Case Law Details
Philips Carbon Black Limited Vs State of Kerala (Kerala High Court)
Kerala High Court held as per Section 10(1)(b) of the IGST Act, the place of supply of goods in case where the supply is made on the direction of the 3rd person, it would be deemed as 3rd person has received the goods and the place of supply of such goods shall be the principal place of business of such 3rd person.
Facts- The petitioner, a dealer under the provisions of the Central Goods and Services Tax Act and Kerala Goods and Services Tax Act, 2017, has filed the present writ petition challenging the proceedings initiated under Section 149 of the CGST Act, 2017 on the ground that the proceedings are wholly without jurisdiction and without the authority of law.
The petitioner has challenged communication whereby the petitioner has been intimated by the 2nd respondent in response to the letter of the petitioner dated nil that since the destination of the transport is Kannur in Kerala, therefore, the supply being a taxable supply, SGST component of the GST is creditable to Kerala State. It is also stated in the said communication that if supply is not a taxable supply, for job work as claimed by the petitioner, the supplier should issue the supply documents (Delivery challan), the details of which have to be reflected in the accounts records of the consignee. Without this supply document, the nature of supply, the accountability of the transaction and also the further movement of goods at the hands of the consignee cannot be monitored by the department. In the absence of an online declaration like KER -1, E way bill etc. the monitoring of the further movement of the goods becomes more difficult.
Conclusion- In case, where the supply is made on the direction of a 3rd party, then place of the principal or the 3rd party shall be the place of supply as per Section 10(1)(b) of the IGST Act. In the present case, the delivery of goods was destined to M/s. Carbomix Polymers (India) Pvt. Limited, Kannur, Kerala, on instructions by MRF Limited to whom the goods were sold and invoice was issued in the name of MRF Limited. Thus, the supply of goods in the present case was inter-state supply and not intra-state supply and the same would attract the tax under the IGST Act.
In the present case, the place of supply is in the state of Tamil Nadu but the delivery of the goods is within the State of Kerala i.e, from Ernakulam to kannur. The goods of the petitioner were not intercepted for non-generation of KER-1 and was not part of Ext.P4 notice. The only allegation was that the petitioner had charged IGST instead of CGST and SGST. Even otherwise, this was time when the transition from the Kerala VAT tax regim to CGST/SGST tax regim was taking place, and the E-way bill system was being introduced and therefore, for not generating the KER-1 declaration, when the goods were accompanied with the other required documents such as invoices etc., itself would not be sufficient that the supply was in violation of the provisions of the Act and Rules.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner, a dealer under the provisions of the Central Goods and Services Tax Act and Kerala Goods and Services Tax Act, 2017, has filed the present writ petition challenging the proceedings initiated under Section 149 of the CGST Act, 2017 on the ground that the proceedings are wholly without jurisdiction and without the authority of law.
2. The petitioner has challenged Ext.P8 communication whereby the petitioner has been intimated by the 2nd respondent in response to the letter of the petitioner dated nil that since the destination of the transport is Kannur in Kerala, therefore, the supply being a taxable supply, SGST component of the GST is creditable to Kerala State. It is also stated in the said communication that if supply is not a taxable supply, for job work as claimed by the petitioner, the supplier should issue the supply documents (Delivery challan), the details of which have to be reflected in the accounts records of the consignee. Without this supply document, the nature of supply, the accountability of the transaction and also the further movement of goods at the hands of the consignee cannot be monitored by the department. In the absence of an online declaration like KER -1, E way bill etc. the monitoring of the further movement of the goods becomes more difficult.
3. It is stated that the breach of the rule has taken place inasmuch as the supply documents that caused the movement of the goods to the destination was not carried by the conveyance, and this contravention of the provisions of the Act requires the inspecting officer to issue notice under Section 129(3) of the GST Act for which the notice has already been issued and the goods would be released as per the law.
