securities and includes livestock, growing crops, grass, trees, plants attached to or forming part of the land, which are agreed to be severed before the sale or under the contract of sale;”
15. The assessment order observed that most of the articles are electronic goods and we will presume that to be so. While answering question Nos. 2, 3, 4 and 7, the ETO proceeded almost entirely, on the basis that the goods were brought into the State of Punjab through the ICC and that in Form VAT-36 the petitioner mentioned its TIN. This fact, according to the ETO, established that the petitioner had imported the goods to Punjab without anything more and sold the same only thereafter to various customers. Thus, according to the ETO, the petitioner sold the goods in the State of Punjab and that the sales were not inter-state sales as contended by the petitioner. This, in our view, was a fundamental error.
16. It will be convenient to set out the relevant parts of the order to indicate the extent of the importance placed by the ETO on this aspect.
“Question 2: Whether the logistics partner is a trader?
The WS Retail Services Private Limited, the logistics provider is a registered taxable person under the Punjab VAT Act, 2005 holding TIN 03392097512. The taxable person has imported the goods on its TIN. The taxable person does not have any physical stock or stock in the books of such imports made. Further, it has exported goods in the course of interstate trade and commerce. Thus, the taxable person is a legitimate trader. Any person importing goods on its TIN shall be required to dispose of such goods in course of trade and commerce. The dealer takes the plea that it happened by mistake. Mistake can be made once or twice. The dealer kept on importing the goods into the State of Punjab not in the present year but in the next years too. Further, the dealer has made e-icc entries in the present year. The details are given below:
