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2020 (1) TMI 928 - HC - GSTLevy of IGST - Place of supply - Rate of GST - Petitioner is the SEZ unit - e-auction by the respondents - taking delivery in the State of auction - purchase and forthwith supply the sandalwood purchased by the petitioner - zero rated supply or not - inter-state or intra state supply? - case of petitioner is that petitioner is located in a notified Special Economic Zone. Purchase of goods by a dealer located beyond the territorial limits of State of Kerala comes as interstate purchase of goods - HELD THAT - the acceptance of delivery of sandal wood logs at Government Forest Department, Marayoor, is not the conclusive circumstance for deciding the place of supply of goods in the present regime of GST. Mr. Kumar does not dispute the circumstance that the petitioner upon completion of other sale conditions receives the sandal wood logs at Marayoor Forest Department depot, and the acknowledgment of goods at Marayoor Forest Department Depot does not result in termination of movement of goods but results in further movement of goods at the hands of recipient to SEZ. So the final destination i.e. SEZ in the case on hand is the supply point. The actual place of supply by plain interpretation of Section 10(1) is within the SEZ in Madras, State of Tamilnadu, but not in State of Kerala. - Therefore, the contention of respondents 1 and 2 that supply of goods is completed at Marayoor Forest Department and subject sets is an intra state transaction is unsustainable. Rate of tax / GST - @18% or Zero rated supply - Held that - Under the scheme of IGST supplies to SEZ unit and SEZ developer are treated at par with physical exports. The exporting units to compete with world market need raw materials without payment of taxes and duties. Either the denial of zero-rated tax benefit by respondents or calling upon the petitioner to pay 18% tax and claim refund is not in line with statutory scheme discussed above. Respondents 1 2 by calling upon petitioner to pay 18% IGST are acting contrary to the scheme under IGST. Misuse is one of the gray areas in implementation of zero-rated tax. Respondent No.3 has informed that if the supplier and recipient are situated in different States the transaction is treated IGST transaction. Intra-State movement of goods culminating delivery to the recipient in SEZ comes under IGST. To the same effect is supply of goods or services to a SEZ in any other State in India. The Act provides for safeguards against suppression or evasion of applicable tax. The subject supply comes as inter-State movement of goods to SEZ outside the State of Kerala. The first and second respondents though have proceeded to conduct e-auction by reference to applicable VAT, the same is understood as applicable taxes i.e., GST/IGST, and the transaction is concluded or completed by the parties with reference to the legal obligations under GST/IGST. The subject transaction shall be treated as zero-rated tax supply - petitioner is given four weeks from today to comply with the conditions which the petitioner is under obligation to comply with except deposit of 18% tax IGST and communicate to 1st and 2 nd respondents with a request to deliver the goods - Petition disposed off.
Issues Involved:
1. Whether the supply of goods pursuant to confirmation of sale on 13.07.2018 in favor of the petitioner is an inter-State supply or intra-State supply. 2. Whether respondents 1 and 2 are legally justified in levying and demanding 18% IGST on the sale price from the petitioner for completing the sale. Issue-wise Detailed Analysis: 1. Nature of Supply: Inter-State or Intra-State - The petitioner, operating in a Special Economic Zone (SEZ), contends that the purchase of goods from Kerala for delivery in Tamil Nadu constitutes an inter-State supply under the Integrated Goods and Services Tax Act, 2017 (IGST Act). The petitioner argues that the place of supply should be determined by the final destination of the goods, which is the SEZ in Tamil Nadu, thereby making it an inter-State transaction. - Respondents 1 and 2 argue that the sale is completed within the State of Kerala as the delivery of goods occurs at Marayoor Depot. They assert that the transaction is intra-State since the supply is completed within Kerala, and hence, IGST at 18% is applicable. - The court examined the provisions of the IGST Act, specifically Sections 7 and 8, which define inter-State and intra-State supplies. Section 7(5)(b) explicitly states that the supply of goods to an SEZ unit is considered an inter-State supply. Section 10(1)(a) further clarifies that the place of supply is where the movement of goods terminates, which in this case is the SEZ in Tamil Nadu. - The court concluded that the transaction should be treated as an inter-State supply since the final destination and termination of movement is the SEZ in Tamil Nadu. Therefore, the contention of respondents 1 and 2 that the supply is completed in Kerala is unsustainable. 2. Legality of Demanding 18% IGST - The petitioner contends that being located in an SEZ, the transaction should be zero-rated under Section 16 of the IGST Act, which exempts supplies to SEZ units from IGST. The petitioner argues that the demand for 18% IGST is illegal and unauthorized. - Respondents 1 and 2 argue that the petitioner should pay the 18% IGST and then claim a refund, as per the provisions of the IGST Act. They assert that the sale conditions, which were agreed upon by the petitioner, mandate the payment of applicable taxes, including IGST. - The court analyzed Section 16 of the IGST Act, which defines zero-rated supplies, including supplies to SEZ units. It also examined Section 16(3), which provides options for claiming a refund of IGST paid on zero-rated supplies. The court noted that the statutory provisions allow for the movement of goods to an SEZ without the burden of tax, supporting the petitioner's contention. - The court held that the demand for 18% IGST by respondents 1 and 2 is contrary to the statutory scheme of the IGST Act. It emphasized that the petitioner, being an SEZ unit, is entitled to zero-rated tax benefits, and the respondents' insistence on IGST payment and subsequent refund claim is not aligned with the law. Conclusion: - The court ruled in favor of the petitioner, holding that the subject transaction is an inter-State supply and should be treated as zero-rated. The court directed respondents 1 and 2 to deliver the goods to the petitioner without demanding 18% IGST. The petitioner was given four weeks to comply with the conditions of sale, excluding the deposit of IGST, and to communicate this to the respondents for the delivery of the goods. The court emphasized the importance of adhering to the statutory provisions of the IGST Act, ensuring that SEZ units receive the intended tax benefits.
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