Background
The occasion for writing this article arises from the judgment of the Hon’ble High Court of Madhya Pradesh in M/s KIA MOTORS INDIA PVT LTD Vs THE STATE OF MADHYA PRADESH reported in 2023-TIOL-667-HC-MP-GST. This judgment is likely to generate a good amount of debate amongst professional fraternities and taxpayers. Only the future will decide whether the department will use this judgment as a tool to argue in cases involving E-way bill violations.
Admitted Facts of the Case
Demo vehicle (not for sale) was transported into the State of Madhya Pradesh. Said Vehicle was intercepted and detained on the ground that movement is not supported by E-way bill. The competent authority has therefore levied GST of Rs. 8,40,000, Cess of Rs. 6,60,000, Detention Penalty of Rs. 8,40,000 (IGST), and Detention Penalty of Rs. 6,60,000 (Cess).
Against this order, Appeal was filed before Joint Commissioner, State Tax, Bhopal Division. On Appeal Appellate authority has partly allowed the appeal of the assessee by reducing the tax levied from Rs.8,40,000 to Rs.5,40,000 and the corresponding penalty from Rs.8,40,000 to Rs.5,40,000 while setting aside the Cess of Rs.6,60,000 and penalty of Rs.6,60,000
Aggrieved with the Order of Appellate Authority and in the absence of Appellate Tribunal writ petition was filed before Hon’ble MP High Court.
Petitioner’s Argument
The sole argument of the petitioner was that the demo vehicle transported in the State of Madhya Pradesh was not for sale and, therefore, was not exigible to GST
Revenue’s Argument
Rule 138 of the CGST/Relevant State GST Rules (hereinafter “Rules”) mandates the generation of E-way Bill for the interstate movement of goods exceeding the value of Rs.50,000. On a conjoint reading of Section 129 of Act &. Rule 138 of Rules Revenue argued that in violation of E-way bill provisions even if the movement of a demo car does not qualify the definition of supply become exigible to GST.
Demo Car/Vehicle
Demo Vehicles are used by car dealers for the demonstration of various features of each model of car and give a feel of drive comfort to a potential buyer, which is necessary for the business of selling cars.
Legal issue
- The main dispute revolves around whether a violation of E-way Bill provisions renders interstate movement of demo cars (not for sale) exigible to GST as a supply.
- Another pertinent question that falls for consideration is whether penalty of Section 129 is invokable where the movement in question is not covered within the ambit of supply.
Extract of relevant Legal Provisions
Before we analyse judgment, first let us get into the relevant extracts from the provisions of GST laws:
Section 9 of CGST/Relevant SGST Act (Charging Section)1
Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax / Relevant State goods and services tax on all intra-State supplies of goods or services or both ………………
Section 7: Scope of Supply
1. For the purposes of the CGST 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 …..
Supply’ is explained in Section 7 of the Act to include –
- All forms of supply of goods or services made or agreed to be made
- For consideration (except for certain cases set out in Sch. I)
- By a person
- In the course or furtherance of business
Sec. 68 of CGST/Relevant State GST Act (hereinafter “Act”) requires a person in charge of a conveyance to carry documents and devices with the goods, carrying any consignment of goods in transit. As Per Section 68(1) of the Act, Government may require the person in charge of a conveyance carrying any consignment of goods of value exceeding such amount as may be specified to carry with him such documents and such devices as may be prescribed.
Rule 138 of the Rules
Rule 138 prescribes that every registered person who causes the movement of goods of consignment value exceeding fifty thousand rupees-
(i) in relation to a supply; or
(ii) for reasons other than supply; or
(iii) due to inward supply from an unregistered person,
shall, before the commencement of such movement, furnish information relating to the said goods as specified in Part A of FORM GST EWB-01, electronically, on the common portal along with such other information as may be required on the common portal and a unique number will be generated on the said portal.
Therefore, E-way bill shall also be furnished for movements not resulting in supply e.g. Removal of goods for testing purposes, Goods sent on an approval basis, Intra State Branch Transfer, Goods Sent as Sample, Goods Sent for Trial, Movement of Goods for warranty replacement, Goods sent for any process including job work, etc.
Section 129: Detention, seizure, and release of goods and conveyances in transit
1. Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released,––
(a) on payment of penalty equal to two hundred percent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;
(b) on payment of penalty equal to fifty percent. of the value of the goods or two hundred percent. of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five percent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty.
(c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:
Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.
Section 122: Penalty for certain offences
1. Where a taxable person who––
(i)….
(xiv) transports any taxable goods without the cover of documents as may be specified in this behalf …..
he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded, whichever is higher.
Definition of the term ‘Tax Payable’
For the proper appreciation of section 129, it is necessary to understand the meaning of the term ‘Tax payable’. It is pertinent to note Section 129(1)(a) and (b) of the Act were substituted by the Finance Act, 2021, w.e.f. 1-1-2022. Prior to its substitution amount leviable under section 129 (1)(a) was applicable tax and 100% of tax payable …… It is further to be noted that the term ‘tax payable’ is not defined in the Act. On close scrutiny, it appears that a few related terms are defined in the Act and extracted as under:
Section 2(104) of the Act defines state tax as “State tax” means the tax levied under any State Goods and Services Tax Act.
