2024 (12) TMI 1070 - HC - GST

Liability of petitioner to pay GST - petitioner is effecting a composite supply of goods and services to the schools - supply for the purposes of Section 7 of the CGST/SGST Acts - HELD THAT - The petitioner is entitled to relief. A reading of Ext.P1 order does not lend to conclude that there is a coherent and principled approach to the contentions taken by the petitioner before the adjudicating authority. The learned Senior Counsel for the petitioner is right in contending that there are contradictory findings in Ext.P1. While the adjudicating authority accepts that the petitioner is the owner of the goods in paragraph 44, he proceeds to hold in paragraph 55 that the ownership of the goods vests in the General Education Department. These findings are clearly contradictory. There are no attempt to set out in detail the other contradictions in Ext.P1 as this is not necessary for the purposes of this case. The adjudicating authority has not properly considered the effect of Ext.P10 notification. It is the specific case of the petitioner that the petitioner was a special purpose vehicle for the purposes of implementing a specific project of the Government of Kerala and it had procured the goods on the basis of the terms of the tripartite agreement entered into between the petitioner, the KIIFB and the General Education Department. The adjudicating authority has taken the view that since the goods were purchased by utilising the funds of KIIFB, the same cannot be treated as a grant for the purposes of Ext.P10 notification. This is a rather myopic view of the notification, in the facts and circumstances of this case. There are no hesitation to quash Ext.P1 and direct that the adjudication of Ext.P22 show cause notice be restored to the file of the 3rd respondent who shall pass fresh orders after affording an opportunity of hearing to the petitioner and specifically considering the question as to whether in the absence of consideration, there could be any supply of goods or services as defined in Section 7 of the CGST Act and also specifically considering the question as to why the amounts obtained through the KIIFB for the implementation of the project which was entrusted to the petitioner should not be treated as grant from the Government (considering the fact that the KIIFB is a statutory body completely within the control of the Government of Kerala) for the purposes of Ext.P.10 Notification read with the terms of Notification No.2/2017- Central Tax (Rate) New Delhi, dated 28.6.2017. Ext.P1 is quashed and the adjudication of Ext.P22 is restored to the file of the 3rd respondent who shall pass fresh orders as directed above and taking into consideration the above points and any other points that may be raised by the petitioner before the 3rd respondent - petition disposed off.

Issues Involved:

1. Liability of the petitioner to pay Goods and Services Tax (GST) on the supply of goods and services.
2. Contradictory findings in the adjudication order regarding ownership and supply.
3. Consideration under Section 7 of the CGST Act.
4. Applicability of Ext.P10 notification regarding tax exemption.
5. Availability of alternate remedies and the appropriateness of writ jurisdiction.

Issue-wise Detailed Analysis:

1. Liability to Pay GST:
The petitioner, a company registered under Section 8 of the Companies Act, 2013, and holding 99.99% of shares by the Government of Kerala, was adjudicated to be liable to pay GST amounting to Rs.99,05,74,260/- for the period from July 2017 to March 2021, along with interest and a penalty of Rs. 4,95,28,713/-. The adjudication was based on the premise that the petitioner was effecting a composite supply of goods and services to schools, thus falling under the purview of GST. The petitioner contested this liability, arguing that the transactions did not amount to a 'supply' as defined under Section 7 of the CGST/SGST Acts.

2. Contradictory Findings in the Adjudication Order:
The court noted contradictions in the adjudication order (Ext.P1), particularly regarding the ownership of goods. While paragraph 48 of Ext.P1 established that the petitioner (KITE) held the title to the goods, paragraph 55 contradicted this by stating that the General Education Department (GED) was the owner of the goods. This inconsistency was highlighted as a significant flaw, undermining the coherence and reliability of the adjudication order.

3. Consideration under Section 7 of the CGST Act:
Under Section 7 of the CGST Act, consideration is a crucial element to establish a supply of goods or services unless specified in Schedule I. The court observed that there was no indication in Ext.P1 that the petitioner received any consideration from the Government, KIIFB, or the General Education Department for the alleged supply. The petitioner received grants for operational expenses, which could not be deemed consideration for supply. The revenue did not argue that the petitioner's activities fell under Schedule I, further weakening the case for GST liability.

4. Applicability of Ext.P10 Notification:
The petitioner argued entitlement to tax exemption under Ext.P10 notification, which exempts supplies made from government grants. The adjudicating authority failed to adequately consider this notification, particularly the classification of funds received from KIIFB as government grants. The court criticized the adjudicating authority for adopting a narrow interpretation of the notification, failing to recognize the petitioner as a government entity executing a government project.

5. Availability of Alternate Remedies and Writ Jurisdiction:
The respondent Department argued that the petitioner should pursue alternate remedies, such as an appeal under Section 107 of the CGST/SGST Acts, instead of seeking relief through a writ petition. However, the court found merit in the petitioner's arguments and decided to exercise its writ jurisdiction, emphasizing the lack of a coherent and principled approach in Ext.P1 and the need to address the contradictions and misinterpretations therein.

Conclusion:

The court quashed Ext.P1, directing the 3rd respondent to re-adjudicate the matter, considering the absence of consideration, the applicability of Ext.P10 notification, and the nature of funds from KIIFB as government grants. The adjudicating authority was instructed to pass fresh orders within three months, ensuring a fair and reasoned decision-making process. The court clarified that its observations were not final findings on the issues but were made to facilitate a just resolution.

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