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2020 (5) TMI 389 - AAAR - GSTSupply or not - activity of depositing the timber by the Appellant to the Government Timber Depot - whether supply in terms of Section 7 of the CGST Act or not - Government Timer Depot - Agent of appellant or not - condonation of delay of 29 days in filing the present appeal - HELD THAT - The Appellant has stated that the delay had occurred since they wanted to take proper legal advice before filing the appeal and that they were busy with the GST audit. Considering the submissions made by the Appellant, the delay in filing the appeal is hereby condoned in exercise of the power vested in terms of the proviso to Section 100(2) of the CGST Act. Supply or not - HELD THAT - In the instant case, there is a transaction in goods in as much as timber is being deposited by the Appellant to the GTD. This transaction is mandated by a statute i.e the Karnataka Forest Act, 1963 whereby the purchase and sale of timber is restricted to only the State Government. Further, the activity of felling the timber trees is part of the shade management policy of the Appellant in the course of their business of Coffee/Tea/Pepper plantations. However, the activity of depositing the timber into the GTD does not result in realisation of consideration immediately. The timber is deposited at GTD for which a Deposit Receipt is given by GTD. Where the consideration is not extant in a transaction, such a transaction does not fall within the ambit of supply. Whether the Government Timer Depot is an agent of the Appellant? - HELD THAT - As per Section 182 of the Indian Contract Act, 1872, an agent is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the principal - In this case the Depots are set up by the State Government in terms of Section 104-A(5) of the Karnataka Forest Act for the purchase and sale of timber since the Act mandates that timber can only be purchased and sold by the State Government. The sale of the timber by the Depot is done by way of auction. The proceeds of the sale are remitted to the Appellant. Therefore, notwithstanding the fact that the Depot is set up under the aegis of a statute, it functions in the capacity of an agent. CBIC Circular No 57/2018 dated 4-09-2018 defines the scope of principal-agent relationship was explained. In terms of the said Circular, the key ingredient for determining the principal-agent relationship under GST would be whether the invoice for the further supply of goods on behalf of the principal is being issued by the agent or not. Where the invoice for further supply is being issued by the agent in his name then, any provision of goods from the principal to the agent would fall within the fold of the said entry - In the instant case, once a lot of timber is sold to a successful bidder in the auction, the purchaser is required to pay 114th value of the timber purchased along with applicable taxes to the Principal Chief Conservator of Forests (PCCF). On receipt of the amount, the forest department will send a sale confirmation letter to the Purchaser at which time the purchaser will pay the balance dues. Once the material is lifted by the Purchaser after payment of the sale value plus taxes, the concerned Range Forest Officer will raise a bill which will be forwarded to the Deputy Conservator of Forest (DCF). The DCF will prepare a separate bill and send the same to the Chief Conservator of Forests (CCF) who will issue the letter of credit (LOC). The LOC will be forwarded to the treasury who will issue the cheque to the DCF and the DCF will issue the same to the Appellant. Therefore, it is observed that the sale of timber happens through the GTD and not to the GTD as claimed by the Appellant. The proceeds of the timber sold through the auction process by the GTD is given to the Appellant on completion of the auction process. As such, the GTD acts in the capacity of agent of the Appellant and this transaction of depositing of timber by the Appellant in the GTD amounts to a supply in terms of clause 3 of Schedule I of the CGST Act. What will be the value of supply if the activity of depositing timber to the GTD is held to be a supply ? - HELD THAT - The act of depositing the timber at GTD is a supply in terms of clause 3 of Schedule I of the CGST Act. It is a supply of goods that is made without consideration by the Appellant as a principal to his agent. The Depot acting as an agent, renders a service of being the custodian of the timber at the depot till such time the timber is sold by the Depot in the auction process. Further, the depot also does the measurement and classification of the timber received from the Appellant since the Depot also stores the timber belonging to the Govt and other private parties - The Depot officials also give lot numbers to the timber logs according to the classification. It is for this service that the Depot charges supervision charges . This service rendered is outside the scope of clause 3 of Schedule I and hence the consideration received by the depot in the form of supervisions charges are liable to tax as a supply of service. The decision of AAR upheld.
Issues Involved:
1. Whether the activity of depositing timber with the Government Timber Depot (GTD) constitutes a "supply" under GST. 2. Determination of the value of supply for the timber deposited at GTD. 3. The time of supply for the timber deposited at GTD. 4. GST liability on supervision charges collected by GTD. Detailed Analysis: 1. Constitution of "Supply" Under GST: The primary issue is whether depositing timber at GTD constitutes a "supply" under Section 7 of the CGST Act. The term "supply" includes all forms of supply of goods or services made for a consideration in the course of business. In this case, the appellant deposits timber at GTD, which issues a Depot Receipt but does not provide immediate consideration. However, the transaction can still be considered a supply under Schedule I, para 3, which includes the supply of goods by a principal to his agent without consideration. The GTD acts as an agent for the appellant, handling the auction and sale of the timber. Therefore, depositing timber at GTD constitutes a supply under GST. 2. Value of Supply: The value of supply for the timber deposited at GTD should be determined under Rule 29 of the CGST Rules, which states that the value is either the open market value or 90% of the price charged for the supply of goods of like kind and quality by the recipient from his unrelated customers. If these values cannot be determined, the value should be calculated as per Rules 30 or 31. The appellant argued that determining the market value is impractical due to the unique circumstances of the timber market, but the ruling upheld that the value should be determined as per the prescribed rules. 3. Time of Supply: The time of supply under Section 12 of the CGST Act is the earliest of the date of issue of the invoice, the due date for the issue of the invoice, or the date of receipt of payment. Since the timber is moved to GTD, the invoice must be issued at the time of removal of the goods. Therefore, the time of supply is the date when the timber is removed by the appellant to the depot. 4. GST on Supervision Charges: The supervision charges collected by GTD are for the service of custody and classification of the timber until it is sold. This service is outside the scope of the principal-agent relationship under Schedule I, para 3, and is considered a separate supply of service. Therefore, the supervision charges are liable to tax, and the appellant must pay GST on these charges under the reverse charge mechanism if GTD is a government department. If GTD is not a government department, the depot must collect GST and issue an invoice to the appellant. Conclusion: The appellate authority upheld the advance ruling, confirming that depositing timber at GTD constitutes a supply under GST, the value of supply should be determined as per the CGST Rules, the time of supply is at the time of removal of the timber, and supervision charges are taxable. The appeal filed by the appellant was dismissed on all counts.
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