The Karnataka High Court very recently was called upon to address the place of supply issue u/s 10(1)(a) of Integrated Goods & Services Tax Act 2017 in respect of GST liability on sale of cars by a vehicle manufacturer to his dealers located outside the State of Karnataka. Before we proceed further it would be worthwhile looking at the contents of this Section. The provision dealing with place of supply of goods when supply is within India, goes thus –
“10(1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,—
(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;”
The issue involved in the case before the Karnataka High Court (M/s Toyota Kirloskar Motor Pvt. Ltd Vs UOI & 2 Others (Writ Petition 6126 of 2024 (T-RES) decided on 27th November 2025)) was if the transfer of title over the cars in the State of Karnataka at the point of handing over the same to the carrier for transportation would result in the supply being treated as an intra-state supply rather than an inter-state supply and the movement of goods terminating for delivery in the State of Karnataka itself rather than at the dealer location outside Karnataka. The contention of the Revenue Authorities based on a review of the Sample Dealership Agreement and Tax Invoices was that supply was intra-state in this regard. Their contention was that the petitioner had lost title over the goods in question upon handing over the goods to the common carrier and consequently, the petitioner was not liable to pay IGST and in the event he has paid the same on erroneous premise, the petitioner would have to pay necessary KGST & CGST and take recourse to such remedies for seeking refund of IGST so erroneously paid by them. The Petitioner here had paid IGST treating the supply as inter-state as deliveries had to be made to dealers in other States.
In particular, the Respondents following observations given below forms the bone of contention before the Court –
“During the Audit of the taxpayer Toyota Kirloskar Motor Private Limited (29AAACT5415B1Z0), it has been observed by the auditors that the taxpayer has been paying IGST on the supply of motor products to the dealers who are registered in different states. However on examination of the terms & conditions attached to the tax invoices, Serial No. 5 of the terms and conditions states that in absence of the agreement to contrary, the title and risk in goods passes from TKML to the Dealer/Customer as sold from factory of TKML/invoiced to the customer and puts on common carrier for dispatch from TKM works at Bidadi. According to Serial No. 13 of the terms and conditions, for all purposes, the sale proceedings are to be considered as concluded at Bidadi in Karnataka. Further, according to the sample Dealership agreement provided by the taxpayer, the delivery of products from the Company to the Dealer is deemed to be completed once the Products are put on to the common carrier at Company’s Works at Bidadi Industrial Area or from its Regional Parts depots, as may be applicable. It is also stated that the Company will make its best efforts to supply the Products as per the Purchase orders and the delivery requirements of the dealer, but the Company shall not be responsible for the failure, delay or error in delivery of the Products and any consequential loss to the dealer arising therefrom. These clauses effectively establish the transfer of goods at the factory of the taxpayer since the title to the goods is considered to be transferred and any further risk of the consequential loss is to be borne by the Dealer. Thus the Delivery as per Sale of Goods Act should be deemed to have happened at the factory premises. This “Delivery” definition read with Section 10(1) of the IGST Act, establishes the Place of Supply of Goods at the location of the taxpayer where the movement of goods terminates for delivery to the recipient.”
Before we proceed further it is pertinent to note that Section 10(1)(a) of Integrated Goods & Services Tax Act 2017 which deals with place of supply in the relevant case, does not make any mention of timing of transfer of ownership over the goods to the buyer by the seller. So, any reference to timing of transfer of title in determining place of supply would only be going beyond the plain wordings in the statutory provision. Moreover, the Revenue also appears to have overlooked the fact that the term “recipient” has to be seen in the context of the buyer or someone at least representing him and not just the carrier. It is this aspect which the Court also acknowledged.
The Court observed that a plain reading of Section 10(1)(a) of the IGST Act will indicate that “where supply of goods involves movement of goods whether by the supplier or by the recipient or by any other person (common carrier), the place of supply of goods shall be the location of the goods at the time at which the movement of the goods terminates for delivery the recipient” It follows therefrom that the movement of the goods terminates for the purpose of handing over delivery to the recipient and to enable the recipient to take delivery of the goods and not when the goods are handed over to the ‘common carrier‘ but only when the goods reach the destination for the purpose of enabling the recipient to obtain / take delivery as is clear from the aforesaid provision. Therefore, the supply had to be inter-state supply and not an intra-state supply as place of supply of goods has to be determined in light of the ultimate destination where movement of goods terminates for delivery to recipient and not at the place where the movement of goods originates as a result of supplier handing over the goods to the carrier.
