By TIOL News Service

ERNAKULAM, DEC 12, 2018: THE  first petitioner, a company with a branch in Pondicherry, deals in luxury cars; Vishnu Mohan, the second petitioner, a resident of Trivandrum, purchased a car-Mini Cooper S Hatch-from the first petitioner. The company raised an invoice and sold the vehicle to Mohan.

Mohan had the vehicle temporarily registered in Pondicherry on 27 August 2018 and wanted the car transported to Trivandrum, where he intended to use it.

He requested the Company to transport the vehicle and accordingly, the company raised an invoice and collected the transport charges, raised invoice, paid the IGST on the  "Logistics & Handling Charges" , and then dispatched the vehicle through its lorry to Trivandrum.

En route  the Assistant State Tax Officer, the first Respondent, intercepted the vehicle and detained it, invoking Section 129 of the KSGST Act .

A notice was issued under Section 129 (3) of the Act and the State Tax Officer demanded tax and penalty of Rs.33,59,056/-.

The explanation offered by the company was rejected but the penalty was reduced by about Rs.3 lakhs.

Aggrieved, the Company and Mohan filed a Writ Petition.

It was inter alia submitted that -

+ Mohan, as the purchaser, wanted to transport the vehicle to Trivandrum, in his  "independent capacity". Because of the distance, Mohan played it safe and requested the very dealer that sold the car to transport it.

+ The company transported the vehicle only as a transporter, but not as a dealer. In other words, with the sale of the vehicle, and its immediate registration in Mohan's favour, the Company's ceased to have anything to do with the vehicle.

+ Had Mohan driven the car down to Trivandrum by himself, the authorities would have had no objection; only because Mohan wanted a safe transport of his vehicle, he has been made to suffer.

+ Mohan, as an individual and without ever trading in cars, was found transporting the vehicle, so the entire GST regime remains inapplicable to him.

+ On the Company's paying the IGST on the car sale, it was a generous gesture so that Kerala, too, gets a share in the tax 'pie'.

+ An alternative plea was that the Court take a lenient view of the transaction because of Mohan's bona fides; that the car be released by his providing a personal bond, rather than bank guarantee.

The counsel for the Revenue justified the action by the department and submitted that the statutory mandate is clear and it admits of no adjudicatory discretion - say, to scale down either the tax or penalty, as an interim measure. It was also emphasised that it cannot be said that the car being transported is a 'used' vehicle inasmuch as a  "used vehicle"  must have had a prior owner.

The High Court, Single Judge considered the submissions and after narrating the grounds of detention, the notice issued u/s 129(3) of the Act and the relevant provisions, extracted the findings of the Division Bench delivered in the case of Indus Towers Ltd. - 2018-TIOL-2808-HC-KERALA-GST and concluded that the decision in Indus Towers is a binding one. The Court, therefore, rejected the submissions made by the petitioners and held that either of the petitioners can get the goods released by complying with section 129 and the relevant rules, and seek an early adjudication of the dispute.

Nonetheless, the High Court also remarked -  Harsh it may be to hold that the petitioners pay heavily, even interim, for minor lapses. But the law, at times, can be harsh, and the Courts, usually, defer to the legislative wisdom.

We reported this order as - 2018-TIOL-2903-HC-KERALA-GST.

The petitioners have preferred an appeal against this order.

The Division Bench considered the arguments made by both sides and noted –

++ Nature of the transaction, whether it is inter-State or intra-State supply is to be decided from the provisions in the statute and not by the intention or understanding of the parties to the transaction.

Adverting to the provisions of Sections 7, 8, & 10 of the IGST Act, 2017, the High Court further observed –

+ To determine the place of supply of goods, what is relevant is that the movement of the goods should be occasioned by the transaction of supply, as evident from the words “where the supply involves movement of goods”.

+ Location of the supply would be fixed as the place where the goods are delivered, so as to apply section 7 or section 8.

+ A transaction which terminates with the supply within a State is an intra-State supply.

