Karnataka High Court
Aam India Manufacturing Corporation ... vs The State Of Karnataka on 19 January, 2023
Author: B M Shyam Prasad
Bench: B M Shyam Prasad
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WP No. 16845 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF JANUARY, 2023
BEFORE
THE HON'BLE MR JUSTICE B M SHYAM PRASAD
WRIT PETITION NO. 16845 OF 2022 (T-RES)
BETWEEN:
AAM INDIA MANUFACTURING
CORPORATION PRIVATE LIMITED
A COMPANY REGISTERED UNDER
COMPANIES ACT, 2013,
GATE NO.78, 788, VILLAGE HUNGA,
TALUKA PARNER, AHMEDNAGAR 414301,
MAHRASHTRA,
REPRESENTED THROUGH,
MR. VITTAL KULKARNI, DIRECTOR.
...PETITIONER
(BY SRI.MIHIR MEHTA, ADVOCATE FOR
SRI MOHAN MAIYA G.L., ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
THROUGH THE PRINCIPAL SECRETARY
Digitally
signed by FINANCE DEPARTMENT
NARASIMHA
MURTHY VIDHANA SOUDHA
VANAMALA
Location: BENGALURU - 560 001.
HIGH
COURT OF
KARNATAKA 2. THE COMMISSIONER OF COMMERCIAL
TAXES, HAVING HIS OFFICE AT DGSTO-5
ROOM NO. 605, 6TH FLOOR, VTK-II
"B" WING, RAJENDRANAGAR
KORMANGALAL, BENGALURU -47.
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WP No. 16845 of 2022
3. THE JOINT COMMISSIONER OF
COMMERCIAL TAX (APPEALS-4)
BENGALURU - 560 027.
4. THE COMMERCIAL TAX OFFICER,
(VIG-4), KORAMANGALA
BENGALURU - 560 047.
...RESPONDENTS
(BY SRI.HEMA KUMAR K., AGA)
THIS WRIT PETITION IS FILED UNDER ARTICLE 227
OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT THE
R-3 TO (i) FORTHWITH WITHDRAW AND/ OR CANCEL THE
ORDER NO. GST.AP.335/2020-21 DATED 16.03.2022 (ANNX-
A) AND (ii) SANCTION AND GRANT REFUND OF RS. 10,63,258
(TAX PLUS INTEREST) DEPOSITED UNDER PROTEST FOR
RELEASING THE GOODS DETAINED BY THE R-4 ALONG
WITH THE APPLICABLE INTEREST.
THIS PETITION, COMING ON FOR PRELIMINARY
HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
The petitioner has impugned the third respondent's order dated 16.03.2022 in No.GST.AP.335/2020-21 [Annexure-A] along with a request for refund of Rs.10,63,258/- with interest contending that this amount -3- WP No. 16845 of 2022 is deposited under protest for release of the vehicle detained after interception under Section 68 of the Central Goods and Services Tax Act 2017 (for short, 'the CGST Act').
2. In the month of July 2020, the petitioner has purchased Hydraulic Fixtures and Tooling Body Machines and this machinery is delivered to the petitioner's unit in Ahmednagar, Maharashtra. The petitioner contends that, after certain customisation of the machinery, the same which contains 61 pieces is sent back to the seller in Coimbatore for performance testing. The transport of the machine is under the cover of Delivery Challans but without E-way bills. The fourth respondent has intercepted the vehicle [MH-05-DK-7260] on 03.11.2020 and has issued detention order on 07.11.2020 in Form No.GST MOV-06 along with the notice in Form No.GST MOV-07 under Section 129(3) of the CGST Act. -4- WP No. 16845 of 2022
3. The petitioner has deposited the tax demanded with penalty in terms of the aforesaid notices vide Challan No.54433946. Thereafter, the fourth respondent has issued ex parte order dated 09.11.2020 confirming the demand of IGST and penalty. The third respondent by the impugned order 16.03.2022 has disposed of the petitioner's appeal under Section 107(11) of the Karnataka Goods and Services Act, 2017 (for short the 'KGST Act') against the aforesaid order dated 09.11.2020 and CGST Act in GST.AP.355/2020-21. The third respondent has considered the petitioner's grievance against the fourth respondent's ex parte order dated 9.11.2020 as against the question whether levy of tax and penalty under Section 129(3) of CGST/KGST Act, in the facts and circumstances of the case, is justified.