4. The petitioner is engaged in the manufacture and sale of Carbon Black. They transported one consignment of Carbon Black based on Ext.P5 purchase order of MRF Limited, Arakonam, in the State of Tamil Nadu hereinafter referred to as buyer/principal. It is stated that the buyer had instructed the petitioner to deliver the goods to its job worker M/s. Carbomix Polymers(India) Pvt. Limited, Kannur, in the State of Kerala. The said consignment was accompanied by Ext.P1 invoice. The invoice would mentioned the name of the buyer in the consumer name column and details of job worker were mentioned in the consignee name column.
5. The goods were intercepted by the 3rd respondent on 27.02.2018 in the morning at 08.30A.M when the transport reached Kozhikode, on the way to the place of job worker at Kannur, and Ext.P3 detention order was issued. Simultaneously, Ext.P4 notice under Section 129(3) of the CGST/KGST was issued. Ext.P4 notice mentions the reason that the place of delivery of goods being at Kannur in the State of Kerala, the CGST and SGST should have been charged in the invoice but Ext.P1 invoice was issued charging only IGST. This was treated as the contravention of the provisions of the Act, and Section 129 was invoked against the petitioner by the 3rd respondent. The reason for intercepting the goods as mentioned in Ext.P4 notice would read as under:-
“The vehicle with goods intercepted at Vengalam in Calicut while plying towards Kannur side. On verification of the accompanied documents following defects are found. The goods under transport is Carbon Black which is consigned from M/s. Philips Carbon Black Ltd., Cochin to MRF Limited Arakonam, Tamil Nadu, which is shown as place of supply and place of delivery is shown as M/s. Carbomix Polymers India Limited, Kannur in Kerala. In the accompanied invoice, the IGST is also collected as an inter-state transport and the SGST portion of which is credited to Tamil Nadu State. As the place of delivery of the goods is Kerala, the SGST to be credited to Kerala State. No such documents ensuring such flow of tax credit to Kerala State or any other document to prove the non-requirement of tax flow to Kerala State are accompanied.”
6. The petitioner filed objection to the said notice (Ext.P4) by Ext.P7 reply, stating that goods were to be delivered to the job worker at Kannur. However, the supply was to MRF Limited, Arakonam in Tamil Nadu. The 2nd respondent issued Ext.P8 proceedings, and the stand taken was that there was violation of the provisions of the Act at the hands of the petitioner transporting of goods covered by Ext.P1 invoice. The goods were released vide Ext.P1 1 only on the petitioner making payment under protest. Learned counsel for the petitioner submits that the stand taken by the respondents in Exts.P3 and P4 notices, and Ext.P8 proceedings is unsustainable in law, and the entire proceedings initiated under Section 129 are wholly without jurisdiction.
7. It is submitted that Section 10(1)(b) of the IGST Act, 2017 provide that when goods are sent to a job worker under the instructions of the buyer/principal, the delivery at the business premises of the job worker is deemed to be receipt of goods by the principal and the place of supply of such goods shall be the place of business of the buyer/principal. He therefore submits that under Section 10(1)(b) of the IGST Act, in the present case, the place of supply would be the misplace of business place of MRF Limited which is in the State of Tamil Nadu. Learned counsel for the petitioner further submitted that under Section 7 of the IGST Act, a supply would be treated as an inter-state supply, if the location of the supplier and the place of the supply are in to different States. The place of delivery is immaterial to determine whether particular supply is inter-state supply inasmuch as what is relevant is the place of supply and not the place of delivery. The respondents have considered the place of delivery as place of supply, and have proceeded against the petitioner which is evident from notices issued as well as conclusion in Ext.P8 communication, which are against the express provisions of IGST Act. Learned counsel for the petitioner submits that for determining whether supply is an inter-state supply or not, it would depend upon the place of supply and not the place of delivery. The whole proceedings are based on erroneous assumption of jurisdiction by the respondents.
8. Learned counsel for the petitioner has also drawn attention of this Court to the provisions of Section 143 of the CGST Act. The procedure to be adopted in case of supply of goods between a job worker and principal is set out under Section 143 of the CGST Act, and the said procedure is made applicable in the case of transactions falling under IGST Act by Section 20(xxii) of the IGST Act. In order to alleviate any confusion prevailed in the trade as regards procedure to be followed in sending goods for job work, the Central Board of Excise and Customs in exercise of the powers conferred under Section 168 of the CGST Act has issued Ext.P12 circular. In paragraph 8.4(iv) of Ext.P1 2 circular, it is clarified that goods can be sent by the supplier directly to the premises of the job worker under the instruction of the buyer/principal. Such movement of goods directly to the job worker can be done under cover of a copy of the invoice issued by the supplier to the buyer/principal. The only condition prescribed is that the job worker’s name and address should be mentioned in the invoice as the consignee.