+ When a dealer or manufacturer within the State of Kerala purchases goods for the purpose of further sale or manufacture within the State of Kerala, from an outside State dealer and transports it to their manufacturing unit or dealership, then the transaction occasions the movement of goods.

+ Though the sale occurs in that outside State, the place of supply of goods is in this State since the transaction of sale occasions the movement of goods from one State to another and the supply is terminated in this State; whether the movement is by the supplier or the recipient himself.

+ But when a person residing in one State goes to another State and purchases goods for his own use, the supply with respect to the transaction terminates on the individual taking possession of the goods in that other State.

+ When a resident of Trivandrum purchases a car in Puthuchery, takes possession of the same, obtains temporary registration in his name and takes out an insurance cover for a period of one year, also in his name; which insurance cover is mandatory u/s 146 of the M.V. Act, the presumption can only be that the delivery was effected in Puthuchery itself.

+ The registration obtained of the vehicle hence establishes beyond any pale of doubt that the property in the goods stood transferred to the purchaser and the transport by the 1 st appellant was on behalf of the purchasers, the 2 nd appellant.

+ The fact that temporary registration was obtained at Puthuchery and insurance cover taken in the name of the registered owner establishes that the sale had been completed at Puthuchery itself.

+ The sale made by the dealer and the service of transportation of the vehicle are quite distinct transactions; one of supply of goods and the other of service.

+ The transportation was by the logistics wing of the selling dealer who had collected tax on the consideration for the service rendered.

+ A car on purchase from the authorised dealer of the manufacturer, with a registration taken is owned by the registered owner and loses its sheen of a brand new car.

+ It is common knowledge too that the minute a car is driven out a dealer-ship, the price dips and it only has second-hand value which is not exigible to tax as per the notification 8/2018-CTR, which though levies tax on old and used motor vehicles, confines it to a positive margin on the subsequent sale, from the purchase price.

+ The definition of “personal effects” includes a car as is discernible from its meaning in Black's Law Dictionary.

+ Even going by the normal connotations, a car is the personal effect of the person, who carries the registration in his name, who also carries with it the liability to compensate any third party injury caused by the use of such car on the roads.

+ It has to be noticed that the car had been driven for 17 kms. The brand new car would have an odometer showing zero and necessarily it was driven only after the supply to the purchaser.

+ We do not understand how the State could take a contention that if the car had been driven into the State of Kerala from the U.T of Puthuchery then there could not have been a detention under Section 129 since then there would have been no question of uploading of e-way bill.

+ We cannot also comprehend how an intra-State sale would be converted to an inter-State sale merely for reason of it being transported in a carriage.

+ A purchase of, say, a Television by a resident of Kerala from Bangalore would be an intra-State sale and the nature of the supply, whether it be an inter-State or intra-State, would not depend on whether the purchaser carries it as a head-load through the borders or transports it through his own conveyance or through a transporter.

+ The incidence of tax is on the supply and not on the nature of transport.

+ There is no distinction insofar as the IGST Act is concerned of a supply by road or on a carriage.

+ Supply of the new vehicle by its authorised dealer terminated on it being purchased by the 2 nd appellant in Puthuchery and the subsequent movement of the goods was not occasioned by reason of the transaction of supply.

+ The goods have come into the possession of the purchaser and the vehicle having been used, however negligible the distance run, we are also of the opinion that it is his “used personal effect” and there can be alleged no taxable transaction insofar as the movement of goods from Puthuchery to Trivandrum in Kerala, especially since the car had been registered in the name of the purchaser.

+ On these two grounds, of an intra-State sale having occasioned and the transport being of used personal effects, we find that the detention was illegal.

Consequently, the vehicle having been already released, the notice issued and the order passed u/s 129 of the Act being illegal and totally without jurisdiction, the same was quashed.

The judgment of the Single Judge was set aside and the appeal was allowed.

(See 2018-TIOL-2925-HC-KERALA-GST)