4. The petitioner's specific case is that transportation of the machinery under a Delivery Challan, and E-way bill is not raised by mistake and this is not -5- WP No. 16845 of 2022 intentional. The third respondent in its order dated 16.03.2022 has opined that as per provisions of Section 68 of the CGST Act and the relevant CGST Rules the movements of goods must be accompanied by Tax Invoice or Delivery Challans, and with E-way Bills if the value exceeds Rs.50,000/-. The third respondent has also opined that the exemption from generating E-way Bills is only in respect of certain Specified Goods and Specified Transactions specified under Rule 138(4) of the GST Rules and the third respondent has listed the following Goods and Transaction as exempted1.
" The Specific goods are:
1. Liquefied petroleum gas for supply to household and non-domestic exempted category customers.
2. Kerosene oil sold under Public Distribution System (PDS).
3. Postal baggage transported by Department of Posts.
1 These are listed in Paragraphs 9 and 11 of the third respondent's order dated 16.03.2022.-6- WP No. 16845 of 2022
4. Natural or cultured pearls and precious or semi--precious stones, precious metals and metals clad with precious metal jewellery, goldsmiths' and silversmiths' wares and other articles.
5. Currency used personal and household effects Unworked and worked coral.
6. Goods transported are alcoholic liquor for human consumption, petroleum crude, high-speed diesel, natural gas or aviation turbine fuel".
The Specified transactions are:
1. E-way bill is optional for goods of value less than Rs.50,000 (except in cases of mandatory e-way bill provisions like the movement of Handicraft goods and movement of goods for Interstate Job work)
2. If goods are being transported by a non-
motorized conveyance (Ex.Horse carts or manual carts)
3. If goods are being transported:
From the port, airport, air cargo complex and land customs station to an inland container depot (ICD) or a container freight station (CFS) for clearance by Customs From ICD or CFS to a customs port, airport, air cargo etc under customs bond From one customs port/station to another one under customs bond Goods transported under the customs supervision or customs seal Goods transported within the notified area Goods transported are transit from/to Nepal/ Bhutan
4. If goods are transported to a weighbridge within 20kms and back to the place of -7- WP No. 16845 of 2022 business covered under a Delivery Challan (DC).
5. Where Government or local authorities transport goods by rail as a consignor
6. Goods transported to/from the Ministry of Defence".
The third respondent has concluded that because the transportation of the machinery by the petitioner from Ahmednagar to Coimbatore does not fit into any of these categories, the confirmation of the demand of tax and penalty by the fourth respondent is justified.
5. Sri. Mihir Mehta, the learned counsel for the petitioner, submits that the third respondent has not considered the petitioner's essential case that the transportation of the machinery from Ahmednagar to Coimbatore would be a 'Non-taxable Supply' and if it is a Non-taxable Supply, there cannot be any levy and collection of tax. He argues that if the transportation of machinery is a Non-taxable Supply and therefore outside the purview of the levy and collection as aforesaid, the -8- WP No. 16845 of 2022 petitioner could only be guilt of infraction insofar as failure to generate and furnish E-way bills, and in that event the petitioner would only be liable to answer penalty equal to 2% of value of goods or Rs.25,000/- whichever is less. The petitioner has voluntarily tendered the tax and penalty on 07.11.2020, the maximum imposition could only be in a sum of Rs.25,000/- because the value of 2% of the machine is much higher than Rs.25,000/-.