9. The challan required to be issued by the buyer/principal to the job worker under Rule 45 of the of the CGST Rules can be directly sent by the buyer/principal to the job worker, and such challan need not accompany the consignment, the same may be sent directly to the job worker by the buyer/principal. Learned counsel for the petitioner submits that in Ext.P1 invoice issued by the petitioner, buyer/principal is described as the customer and the job worker as the consignee, the same is in strict compliance with the job work procedure contemplated under Section 143 of the CGST Act, read with Ext.P12 Learned counsel for the petitioner submits that the reasons recorded in paragraph 8 of Ext.P8 that the non-accompaniment of the documents for supply of goods by the buyer/principal to the job worker along with the transport is a violation of Section 31(1) is against the statutory prescription and circular Ext. p 12.
10. The delivery of goods would be deemed to the business place of the buyer/principal as per Section 10(1 )(b) of the IGST Act only on delivery to the job worker. The goods were detained by the respondents before it reached the premises of the job worker. Unless the goods are reached to the job worker, same can never be with the buyer/principal. Therefore, it was the statutory duty of the petitioner to respond to the notices issued, and the proceedings initiated by the respondents inasmuch as the goods were intercepted before they reached to the job worker. Learned counsel for the petitioner also submits that even if it is held to be an intra-state transaction by the proper officer, Section 77(2) of the CGST Act provides for a transfer of the amounts to appropriate account, by the proper officer and the assessee should not be required to pay interest on such delayed adjustment of IGST to CGST/SGST. Learned counsel for the petitioner submits that an E-way bill system for inter-state movement was rolled out only from 1st day of April,2018, whereas the transportation in question was on 27.02.2018, and therefore, the petitioner was not required to generate an E-way bill as mentioned in Ext.P8 communication/order.
11. Learned counsel for the petitioner also submits that as per Rule 138(1) of the KGST Rules, 2017, generation of KER-1 arises only when goods are transported into or outside the state under a delivery challan as prescribed under Rule 55 of the KGST Rules, where no invoice is raised. In the present case though the place of supply is in the state of Tamil Nadu, the transportation of goods is from Ernakulam to Kannur which is within the state of Kerala. Rule 138 is applicable on physical movement and delivery of goods and not on the place of supply and Rule 138 would not get attracted in the present case.
12. Reshmitha Ramachandran, learned Government Pleader submitted that the petitioner has approached this Court against Ext.P8 communication issued by the 2nd respondent, which is nothing but show cause notice by the competent officer acting under a taxing statute. It is well settled that the powers of High Court under Article 226 of the Constitution of India should not be invoked against the show cause notice as has been held in the case of the State of Punjab v. Shiv Enterprises by the Supreme Court in its judgment dated 16.01.2023 rendered in C.A No.359 of 2023. Learned Government Pleader further submits that the subject movement of goods was not declared through the mandatory online declaration KER-1 ( the predecessor of E-way bill) before commencement of the transport. The petitioner was fully aware of the requirement of generation of KER-1, and the consignment did not have the mandatory declaration KER -1 in violation of the provisions of the Act and Rules. It is further submitted that in Ext.P10 reply submitted by the petitioner to Ext.P8 communication, the petitioner himself acknowledged the requirement of generation of e-way bill in form KER-1. The subject transport commenced on 26.02.2018 while the KER-1 declaration was in force till it was replaced by E-way bill. The allegation against the petitioner is violation of provisions of Section 129 of the Act and not for evasion of tax. The penalty under Section 129 would be applicable even in cases where the goods transported are exempted goods if such obligations as prescribed under the statute are violated. The Mandatory form prescribed as KER-1 is applicable even to transaction covered by IGST Act, 2017 before introduction of E-way bill and declaration prescribed under Rule 138 is mandatory even for transport of goods to the job worker. The mens rea is not a factor to be proved for imposition of penalty under Section 129 of the Act. In support of the said contention learned Government Pleader has placed reliance on the judgment of this Court in the case of Assistant State Tax Officer v. Indus Towers Limited, [2018(3)KLT Online 2053].
