Case Law Details
State of Karnataka Vs Aam India Manufacturing Corporation Private Limited (Karnataka High Court)
The Karnataka High Court considered an intra-court appeal filed by the State challenging the order of the learned Single Judge dated 19.01.2023 in W.P. No.16845/2022 (TIS). The Single Judge had quashed the appellate authority’s order dated 16.03.2022, modified the ex parte order dated 09.11.2020 by restricting the penalty payable by the petitioner to ₹25,000, and directed refund of the remaining amount deposited by the petitioner within six weeks. The State challenged this order.
Material Facts and Procedural Background
The respondent purchased hydraulic fixtures and tooling body machines in July 2020, which were delivered to its unit at Ahmednagar, Maharashtra. After certain customisation, the respondent transported the machinery back to the seller at Coimbatore for testing. The movement was under delivery challans but without e-way bills.
The Commercial Tax Officer intercepted the vehicle on 03.11.2020 and issued a detention order in Form GST MOV-06 along with a notice in Form GST MOV-07 under Section 129(3) of the CGST Act. The respondent deposited the tax and penalty demanded. Thereafter, an ex parte order dated 09.11.2020 confirmed the demand of IGST and penalty. The respondent’s appeal under Section 107(11) of the Karnataka Goods and Services Tax Act, 2017 was disposed of by order dated 16.03.2022. The respondent then filed a writ petition, which was allowed by the learned Single Judge, leading to the present appeal by the State.
Key Legal Issue
The principal issue before the High Court was whether the learned Single Judge’s order modifying the ex parte order, restricting the penalty and directing refund required interference.
Relevant Statutory Provisions
The Court considered:
- Section 7(1)(a) of the CGST/KGST Act;
- Section 68 of the CGST Act;
- Section 107(11) of the Karnataka Goods and Services Tax Act, 2017;
- Section 129(1)(a);
- Section 129(3) of the CGST Act;
- Rule 55(1) of the CGST Rules; and
- Rule 138 and Rule 138(4) of the CGST Rules.
Submissions of the State
The State contended that the respondent failed to establish before the authorities that transportation of the machinery under delivery challans formed part of the original transaction and was not an independent transaction involving fresh consideration. It argued that the movement should therefore be treated as a supply attracting tax.
The State further submitted that the respondent had failed to generate an e-way bill before commencement of transportation as required under Rule 138 of the CGST Rules. Since the goods were not exempted goods, the respondent could not claim the benefit of Section 129(1)(a) or Section 129(1)(b) of the CGST/KGST Act. According to the State, these aspects had not been properly appreciated by the learned Single Judge.
Submissions of the Respondent
The respondent submitted that transportation of the machinery under a delivery challan without an e-way bill occurred due to a bona fide mistake. It relied upon the appellate authority’s finding that under Section 68 of the CGST Act and the relevant Rules, movement of goods valued above ₹50,000 must be accompanied by a tax invoice or delivery challan along with an e-way bill.
The respondent contended that transportation of the machinery from Ahmednagar to Coimbatore for testing did not fall within the specified goods or specified transactions exempted under Rule 138(4). It further submitted that the re-transportation constituted a non-taxable supply and therefore no tax could be levied or collected. According to the respondent, these aspects had been correctly appreciated by the learned Single Judge.
Court’s Findings
The High Court observed that it was undisputed that the respondent had initially purchased the machinery from Coimbatore and transported it to Ahmednagar, after which it was re-transported to Coimbatore solely for testing.
The Court noted the State’s contention that the re-transportation constituted a separate and distinct transaction. Referring to Section 7(1)(a) of the CGST/KGST Act, the Court observed that supply of goods requires sale, transfer, barter, exchange, licence, rental, lease or disposal for consideration in the course or furtherance of business.
The Court held that the re-transportation of the machinery did not involve any consideration and therefore did not fall within the scope of Section 7(1)(a).
The Court further observed that Rule 55(1) of the CGST Rules permits transportation of goods without an invoice but under a delivery challan in specified circumstances, including transportation for reasons other than supply, subject to generation of an e-way bill under Rule 138. It also noted that although the CGST/KGST Act and Rules provide exemptions from generation of e-way bills in specified cases, those exemptions did not apply to the respondent’s re-transportation of the machinery.
Accordingly, the Court noted that the learned Single Judge had found there was a breach on the respondent’s part and had therefore held the respondent liable only for the penalty contemplated under the second part of Section 129(1)(a) of the CGST/KGST Act. The Single Judge consequently modified the ex parte order dated 09.11.2020 and directed refund of the remaining amount deposited.
The Division Bench found no error in the order of the learned Single Judge.
Final Ruling
The Karnataka High Court held that the order of the learned Single Judge did not require interference. It dismissed the State’s writ appeal, upheld the modification of the ex parte order restricting the penalty to ₹25,000, and sustained the direction for refund of the remaining amount deposited by the respondent.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The State has preferred this intra court appeal challenging the order dated 19.01.2023 passed by the learned Single Judge in WP.No.16845/2022 (TIS), whereby the learned Single Judge passed the following order:
“The petition is allowed, and the third respondent’s impugned order dated 16.03.2022 a[Annexure – A] is quashed and the third respondent’s ex parte order dated 09.11.2020 is modified confining the penalty payable by the petitioner to a sum of Rs.25,000/- and the fourth respondent is directed to ensure that the remaining amount deposited by the petitioner is refunded within the period of six [6] weeks from the date of receipt of a certified copy of this order.”