6. Sri. Mihir Mehta relies upon the definition of the expressions "Exempt Supply" in Section 2(47) and 'Supply" in Section 7 of the CGST/KGST Act, and the provisions of Rule 55 of the CGST Rules to bolster his submission that transportation of machinery for performance test would not be a Supply. He elaborates that an activity to be a Supply for the purposes of the CGST/ KGST Act, because of the provisions of Section 7(1)(a) (b) and (c) of CGST Act of the CGST/KGST Act, must be:
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• supply of goods and services or both such as sale, transfer, barter, exchange licence, rental, lease or disposal made or agreed to be made for consideration by a person or in the furtherance of business2;
• Import of services for consideration whether or not in the course or furtherance of business3; and • Activities specified in Schedule I, made or agreed to be made without a consideration4.
7. Sri. Mihir Mehta submits that in the backdrop of the undisputed fact that the petitioner purchased the machinery on 21.07.2020 subject to levy and this very machinery was being transported to Coimbatore when intercepted at Bengaluru for performance testing, without any payment of separate consideration, such 2 Section 7(1)(a) of CGST/ KGST Act 3 Section 7(1)(b) of CGST/ KGST Act 4 Section 7(1)(c) of CGST/ KGST Act
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WP No. 16845 of 2022transportation would not be a taxable supply, or a supply for the purposes of the CGST/ KGST Act and if it is not a taxable supply, it would not be subject to levy.
8. Sri. Mihir Mehta also draws support from the provisions of Rule 55 of the CGST Rules which contemplate transportation of goods without issue of Invoice for certain purposes, and he canvasses that there could be transportation of goods for reasons other than by way of supply which would essentially cover transport as in the present case viz., for performance testing without payment of a separate consideration and as part of the original transaction concluded in the month of July 2020. On penalty, Sri. Mihir Mehta submits that because it is undisputed that there is breach/contravention in not furnishing the information prior to commencement of the transportation and generation of E-way Bill, the petitioner's liability could only be to pay, as aforesaid, Rs.25,000/- as penalty.
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WP No. 16845 of 2022
9. Sri Hema Kumar K., the learned Additional Government Advocate, drawing the attention of this Court to Annexure-C5, submits that there is nothing in this document to demonstrate that the transportation was as part of the original transaction and independent of any fresh consideration. He argues that in the absence of these material details in the Delivery Challan, it must necessarily deemed to be a Supply. As such, both the fourth respondent's ex-parte order dated 09.11.2020 and the third respondent's order dated 16.03.2020 are justified, and the levy and collection of tax cannot be found fault with. He also argues that this Court must, while deciding on the question of levy and collection of tax, consider that information is not furnished before commencement of the transportation as required under the Rule 138 of the CGST Rules.
5 A copy of the Delivery Challan relied upon by the petitioner to contend that transportation of machine from Ahmednagar to Coimbatore is a non-taxable supply.
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WP No. 16845 of 2022
10. On the question of penalty, Sri Hema Kumar K. submits that indeed the jurisdiction to levy tax and penalty on interception under Section 68 of the CGST Act when the goods is in transit is under Section 129 of the CGST/KGST Act, but the petitioner, who has not generated E-way Bill with necessary information before commencement of the transportation, cannot take advantage of the second part of either Section 129(1)(a) or 129(1)(b) of the CGST/KGST Act. The second part of both these provisions would apply only in case of exempted goods and if it is not a case of exempted goods, the liability would be as contemplated under the first part of both these provisions. The expression "exempted goods"
129(1)(a) or 129(1)(b) of the CGST/KGST Act will have to be narrowly construed and confined to those goods which are exempted from levy and collection, as observed by the third respondent, under Rule 138 of the GST Rules.