13. Two questions required consideration by this Court in the present writ petition;- 1) Whether the supply of goods to the job worker of M/s. MRF Limited, Arakonam, Tamil Nadu at Kannur, Kerala is inter-state supply or intra-state supply?; and, 2). Whether the proceedings initiated under Section 129 of the CGST Act/KG ST Act against the petitioner are without jurisdiction.
14. Provisions of Section 10(1)(b) of the IGST Act, 2017, are relevant for the purposes of determining whether the supply made by the petitioner is intra-state supply or inter-state supply. Section 10(1 )(b) of the IGST Act, 2017 reads as under:
“(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person.”
15. Section 7 of the IGST Act defines inter -state supply, which reads as under:
“Section -7.Inter-state supply- (1) Subject to the provisions of Section 10, supply of goods, where the location of the supplier and the place of supply are in –
(a) two different States,
(b) two different Union territories; or
(c) a State and a union territory, shall be treated as a supply of goods in the course of inter-state trade or commerce.
(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce.
(3) Subject to the provisions of Section 12, supply of services, where the location of the supplier and the place of supply are in – two different States; two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of services in the course of interstate trade or commerce.
(4) Supply o f services imported into the territory of India shall be treated to be a supply of services in the course of interstate trade or commerce.
(5) Supply of goods or services or both‑
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra -state
supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-state trade or commerce”
16. Similarly Section 8 defines intra-state supply , which reads as under:
“Section -8. Intra-State supply-(1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply;
(i) Supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;
(ii) goods imported into the territory of India till they cross the customs frontiers of India; or
(iii) supplies made to a tourist referred to in section 15.
(2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply:
Provided that the intra-state supply of services shall no include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.
Explanation 1. – For the purposes of this Act, where a person has‑
(I) an establishment in India and any other establishment outside India.
(i) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(ii) an establishment in a State or Union territory and
(iii) any other establishment being a business vertical registered within that State or Union territory.
then such establishments shall be treated as establishments of distinct persons.
Explanation.2 – A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.”
17. Section 7 and 8 lay emphasis on supply of goods. Where the location of the supplier and the place of supply are in two different states then, such supply shall be treated as the supply of goods in the course of inter-state trade and commerce and in case where the supplier and the place of the supply of the goods are in the same State or same Union territory such supply of goods shall be treated as intra-state supply subject to certain exemptions as mentioned in Section 8. Supply has been assigned the same meaning as assigned to in Section 7 of the CGST Act, 2017 as per Section 2 1(2) of the IGST Act,2017. Section 7 of the CGST Act defines the scope of supply which would mean all forms of supply and expression “Supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
18. Section 10 defines place of supply of goods or services or both. Section 10 is read as under :
10. (1) The place of supply of goods, other than supply of goods imported into, or exported from India, – (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;
(b) where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person;
(c) where the supply does not involve movement of goods, whether by the supplier or the recipient, the place of supply shall be the location of such goods at the time of the delivery to the recipient;
(d) where the goods are assembled or installed at site, the place of supply shall be the place of such installation or assembly;
(e) where the goods are supplied on board a conveyance, including a vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which such goods are taken on board.
(2) Where the place of supply of goods cannot be determined, the place of supply shall be determined in such manner as may be prescribed.
19. In case of supply which involves movements of goods, the place of supply of such goods would be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient. Section 10(1)(b) is an exception to to the Section 10(1)(a). Under Section 10(1)(b) above, the place of supply of goods in case where the supply is made on the direction of the third person, it would be deemed as third person has received the goods and the place of supply of such goods shall be the principal place of business of such third person. Section 20 of the IGST Act makes it clear that application of provisions of the Central Goods and Services Tax Act would be applicable to the job work as well subject to the provisions of the IGST Act and rules made thereunder.