2. The brief facts which are necessary for adjudication of this appeal are – that in the month of July, 2020, the respondent has purchased hydraulic fixtures and tooling body machines and the same was delivered to its unit at Ahmednagar, Maharashtra. The respondent after certain customization of machineries sent the same back to the seller in Coimbatore for performing testing. The transport of machine is under the cover of delivery challans, but without E-way bills. The Commercial Tax Officer, Koramangala i.e., appellant No.4 intercepted the said vehicle on 03.11.2020 and has issued detention order on 07.11.2020 in Form No.GSTMOV-06 along with notice in Form No.GSTMOV-07 under Section 129 (3) of the CGST Act. Accordingly, the respondent deposited the tax demanded with penalty vide challan No.54433946. Later the 4th appellant has issued ex parte order dated 09.11.2020 confirming the demand of IGST and penalty. The same was appealed before the 3rd appellant and the 3rd appellant by order dated 16.03.2022 has disposed of the appeal under Section 107(11) of Karnataka Goods and Service Act, 2017 (KGST). The said order has been challenged before the learned Single Judge and the learned Single Judge, on assessing the documents, allowed the writ petition as stated supra. Challenge to the same is /is before this Court.
3. We have heard Smt.Jyoti M.Maradi, learned HCGP for the appellants and Sri Prakash Shah, learned Senior Counsel for Sri Mohan Maiya G.L., learned counsel for the respondent through video conference. Perused the impugned order and material on record.
4. Apart from urging several contentions, learned HCGP primarily contended that the respondent has failed to demonstrate before the Authority that the transportation of machinery under delivery challan was part of original transaction and independent of any fresh consideration by placing sufficient documents. In such circumstance, it must necessarily deemed to be a supply and as such, the 3rd and 4th appellants are justified in levying and collection of tax. She would also contend that information was furnished before the commencement of transportation as contemplated under Rule 138 of CGST Rule. According to her, since the respondent not generated E-way bill with necessary information before the commencement of transportation, the respondent cannot claim benefit under the second part of either under Section 129(1)(a) or 129 (1)(b) of the CGST/KGST Act. The goods transported by the respondent are not exempted goods. These aspects of the matter have not been properly appreciated by the learned Single Judge. Hence, she prays to allow the appeal.
5. Per contra, learned counsel for the respondent submits that the transportation of machinery under a delivery challan without E-way bill was only by a bonafide mistake and the 3rd appellant in its order dated 16.03.2022 has opined that as per the provisions of Section 68 of CGST Act and the relevant CGST Rules, the movement of goods must be accompanied by a tax invoice or delivery challan and with E-way bills, if the value exceeds Rs.50,000/- and the exemption from generating E-way bills is only in respect of specified goods and specified transactions specified under Rule 138(4) of GST Rules. According to learned counsel, the transportation from Ahmednagar, Maharashtra to Coimbatore does not come within the ambit of specified goods or specified transactions since the same would be a non-taxable supply and there cannot be any levy and collection of tax. He contended that these aspects of the matter have rightly been appreciated by the learned Single Judge. Accordingly, he prays to dismiss the appeal.
6. We have given our anxious consideration to the submissions made by learned counsel for both the parties.
7. The only question that would arise for our consideration is-
Whether the order under challenge requires any interference at the hands of this Court?
8. As could be gathered from records, undisputedly the respondent purchased the machinery under a purchase order and invoices in the month of July, 2020 from Coimbatore and transported to its unit at Ahmednagar, Maharashtra and later the machinery was re-transported to Coimbatore for performing testing. The contention of the appellants is that the said transaction has to be treated as separate and distinct transaction and not part of the original transaction. The provisions of Section 7(1)(a) CGST/KGST Act stipulates that supply of goods or service or both goods either as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made must be for a consideration by a person in the course of furtherance of business would be a supply for the purpose of this enactment.
9. As stated supra, re-transportation would not attract consideration and the instant transaction does not come within the purview of Section 7(1)(a) of CGST/KGST Act. Rule 55 (1) of CGST Rules defines transportation of goods without issue of invoice, but on delivery challan for certain categories of supply and one of the categories would be transportation of goods for reasons other than by way of supply, but with generation of E-way bill as contemplated under Rule 138 of CGST Rules. The CGST/KGST Act and Rules provide for certain exemptions from generating E-way bills in certain cases. However, the same does not cover the subject re-transportation. As such, the learned Single Judge has held that there is breach on the part of the respondent and he is liable to pay penalty as contemplated under the second part of Section 129(1)(a) of CGST/KGST Act. Accordingly, modified the ex parte order dated 09.11.2020 and directed the 4th appellant to refund the remaining amount deposited by the respondent. We find no error in the order passed by the learned Single Judge and accordingly, the point raised above is answered.
In the result, the writ appeal lacks merit and the same is dismissed.
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