11. In rejoinder, Sri. Mihir Mehta submits that the expression 'exempted goods' as found both in Section
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WP No. 16845 of 2022129(1)(a) and 129(1)(b) of the KGST Act/CGST Act, cannot be restricted as contended by Sri Hemakumar. Upon interception of a vehicle, it would be open to the owner or the other as permissible under section 129(1)(a) and 129(1)(b) of the CGST/KGST Act to demonstrate that the interception is of an exempted supply [a non-taxable supply] and if there is failure to produce documents, the liability should be as per the second part of these provisions. In that event if the owner of the goods comes forward to pay tax and penalty under Section 129(1)(a) of CGST/ KGST Act it would be 2% of the value of the supply or Rs.25,000/- whichever is less, and if a person other than the owner comes forward to pay tax and penalty 129(1)(b) of CGST/ KGST Act it would be 5% of the value of the supply or Rs.25,000/- whichever is less.
12. In the light of the rival submissions, the questions for consideration are:
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a. Whether, in the facts and circumstances of the case, it could be said that transportation of machinery under the Delivery Challan [Annexure-C] was a non-taxable supply and would be exempted supply as contemplated under the provisions of CGST/ KGST Act, and b. If the transportation is a non-taxable supply and exempted, whether the petitioner could be called upon to pay tax and penalty either under Section 129(1(a) of the CGST/KGST Act.
13. As recorded at the very beginning, the petitioner's case is that the machinery is purchased under a proper purchase order and invoice in the month of July 2020 and the machinery is transported from Coimbatore to Ahmednagar with the machinery being re-transported to Coimbatore for performance testing. Crucially, the assertion that the machinery is purchased from Coimbatore and offered to tax are not disputed, and the
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WP No. 16845 of 2022respondents' contention that the re-transportation of machinery from Ahmednagar to Coimbatore even if it is for performance testing should be treated as a taxable supply, at the first instance, is based on Annexure-C. The assertion is that the necessary details are not mentioned in Annexure -C. However, this assertion must be examined not only in the light of the undisputed transaction viz, the purchase of the machinery in the month of July 2020 from Coimbatore but also in the light of the fact that the respondents cannot dispute that the very same machinery was re-transported from Ahmednagar to Coimbatore.
14. Further, it is seen from Annexure - C that the in the column for 'nature of processing', the petitioner has mentioned 'for tooling'6, and this, in the absence of contra material on record, must be in consonance with the petitioner's case that the machinery was being sent back 6 This expression tooling could mean to develop and test products for fit, form and function'.
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WP No. 16845 of 2022to the vendor for performance testing after customisation. The respondents do not even contend that this transaction [transportation from Ahmednagar to Coimbatore] is for a separate and distinct consideration and not part of the original consideration. This Court, because of these circumstances, must opine that it would remain indisputable that the transportation of machine from Ahmednagar to Coimbatore in the first week of November 2020 is for a consideration which is not covered under the original invoice and offered for tax.
15. The expression "Exempt Supply" is defined under Section 2(47) of the CGST/KGST Act to mean supply of goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under Section 11, or under section 6 of the Integrated Goods and Services Tax Act, and also includes non-taxable supply. The expression "Non-taxable Supply" is defined7 to mean 7 Under Section 2(78) of the CGST Act
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WP No. 16845 of 2022supply of goods and services which is not leviable to tax under the CGST/KGST Act or under the Integrated Goods and Services Tax Act. These definitions leave no room for doubt that there could be supplies which may be outside the levy and collection of tax under the CGST/KGST Act. A supply would be exigible under these enactments if the conditions in Section 7 are satisfied.
16. In the circumstances of the case, redoubtably the provisions of Section 7(1)(a) of CGST/ KSGT Act would be relevant, and it is nobody's contention that the re- transport by the petitioner would be covered under Section 7(1)(b) or 7(1)(c) or 7(1A) or other circumstances mentioned in Section 7(2) of the CGST/KGST Act. The provisions of Section 7(1)(a) of CGST/KGST Act stipulate that supply of goods or services or both good either as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made must be for a consideration by a person in the course of furtherance of
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WP No. 16845 of 2022business would be a supply for the purposes of these enactments.