Section 2(21) of the Act – “Central tax” means the central goods and services tax levied under section 9.
Section 2 (58) of the Act – “Integrated tax” means the integrated goods and services tax levied under the Integrated Goods and Services Tax Act.
Section 2(22) of the Act – “Cess” shall have the same meaning as assigned to it in the Goods and Services Tax (Compensation to States) Act.
Section 2 (82) of the Act – “Output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.
A bare reading of the above definitions suggests that tax leviable in accordance with the charging provision of the relevant GST act may be construed as ‘Tax Payable’. Further charging section refers to the term supply and in the absence of supply there cannot be any levy of GST.
Relevant CBIC Circulars
Following CBIC circulars also merit consideration to apprehend the legal issues involved.
Circular No. 1/1/2017-IGST dated 7th July 2017
CBIC in the above circular clarified that the inter-state movement of goods like movement of various modes of conveyance, between distinct persons as specified in section 25(4) of the Act may not be treated as supply and consequently IGST will not be payable on such supply.
CBIC Circular No. 21/21/2017-GST dated 22nd November 2017
CBIC clarified that Circular 1/1/2017-IGST shall mutatis mutandis apply to inter-state movement of such goods, and except in cases where the movement of such goods is for further supply of the same goods, such inter-state movement shall be treated ‘neither as a supply of goods or supply of service,’ and consequently no IGST would be applicable on such movements.
CBIC Circular No. 92/11/2019-GST dated 7th March 2019
CBIC clarified that the goods or services or both which are supplied free of cost (without any consideration) shall not be treated as supply under GST (except in case of activities mentioned in Schedule I of the said Act).
Critical Observation by MP High Court
The court observed that on a bare perusal of. Rule 138(1)(ii) makes it clear that the causing of movement of goods exceeding the value of Rs.50,000 even for reasons other than supply, makes it incumbent upon the supplier to inform about the supply of goods in Form-A GST, EWB-01 electronically on the common portal along with other information as required.
Held by the Court
Court held that in the absence of furnishing of the E-way bill the entry of a demo car into the State of Madhya Pradesh renders it exigible to GST.
Author’s Comment
It appears that Hon’ble MP High Court was solely guided by the fact that the mandatory provision of E-way bills was violated. Apparently, judgment is devoid of elaborate discussion on legal issues. It also appears that provisions of Section 122(1)(xiv) and CBIC Circular 92 (supra) were not bought to the attention of the court. Even otherwise decision of the Court has some conspicuous gaps The following critical apprehensions could have been addressed by way of elaborative discussion while arriving at the conclusion:
- Whether Rule 138 of the CGST Rules (E-way bill provisions) overrides Section 7 of the Act (Supply)?
- Whether a violation of E-way bill provisions makes a mere movement (not involving any consideration) a supply?
- Whether levy of GST can be fastened even in the absence of consideration more particularly in situations not involving Schedule I to the Act?
- Whether Hon’ble High Court has concurred with the levy of Section 129 penalty on non-supply transactions as any contrary view might have made provisions of Rule 138 otiose qua such non-supply transactions?
- Whether Section 129 Penalty is applicable in case of the non-supply transaction even when there is no tax payable in terms of the charging section read with Section 7 of the relevant Act
- Whether facts and circumstances of the case make a case for a modest penalty under Section 122(1)(xiv) of the Act more so when no clandestine movement of goods was alleged by the Revenue.
Reference can also be made to the contrary decision of Appellate Authority – GST, HIMACHAL PRADESH order in the case of Neva Plantation (P.) Ltd. v. ACSTE-CUM-PROPER OFFICER NORTH reported in [2020] 114 taxmann.com 740 (AA- GST – HP), wherein goods sent for repair was intercepted without E-way bill and appellate authority has reduced the penalty to Rs. 10,000 relying upon Section 122(1)(xiv) of the Act.
Presently GST law is in the stage of evolution and therefore it has a lot of debatable issues. Many such issues would be settled only in time to come and that too before Higher forums after protracted litigation. However, above judgment highlights the importance of E-way bill compliance. Though at first blush E-way bill compliance may appear to be a very trivial matter however it assumes importance in reducing unnecessary litigation. Taxpayers would be benefited by following one thumb rule – In case of even a trivial doubt please generate E-way Bill.
Disclaimer
The views expressed herein are strictly personal to the author and should not be construed as advice/ legal opinion. The contents of this article are based on the interpretation of the facts, relevant legislation, rules, notifications, circulars, judgments/rulings, etc. on the date of publishing of this article. One should not act upon the information in this article without obtaining specific professional advice. Author of this blog is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, or omission pertaining to this article. Further, the said article is only for information and guidance purposes and should not be construed as any kind of advertisement or solicitation of work.
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