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2019 (12) TMI 1449 - HC - GSTClassification of goods - rate of GST - Sandal Wood purchased by them in the auction conducted at the Forest Depot, units being situated in the Special Economic Zone (SEZ) in the State of Tamil Nadu - inter-state supply or not - Zero-rate supply or not - HELD THAT - In the case at hand, the Sandal Wood stocked in the Depot of the Forest Department at Marayoor was put to auction, by specifying the quantity thereof. On a perusal of the tender notification as well as the conditions incorporated therein, it is revealed that, the successful bidder should take delivery of the goods from the said Depot, on remittance of the requisite amount. Therefore the supply of goods in between the auctioneer and the successful bidder ends up with delivery of goods at the Depot itself. Hence the supply of goods in the case at hand does not involve any movement of goods. Therefore, going by Section 10(1)(c) of the IGST Act, the supply of goods in the case at hand is a supply which does not involve movement of goods. Therefore the place of supply can only be considered as the location of such goods at the time of delivery effected to the recipient, which is at the Depot at Marayoor, within the State itself. In the case at hand, the location of both the supplier and the place of supply are within one State itself. Therefore the supply of goods in the case is not in two States or in two different Union territories or in a State and in a Union territory, as contemplated under Section 7(1) of the IGST Act. But sub-section (5) of Section 7, especially sub-clause (b) therein, provides that, if the supply of goods is to a SEZ unit, such supply shall be treated to be a supply of goods in the course of inter-State trade or commerce. Further, going by provisions contained in Section 8 of the IGST Act, which determines what is intra-State supply, which provides that, when the location of the supply and the place of supply of goods are in the same State or same Union territory it shall be treated as intra-State supply. In order to ascertain as to where is the place of supply, the provisions contained in Section 10 can be of assistance. Clause (c) of Section 10(1) provides that, where the supply does not involve movement of goods, whether by the supplier or by the recipient, the place of supply shall be the location of such goods at the time of delivery to the recipient. In the case at hand, it cannot be disputed that, pursuant to confirmation of the auction, the goods has to be delivered by the appellants to the respondent on making deposit of the requested amount. In other words, the supply of goods in the case will be concluded by effecting delivery of the goods to the recipient at the Depot in question. Since the location of the goods at the time of delivery by the recipient is the Depot at Marayoor, the place of supply is also within the State. Hence it can safely be concluded that the location of the supplier and the place of supply of goods are within the State of Kerala itself. Therefore the supply of goods in the case will come within the purview of the intra-State supply as determined in Section 8(1) of the IGST Act. Rate of tax applicable - HELD THAT - Section 16 of the IGST Act clearly provides that, supply of goods to a SEZ Unit is a zero-rated supply . Therefore the demand made by appellants 1 and 2 for payment of IGST at the rate of 18% cannot be sustained - The instance of taxation or the taxable event is the supply of goods contemplated under the IGST Act. It is specifically provided that supply of goods made to a SEZ unit is an inter-State supply. Further it is also evident from the provisions that, despite the location of the supplier and the place of supply is within the State itself, it cannot be treated as an intra-State supply, because the supply is made to a SEZ unit. Going by provisions contained in the IGST Act, the inter-State supply in the instant case is a zero rate supply . Therefore, there exists no tax liability involved in the supply of goods. That being the position, coupled with the condition incorporated in the tender that the value of the goods need to be paid only with applicable tax, would make it clear that the tenderer is not liable to pay any tax at 18%. Such a rate is not at all applicable with respect to the supply of goods involved. Under the Goods and Services Tax regime, any transaction of supply of goods is governed by the definitions and provisions contained in the CGST Act and in the IGST Act. When it is provided under the statute as to what determines the nature of inter-State supply and intra-State supply , no one can go beyond provisions of the said Acts in order to decide the nature of the supply. From the conclusions arrived, it need to be held clearly that, going by provisions of the IGST Act the supply to a SEZ unit can only be considered as inter-State supply. As long as such supply remains as a zero-rated supply the demand for payment of 18% IGST cannot be sustained. Lastly, yet another contention was raised to the effect that, the proviso to Section 8(1) exempting supply of goods to SEZ unit from the purview of intra-State supply, can be deemed to apply only with respect to a SEZ unit situated within the State itself. For accepting such a contention, something has to be read into the plain and literal meaning of the proviso, which is not at all warranted, because the literal meaning or the intentional meaning would not give rise to any ambiguity or lack of clarity. Further, Section 7(5)(b) would make it clear that despite the location of the supplier and the place of supplier being not within two different States, it should be treated as a supply of goods in the course of inter-State trade, when the supply is made to a SEZ unit. When the rate applicable to such supply is determined as zero-rate supply , the demand for any higher rate cannot be sustained. It is pertinent to note that, neither under Section 7(5)(b) or under the proviso (i) of Section 8(1); nor under Section 16(1)(b) there is no distinction with respect to the location of the SEZ unit, whether it is within the State or outside the State. Therefore the above argument cannot be countenanced, at any rate. The conclusions arrived by the Learned Single Judge and the relief granted in the impugned judgment do not suffer from any illegality, error or impropriety - Appeal dismissed.
Issues Involved:
1. Liability to pay 18% IGST on goods purchased by a SEZ unit. 2. Determination of the nature of supply (inter-State or intra-State). 3. Applicability of zero-rating to supplies made to SEZ units. Issue-wise Analysis: 1. Liability to Pay 18% IGST: The primary issue is whether the respondent, a SEZ unit, is liable to pay 18% IGST for Sandal Wood purchased in an auction conducted by the Forest Department. The tender notification required the successful bidder to remit 35% of the bid amount within 7 days and the balance along with applicable taxes within 14 days. The sale confirmation letters included an 18% IGST demand, which the respondent challenged, seeking to exclude the IGST amount from the purchase value. 2. Determination of the Nature of Supply: The court examined whether the transaction should be classified as inter-State or intra-State supply. According to Section 7 of the IGST Act, inter-State supply involves the supplier and place of supply being in different States or Union territories. Section 8 defines intra-State supply as occurring within the same State or Union territory but excludes supplies to SEZ units. The court noted that the supply of goods in this case did not involve movement of goods, as the delivery was to be taken from the Forest Depot in Kerala. Therefore, the supply location was within the State itself. However, Section 7(5)(b) specifies that supplies to SEZ units are treated as inter-State trade, regardless of the supplier's and supply's locations. 3. Applicability of Zero-Rating to Supplies Made to SEZ Units: Section 16 of the IGST Act provides that supplies to SEZ units are zero-rated. Thus, the demand for 18% IGST was deemed unsustainable. The court referenced a previous Division Bench decision but distinguished the present case based on the specific provisions of the IGST Act, emphasizing that supplies to SEZ units are inter-State and zero-rated. The court rejected the appellants' argument that the intra-State supply exemption in Section 8(1) only applies to SEZ units within the same State, noting that the statutory language does not support such a distinction. Conclusion: The court upheld the Single Judge's decision, confirming that the supply to the SEZ unit is zero-rated and dismissing the appellants' demand for 18% IGST. The writ appeals were dismissed, affirming that the supply in question is an inter-State supply under the IGST Act and subject to zero-rating.
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