Background:
Pre GST regime allowed consignment sale to Consignees as well as stock transfers (against Form ‘F’ within the same PAN, but different VAT TIN’s). This made business easier and in tune with the intent of not transferring the ownership in goods to the consignee.
Needless to say, the Insurable Interest rested with the Consignor/Transferor, and there weren’t any qualms about that.
Things have since changed with the epoch of new GST regime.
In order that the chain of supply and incidence of tax doesn’t suffer a break, Tax Invoice is the instrument. Whether it be an interbranch interstate transfer, or a ‘Goods sent on consignment’ case, one must issue a GST invoice in terms of S. 31 of the CGST Act 2017 , r/w Chapter VI of the CGST Rules 2017.
This now gives rise to questions as to the ownership claims to the stock, especially in the eyes of the Insurer, as ‘invoice’ has been long held to be an instrument through which title to the goods is transferred along with the physical goods. The moot question is that with whom lies the classic ‘Title’ to the goods once he, being a supplier, issues a tax invoice.
Treatment of Consignment Sale under GST regime.
Acts referred to:
2. Sale of goods Act, 1930
Question: How to retain title to goods under GST regime of the goods sent on consignment?
Ans: There apparently is no mechanism under the GST law which clearly facilitates the ‘Consignment Sales’ as understood normally.
A consignment sale entails the following features:
1. Goods are ‘supplied’ to a consignee (different PAN and GSTIN)
2. Title to goods is retained by the consignor at all times.
3. Insurable interest remains with the Consignor only.
4. There’s no consideration involved, except for the ultimate/secondary Sales made by the Consignee, which is remitted to the consignor’s account as per the terms of Agreement.
Sales of Goods Act, 1930:-
S. 4(1)– A contract of sale of goods is a contract whereby the seller
– transfers or agrees to transfer the property in goods to a buyer
– for a ‘price’
Sec. 19– Sale of goods Act-“Property passes when intended to pass” (emphasis supplied to the word ‘Intended’)
Further S. 19(1)-Where there’s a contract
– for sale of goods
– the property in them
– Is passed/transferred to the Buyer at such time
– as the parties to the contract intend it to be transferred
S.19(2) – For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the Contract,
– the conduct of the parties; and
– the circumstances of the case.
S.19(3)- Unless a different intention appears (i.e if the contract/agreement is unclear as to intention to transfer the property in the goods sent on consignment), rules contained u/s 20 to 24 shall apply.
#It is amply clear that terms of the contract shall prevail when it comes to transfer of title to the goods that are sent on consignment.
Also, as per Sec.3 of SOGA, 1930, the Indian Contract Act, 1872 shall apply to contract for the sale of goods.
Refer to CGST Act, 2017–
Sec. 9 read along with the intent of the GST Law
– The GST law innately does not concern itself with ‘sale’ but rather ‘supply’ of goods/services.
– In fact, terms such as “Sale”, “transfer of property in goods” have not even been defined in the CGST/IGST Acts.
To make matters more evident as to intent of GST Law: –
S.31 of CGST Act. – Tax Invoice r/w R. 36 of CGST Rules (i.e. Documentary requirements and conditions for claiming Input Tax Credit), clearly indicates that the intent of the GST Law and its charging Sec. 9, is to establish the factum of ‘Supply’ only. It doesn’t concern with ‘Sale’ or transfer of title to goods at all. In fact, neither S. 31 (Tax Invoice) nor R. 36/46 etc. mention the term ‘sale’ even once.
– Also, there is a concept of “Self Invoice” u/s 31(3)(f) r/w R.36(1)(b), which runs riot with our plain commercial understanding of the term ‘invoice’, which was hither to construed to be an instrument that establishes the primitively understood ‘title’ to the goods.
– Under the GST law, therefore, to ascertain the ‘title’ to the goods, one must refer to the commercial understanding reached to by the parties i.e. the ‘Supplier’ and the ‘receiver’
Conclusion:
– Hence whenever there’s is a question as to the ownership/title/insurable interest” to goods, the Act to be referred to is the ‘Sale of good Act, 1930, as the GST law itself does not concern itself with the term “Sales” or “title to the goods”.
– Terms of the Contract between the transacting parties shall predominate, as per S. 19(2) of SOGA, 1930
– The Agreement with the consignees must clearly have a clause that despite “invoicing” of goods, which is the sole mechanism possible under GST, it should not be construed that the title to the goods has also been transferred to the consignee.
– An advance intimation may well be given to the Department as well as the Insurers of the practice with a copy of the Contract, highlighting the relevant clauses.
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Discliamer: The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.
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Let the ITD pay the refund first without reminders from the tax payers as they unnecessarily delay even after processing ITRs before exercising the sections highlighted in the article.