Whether Stock Transfer is taxable event? The High Court of Kerala and High Court of Telangana has held that Stock Transfer is not the taxable event and no GST is applicable.
M/s. ABCO TRADES (P) LTD. Vs. THE ASSISTANT STATE TAX OFFICER, WP No. 17377 of 2020, Order dated 21-08-2020, High Court of Kerala. The fact of the case is the petitioner’s consignment of lubricant oil was detained by the department with the objection that consignee was shown as unregistered person in the E-way Bill and in delivery challan CGST and SGST was collected.
The petitioner argued that although the E-way Bill shows the consignee as unregistered but Invoice which was accompanied with goods shows the GSTIN of the consignee. Further, it was by mistake that CGST and SGST was show in delivery challan. It was also contended that the goods are stock transferred and not sold, there need not be a payment of tax at all.
The Hon’ble High Court taking the note of this submission held that “the reasons shown in Ext.P5(c) for detaining the consignment are not sufficient to attract the provisions of Section 129 of the GST Act. The detention in the instant case cannot, therefore, be seen as justified.” Thereby allowed the writ petition and directed the respondent to release the goods detained.
M/s. SAME DEUTZ-FAHR INDIA (P) LTD, Vs. State of Telangana, WP No. 13392 of 2020, Judgement dated 23-09-2020 High Court of Telangana. The fact of the case is that the petitioner is engaged in manufacturing of tractors and its spares. The Registration certificate issued by the State of Telangana shows that its principal place of business is Hayatnagar and it has also additional place of business at Bongulur, Village, Ibrahimpatnam Mandal. The 4 tractors were dispatched and E-way bill was also issued. The Invoice shows Consignee and consigner as same with address of consignee at Hayatnagar. The goods were detained with the reason that there is mismatch of movement of goods and E-way Bill. It was also objected that the goods were being transported from Ranipet, Tamil Nadu to Bongulur village, Ibrahimpatanam Mandal, Hyderabad, but as per E-way bill, the goods have to be transported from Ranipet, State of Tamil Nadu to Hayathnagar in the State of Telangana.
A Show Cause Notice was issued to petitioner calling upon as to why the proposed tax and penalty should not be payable. The tax proposed was Rs.1,67,612/- towards CGST and equal amount towards State GST along with equal penalty, totalling to Rs.6,70,448/-. Petitioner under the apprehension that the goods would be confiscated and there would be arrest of the Company’s officials under the Act, the petitioner paid the said amount and got the detained goods released on 05-03-2000 by paying Rs.6,17,4481/-.
The petitioner filed the petition and argued that there was only a stock transfer from its factory in Ranipet in the State of Tamil Nadu to its Depot at Bongulur Village Ibrahimpatanam Mandal in the State of Telangana, that there is no element of sale of goods or services in it, and mere transfer of goods inter-State would not attract the provisions of the Act because there is no taxable event in it.
The Respondent (department) argued that he was not aware that the petitioner had got depots at different places in country. He also stated that it was not reflected in the invoice or in the E-way Bill; He alleged that unlike VAT regime Branch transfer is taxable under the GST Regime, though he did not quote any provision of law in respect of the said plea.
The Court held that there was no occasion for the 3rd respondent to collect tax and penalty from the petitioner on the pretext that there is illegality in the transport of goods as it merely amounts to Stock Transfer and there is no element of sale of goods or services in it. Accordingly, petition was allowed and Ordered for refund of the tax and penalty paid by the petitioner along with interest and Rs.1500/- towards cost.
Discussion: –
If we take a look at the above decisions of the High Courts, it has been concluded that Stock Transfer is not sale of goods and there is no element of sale of goods or services. However, no detail discussion is made but when argument was put forth that the Stock Transfer would not attract the provisions of the Act because there is no taxable event, no counter argument or any provisions were placed. These decisions may be considered as settled law because till date no appeal or review petition is file and two different high courts have given the same view.
In order to analyse the above decision, we must first take a look at Section 7 of CGST Act, 2017, that whether Stock Transfer constitutes any “Supply”. The Section 7 reads as under:-
“7. Scope of supply.— (1) For the purposes of this Act, the expression ―supply includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;[and]12
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; [****]13
(d) [*****]14.
[(1A) where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule II.]15….”