20. From construction of Section 7,8 and 10, it would be evident that to determine whether the supply is inter-state supply or intra-state supply, it would depend on the place of supply and not delivery of the goods. In case, where the supply is made on the direction of a 3rd party, then place of the principal or the 3rd party shall be the place of supply as per Section 10(1)(b) of the IGST Act. In the present case, the delivery of goods was destined to M/s. Carbomix Polymers (India) Pvt. Limited, Kannur, Kerala, on instructions by MRF Limited to whom the goods were sold and invoice was issued in the name of MRF Limited. Considering the aforesaid provisions, I am of the view that the supply of goods in the present case was inter-state supply and not intra-state supply and the same would attract the tax under the IGST Act.
21. Section 143 of the CGST Act prescribes procedure for job work. The said procedure is made applicable in the case of transaction falling under the IGST Act as well under the provisions of Section 20(xxii). The Central Board of Excise and Customs under the powers conferred under Section 168 of the CGST Act had issued Ext.P12 circular, clarifying that the goods can be sent by the supplier directly to the premises of the job worker under the instruction of the buyer/principal and such movement of goods directed to the job worker can be done under cover of the copy of the invoice issued by the supplier to the buyer/principal. Paragraph 8.4 (iv) of Ext.P12 circular would read as under:
“(iv). Where the goods are sent directly by the supplier to the job worker: In this case, the goods may move from the place of business of the supplier to the place of business/premises of the job worker with a copy of the invoice issued by the supplier in the name of the buyer (i.e. the principal) wherein the job worker’s name and address should also be mentioned as the consignee, in terms of rule 46(o) of the CGST Rules. The buyer (i.e. the principal) shall issue the challan under rule 45 of the CGST Rules and send the same to the job worker directly in terms of para (i) above. In case of import of goods by the principal which are then supplied directly from the custom station of import, the goods may move from the customs station of import to the place of business/premises of the job worker with a copy of the Bill of Entry and the principal shall issue the challan under Rule 45 of the CGST Rules and send the same to the job worker directly.”
22. In the present case, Ext.P1 invoice issued by the petitioner describes the buyer/principal as the customer and the job worker as the consignee and it is in compliance of job work procedure contemplated under Section 143 of the Act read with Ext.P12 circular.
20. In view thereof, the supply being intra-state supply, the said supply would be governed under the IGST Act and Rules made thereunder and not under the CGST/KSGST Act and Rules.
23. The issue regarding non-requirement of generation of KER-1 as raised by the learned Government Pleader is also required to be considered. Rule138(1) prescribes the documents which are to be carried by the conveyance of goods, which reads as under:
“138.Documents to be carried with the consignment of goods.—(1) A person in charge of a conveyance carrying any consignment of goods of value exceeding such amount as may be specified, while transporting goods into or outside the State or where the goods are transported on a delivery chalan as specified under rule 55, along with the invoices, a declaration as mentioned in sub-rule (2), which shall be declared in the Kerala Value Added Tax Information System Portal immediately before such transportation of goods.”
24. In the present case, the place of supply is in the state of Tamil Nadu but the delivery of the goods is within the State of Kerala i.e, from Ernakulam to kannur. The goods of the petitioner were not intercepted for non-generation of KER-1 and was not part of Ext.P4 notice. The only allegation was that the petitioner had charged IGST instead of CGST and SGST. Even otherwise, this was time when the transition from the Kerala VAT tax regim to CGST/SGST tax regim was taking place, and the E-way bill system was being introduced and therefore, for not generating the KER-1 declaration, when the goods were accompanied with the other required documents such as invoices etc., itself would not be sufficient that the supply was in violation of the provisions of the Act and Rules.
25. As the respondents did not have the jurisdiction and they assumed the jurisdiction which was not vested in them for issuing Ext.P4 notice and Ext.P8 order, I find the whole proceedings without jurisdiction and therefore, the argument of learned Government Pleader that the petitioner has approached this Court at the stage of issuing show cause notice and the writ petition should not be entertained, does not require much consideration.
Thus, the writ petition stands allowed the impugned proceedings are hereby set aside. Consequence to follow.
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