17. This Court, on a conjoint reading of the definition of the expressions 'Non-taxable Supply' and 'supply' as mentioned in Sections 2(78) and 7(1)(a) of the CGST/KGST Act, must opine that for a supply as envisaged under Section 7(1)(a) of CGST/KGST Act, there must be consideration and because the subject re- transportation is without a separate consideration it would be an Exempted Supply as envisaged under CGST/ KGST Act. In the light of the afore, this Court must answer the first question in favour of the petitioner concluding that the re-transportation of machinery from Ahmednagar to Coimbatore, which is shown to be without a separate consideration and as part of the first transaction that is offered to tax, being a Non-taxable Supply is an Exempt Supply.
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18. It is undisputed that recourse could be had to the provisions of Section 129 of the CGST/KGST Act, and wherever justified under Section 130 thereof, when there is interception for inspection of goods under section 68 of the CGST/KGST Act and it is found that the documentation is not in compliance with the Act and the Rules. With the detention and commencement of proceedings under Section 129 of the CGST/ KGST Act upon issuance of notices as required thereunder, there must be determination of the tax liability, if any, and penalty payable under Section 129(3) of the CGST/KGST Act.
19. The expression 'exempted goods' as found in Section 129(1)(a) and (1)(b) of the CGST/KGST ACT must necessarily construed in view of the definition of expressions 'exempt supply' and 'non-taxable supply' and the other provisions of the enactments and the Rules, including Rule 55 when the expression 'exempted goods'
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WP No. 16845 of 2022is not defined for the purposes of these provisions. This Court is of the considered view that it would be incongruous to hold that the 'exempt Goods' as found in these provisions should receive a narrower interpretation independent of the afore provisions. If a Supply is an Exempted Supply, it must be exempted goods as well because such supply would be a Non-taxable Supply and hence non exigible.
20. The proper officer under Section 129(3) of the CGST/KGST Act will have to decide whether the owner of the goods comes forward on his own for payment of penalty and tax or any person other than the owner has come forward, and also decide on whether the supply is exempt goods. If it is a case of exempt goods, and if it is the owner who comes forward, the proper officer will have to levy penalty at 2% of the value of the goods or Rs.25,000/- whichever is lesser. If the owner does not come forward, and the supply is 'exempt goods' a higher
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WP No. 16845 of 2022penalty is visited but subject to the same maximum limit. However, tax cannot be recovered under these provisions in the case of 'exempted goods'.
21. Every Supply whether exempted supply or otherwise, requires compliances, and if there is any infraction, the necessary consequences will have to follow; and admittedly when intercepted in transit such consequences will be determined under Section 129(1)(a) or 129(1)(b) or Section of the CGST/KGST Act depending on the circumstances of each case. This Court, at this stage, must also refer to Rule 55(1) of the CGST Rules8, 8 Transportation of goods without issue of invoice (1) For the purposes of-
(a) supply of liquid gas where the quantity at the time of removal from the place of business of the supplier is not known,
(b) transportation of goods for job work,
(c) transportation of goods for reasons other than by way of supply, or
(d) such other supplies as may be notified by the Board, the consigner may issue a delivery challan, serially numbered not exceeding sixteen characters, in one or multiple series, in lieu of invoice at the time of removal of goods for transportation, containing the following details, namely:-
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which contemplate transportation of goods without 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 the Rules thereunder, provide for certain exemptions from generating E-way Bills in certain cases. The exemption, in the case of transportation, from generating E-ways is only in the categories mentioned by the third respondent and does not cover the subject re-transportation. The petitioner has admittedly not generated E-way Bill and is in breach and hence, must pay penalty as contemplated under the second part of Section 129(1)(a) of the CGST/KGST Act. This liability is not contested. The Note: The subsequent part of the Rules, apart from mentioning the details that must mentioned in the Delivery Challan, which would be in lieu of Invoice, mandate that the declaration should be made as required under Rule 138
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second question is answered accordingly.
Consequentially 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.
Sd/-
JUDGE SA/NV ct:sr