The Karnataka High Court also found no nexus between passing on of title over the goods to the buyer and the place of supply u/s 10(1)(a). Any tax demand on CGST & KGST could also not result in double taxation and would lead to a Revenue neutral scenario as supplier would have to be refunded IGST already paid. Therefore, the Court quashed the demand on this count.
Movement of goods and constructive delivery
Perhaps the definitive answer to the query posed by the Revenue could be found by readers in the views of the Supreme Court in Commercial Taxes Officer Vs Bombay Machinery Store (Civil Appeal No. 2217 of 2011 with C.A. Nos. 2220 of 2011 & 10000-10001 of 2017, decided on 27th April 2020). The Court here looked at the first explanation to Section 3 of the old Central Sales Tax Act 1956 which confirmed that the movement of the goods would be deemed to commence at the time when goods are delivered to a carrier and shall terminate at the time when delivery is taken from such carrier. In the absence of any specific elaboration in the GST law on the concept of movement of goods, this understanding (under CST Law) would also be relevant under GST. The Court here had also spoken about the concept of constructive delivery in the context of Section 3 of the CST Act 1956.
The Court clearly held that a legal fiction is created in first explanation to that Section. That fiction is that the movement of goods, from one State to another shall terminate, where the goods have been delivered to a carrier for transmission, at the time of when delivery is taken from such carrier. There is no concept of constructive delivery either express or implied in the said provision. On a plain reading of the statute, the movement of the goods, for the purposes of clause (b) of Section 3 of the 1956 Act would terminate only when delivery is taken, having regard to first explanation to that Section. There is no scope of incorporating any further word to qualify the nature and scope of the expression “delivery” within the said section.
The court was of the view that if the authorities felt any assessee or dealer was taking unintended benefit under the aforesaid provisions of the 1956 Act, then the proper course would have been legislative amendment. The Tax Administration Authorities could not give their own interpretation to legislative provisions on the basis of their own perception of trade practise. This administrative exercise, in effect, would have resulted in supplying words to legislative provisions, as if to cure omissions of the legislature. This verdict is relevant in the present context to Section 10(1)(a) as the Revenue is seeking to imply termination of movement based on transfer of title while the goods are yet to reach the actual buyer.
The divergent view by Kerala High Court – Causing Confusion?
One of the issues that had come up before the Division Bench of the Kerala High Court few years ago in Kun Motor Co. Pvt Ltd Vs Assistant State Tax Officer Kerala State GST Department Thiruvananthapuram (W.A. No. 1803 of 2018, decided on 6th December 2018) was if the transport of a car purchased in Puducherry to Thiruvananthapuram required a e-way bill to be generated. The Court here despite the fact that the selling dealer in Puducherry had treated the transaction as an inter state supply based on location of the customer and charged IGST, went on to hold the view that the transport of the car was transport of used personal effect and would not require e-way bill generation. The car in this case was being transported by the selling dealer to the customer in his carrier when it was intercepted in the State of Kerala. As per the Court, the service of transport of car inter-state was distinguishable from sale of car in the State of Puducherry.
The Court here looked at the temporary registration taken in the name of the customer in Puducherry as well as insurance cover for one year over the car in the name of the purchaser and the fact that the car had run 17 kilometres, since purchase, to hold the view that the supply was an intra-state supply in Puducherry and what was being transported was a used personal effect post sale in Puducherry. This did not require generation of e-way bill. This view was once again followed by the same High Court in another subsequent verdict.
Conclusion:
The verdict of the Supreme Court in Bombay Machinery Store cited supra would assume significance to answer the question on place of supply before us. The views of the Karnataka High Court appear to align with the earlier verdict of the Supreme Court and appears to be more plausible. The reason and nature of movement and nexus with supply have to be seen in each case in order to solve the issue of place of supply. One can only hope Courts do not continue to take divergent views for long so that high value transactions are not unnecessarily questioned during audits.
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