Firstly, as per the definition of services which means other than goods, therefore, Stock Transfer is not supply of service, as there is transfer of goods involved. The words “Supply” is wider and includes all form of supply given at Section 7(1)(a) above, but it can be simplified as given below:-
(i) Supply of goods by way of sale;
(ii) Supply of goods by way of transfer;
(iii) Supply of goods by way of barter;
(iv) and so on.. made or agreed to be made….
In case of Stock Transfer there is no sale of goods, the reason is, in sale of goods there should be transfer of title of goods, should be in possession of goods and against consideration. There is no consideration or neither there is transfer of title of goods, as Head Office did not make any sale of goods to its branch/depot/warehouse, although there is movement of goods, the title of the goods remains with the Head Office, the company. To bring within the ambit of “Supply of goods” the mandatory is Title as well as possession both have to be transferred for a transaction to be considered as a supply of goods. Thus, it becomes amply clear that in case of Stock Transfer title of goods are not transferred nor there is any transaction, therefore, it does not constitute as “Supply of goods”.
A question can be raise of Para 2 of Schedule-I, which reads as under :-
“2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.”
As we have seen above, that as there is no transfer of title of goods, it cannot be said as “Supply of goods” and Para 2 says that “Supply of goods or Service…” but in case of Stock Transfer there is no supply of goods, hence not applicable. Even otherwise, if specific clause is available one should go for specific clause. The Schedule-I, Para 2 is applicable to supply of goods and not for transfer of goods. The specific clause which deals with “Transfer” is available at Para 1 of Schedule-II, so for activity of transfer of goods, Schedule-I is not applicable and Schedule-II is to be taken into consideration.
Now, let us take the close look at Schedule-II, Para 1 which deals with “Transfer”. The sub-clause (a) states that “any transfer of the title in goods is a supply of goods;” In case of Stock Transfer there is no transfer of title of goods, therefore, not applicable. (b) states that “any transfer of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services;” In case of Stock Transfer no right is transferred or there is no undivided share, hence not applicable. (c) states that “any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed, is a supply of goods”. In case of Stock Transfer, no such agreement for future supply or any consideration. therefore, no applicable.
The Stock Transfer activity may be carried out for speedy/timely supply of the goods to the prospective or ultimate user. As it is settled law that “wisdom of legislature cannot be question” but one is free to doubt and Circulars are issued. In the same way High Court in their wisdom has passed the above decisions, if any person aggrieved can file appeal/ petition before Supreme Court of India. In concluding this discussion we can say that, as per the above decisions of the Hon’ble High Courts, Stock Transfer cannot be treated as sale of goods or service and is not a Taxable Event.
Please Note:- The information that the department has filed an appeal before Hon’ble Supreme Court of India is not available till date.
Author Bio
IF TAXPAYER CHAGES IT’S ADDRESS TO ANOTHER STATE AND THE STOCK LYING WITH TAXPAYER, DOES IT LIABLE TO TAX IF NOT WHAT SHOLD WE DO?
We have two registration Gujarat and Maharashtra ( linked with same pan)
Supposed our material lying in Gujarat can we transfer in Maharashtra ?
With tax or without tax
Please guide.
Shri / Ku.,
Thanks for giving time to read the article.
As per your query, I am of the view that goods can be transferred by way of delivery challan i.e. without payment of tax or by issuance of tax invoice indicating stock transfer i.e. without payment of tax.
Thanks
We have two registration Gujarat and Maharashtra
Supposed our material lying in Gujarat can we transfer in Maharashtra ?
With tax or without tax
Please guide.
sir in case of death to tranfer stock (no itc is available) to successor is there any forms
Shri
Thanks for writing. In case of death of proprietor or for transfer of ongoing business, Please refer Circular No.19/2019 dated 28th March, 2019. Even after referring to the said circular, if any doubt arises, please feel to write back with full facts, if possible.
Thanks
Sir,
I am manufacture in Delhi and i have a distributor in Haryan. I send stock to distributor in haryana and further when i get order, my distributor will deliver such goods on my behalf (in my name). So, in this case, can i stock transfer to my distributor without gst?
Shri Rupesh Kumar ji,
Thanks for writing,
As per the given facts, I am of the view that the activity undertaken by you cannot be termed as stock transfer. According to me for stock transfer the first requirement is that both the premises shall be registered on same PAN and one may be head office, factory and other shall be warehouse godown etc.
Thanks
Sir,
You have elaborated on a very crucial topic in the times where ecommerce is growing in the country and very less finance literate personal have information regarding this topic.
Let me introduce myself, I am an amazon seller based out of Jaipur and we have 4 GSTINs for 4 states under one proprietorship firm only. And since we are new to this stock transfer concept we thought that sending goods from our head office to other branch offices requires no additional paper work or invoicing except for the eway bill / delivery challan that amazon portal generates itself. Hence we did not raise any invoice for such a transfer moreover while the eway bill was generated at the amazon portal we used to input our MRP value of the stock which is 3 times higher then our selling price. Thinking that in case of damage or loss during transit we would get the full value of the product. Now we did this for one year and transfered goods worth Rs. 1.5 cr (MRP value) to other offices and the same got entered on the eway portal.
When our CA came to know this then he suggested that we have to raise invoices of the stock transfer for all the previous months and have to pay the IGST although the amount of the products could be at the manufacturing cost plus some mark up.
Request you to please suggest us a way forward as we are a new start up who were only trying to reach to a wider audience with no intention of tax invasion. Is blocking such amounts now is the only solution? or the understandings of your case study could be applicable in the state of Rajasthan also.
Shri Varun Ji,
Thanks for writing.
First for valuation purpose, one shall adhere to Section 15 of CGST Act,2017 and relevant rules. for procedure adopted by you and advice given by your CA may be based on the records and activity undertaken by you. Therefore, I cannot offer my comment on that.
However, as both the High Courts has taken similar views and till I am not aware of any petition filed before Hon’ble Supreme Court of India, by the department, hence, it can be assume that the issue attained its finality. You can request your CA to go through the judgement for taking final view.
In either case based on the above judgements, you can opt for advance ruling in the matter.
Thanks again
Sir,
I have manufacturing place in Hyderabad and my godown is in Andhra Pradesh usually i registered my manufacturing place in gst whether again i registered godown in gst or not sir please clarify me about this
Best regards,
Thank you.
Shri
With regards to your query, the relevant portion of FAQ is given below :-
“A given PAN based legal entity would have one GSTIN per State, that means a business entity having its branches in multiple States will have to take separate State wise registration for the branches in different States. But within a State an entity with different branches would have single registration wherein it can declare one place as principal place of business and other branches as additional place of business.”
Based on above, I am of the view that if manufacturing unit and godown are in the same state, you may declare the godown as additional place of business, if in the different state, separate registration is required.
Thanks
Respected Sir,
On the basis of the given Judgement can I consider to not pay GST on interstate stock transfer.(My warehouse has separate GSTIN since they are located in different state but linked with the same PAN).
Shri
It is very clear from both the judgement that in ‘Stock Transfer’ there is no element of sale of goods or services and there is no taxable event. Based on above, you can transfer the stock by raising Invoice with Nil tax or by delivery challan.
Thanks
Sir,I want to shift my business from pune to deharadoon(my home town).Suffered heavy losses due to covid situation.I have tax paid purchase of Rs 50 which I want to transfer to the Uk(other branch with same pan No).I just came to know by various CAs that I have to pay upfront tax due to this stock transfer and that much money I don’t have it all.sir what can be done.feeling like trapped badly.
Shri Vivekji,
The query raised by you is not general in nature. Stock transfer is another issue and shifting is different. Moreover, your query is very sensitive and should be handled with uptmost care, therefore, it is advised that hire an expert near you and act accordingly.
However, please feel free to write for assistance/guidance required in the matter.
Thanks
Thank you very much for this Article, not many authors have discussed this point that has been resulting in many confusion in businesses. Thank you for elaborating.
Thanks for the comment.
Good point . Discussed issue very well.
Madam,
Thanks for your comments, it encourages me a lot.
With Regards
The author has beautifully interpreted, analysed & discussed both the judgements of High Court as well as elements of stock-transfer. Keeping in view of literal meaning and legal meaning of the phrase , ‘stock transfer’, Section 7(1) of CGST calls for amendment by way of inserting the words,’except stock transfer’ after the word, ‘transfer’ . Law cannot be framed beyond the dictionary as well as legal meaning of any phrase/word. I hope the author’s voice will reach GST Council and his suggestions will be accepted in the interest of justice.
Sir,
Thanks a lot for your words of appreciation.
With Due Regards