Philips Carbon Black Limited vs State Of Kerala on 16 November, 2023

Here's a summary of the judgment:

1. Outcome
The writ petition was allowed, and the impugned proceedings initiated under Section 129 of the CGST Act/KGST Act were set aside.

2. Core Issue
The Court considered two primary questions:
1. Whether the supply of goods by Philips Carbon Black Limited to MRF Limited's job worker in Kannur, Kerala (on MRF's instruction, whose principal place of business is Tamil Nadu) constitutes an inter-state supply or an intra-state supply.
2. Whether the proceedings initiated under Section 129 of the CGST Act/KGST Act against the petitioner were without jurisdiction.

3. Key Facts
* Petitioner: Philips Carbon Black Limited, Cochin Unit (Kerala), manufacturing Carbon Black.
* Buyer/Principal: MRF Limited, Arakonam, Tamil Nadu.
* Job Worker: M/s.Carbomix Polymers (India) Pvt.Limited, Kannur, Kerala.
* Transaction: Petitioner sold Carbon Black to MRF Limited. As per MRF's instructions, the goods were delivered directly to MRF's job worker in Kannur, Kerala.
* Invoice (Ext.P1): Issued by the petitioner, it charged Integrated Goods and Services Tax (IGST). It named MRF Limited as the buyer/customer and M/s.Carbomix Polymers India Limited (the job worker) as the consignee (place of delivery).
* Interception: On 27.02.2018, the consignment was intercepted in Kozhikode, Kerala, while en route to the job worker in Kannur.
* Detention Order & Notice (Ext.P3 & P4): Issued under Section 129(3) of the CGST/KGST Act.
* Reason for Detention: The inspecting officer contended that since the place of delivery was Kannur, Kerala, the supply should be treated as intra-state, and CGST and SGST should have been charged instead of IGST. They alleged that the SGST component of the IGST was wrongly credited to Tamil Nadu.
* Release of Goods: The goods were released upon the petitioner making payment under protest (Ext.P11).
* E-way Bill/KER-1 context: The transaction occurred on 27.02.2018, before the inter-state E-way bill system was rolled out (01.04.2018). The respondents also argued about the non-generation of KER-1 (the predecessor online declaration in Kerala).

4. Arguments

• Taxpayer (Philips Carbon Black Limited):

  • The proceedings under Section 129 were without jurisdiction.
  • As per Section 10(1)(b) of the IGST Act, when goods are delivered to a job worker on the instructions of a third person (the buyer/principal), it is deemed that the third person has received the goods. Thus, the place of supply is the principal place of business of that third person (MRF Limited, Tamil Nadu).
  • Section 7 of the IGST Act defines an inter-state supply where the location of the supplier (Kerala) and the place of supply (Tamil Nadu) are in different states. The place of delivery is irrelevant for determining the nature of supply.
  • The invoice complied with the job work procedure outlined in Section 143 of the CGST Act, read with Circular No.38/12/2018 (Ext.P12), which clarifies that goods can be sent directly to a job worker with a copy of the invoice, mentioning the job worker as consignee.
  • The challan required under Rule 45 of CGST Rules (from principal to job worker) need not accompany the consignment.
  • The non-accompaniment of documents for supply from buyer/principal to job worker (as alleged by Revenue) was against the statutory provisions and the circular.
  • The inter-state E-way bill system was not in force on the date of transportation (27.02.2018).
  • KER-1 generation under Rule 138(1) of KGST Rules is for goods transported under a delivery challan where no invoice is raised, which was not the case here. Moreover, non-generation of KER-1 was not the initial reason for detention.

• Revenue (State of Kerala):

  • The writ petition against a show cause notice (Ext.P8 communication) was not maintainable, citing State of Punjab v. Shiv Enterprises.
  • The movement of goods was not declared through the mandatory online declaration KER-1, which was in force at the time. The petitioner was aware of this requirement.
  • The allegation was a violation of Section 129, not tax evasion, and penalty under Section 129 applies even to exempted goods if statutory obligations are violated.
  • Mens rea is not a factor for imposing penalty under Section 129, citing Assistant State Tax Officer v. Indus Towers Limited.
  • KER-1 declaration was mandatory even for transport of goods to a job worker and for transactions covered by the IGST Act before the E-way bill system.

5. Court’s Reasoning

• Jurisdiction of Writ Petition: The Court implicitly rejected the Revenue's argument regarding the maintainability of the writ petition, stating that if the proceedings are "wholly without jurisdiction," a writ petition against a show cause notice can be entertained.
• Inter-state vs. Intra-state Supply:
  • The Court referred to Section 10(1)(b) of the IGST Act, which clarifies that when goods are delivered to a job worker on the instruction of a third person (the principal/buyer), the third person is deemed to have received the goods, and the place of supply is the principal place of business of that third person.
  • In this case, the principal/buyer (MRF Limited) is in Tamil Nadu, and the supplier (Philips Carbon Black Limited) is in Kerala.
  • Applying Section 7 of the IGST Act, where the location of the supplier (Kerala) and the place of supply (Tamil Nadu) are in two different states, the supply is definitively an inter-state supply.
  • The Court emphasized that the place of supply, not the place of delivery, determines whether a transaction is inter-state or intra-state.
  • Therefore, the supply correctly attracted IGST.
• Compliance with Job Work Procedure:
  • The Court noted that Section 143 of the CGST Act (job work procedure) is applicable to IGST transactions via Section 20(xxii) of the IGST Act.
  • It relied on Circular No.38/12/2018 (Ext.P12), specifically para 8.4(iv), which permits goods to be sent directly to a job worker under cover of a copy of the invoice issued by the supplier to the buyer/principal, provided the job worker's name and address are mentioned as the consignee.
  • The petitioner's Ext.P1 invoice met these requirements.
  • Thus, the documentation and procedure followed were in compliance with the law.
• KER-1/E-way Bill Requirement:
  • The Court observed that the initial detention was not for non-generation of KER-1 but for charging IGST instead of CGST/SGST.
  • It clarified that Rule 138(1) of the KGST Rules applied to consignments transported under a delivery challan where no invoice is raised. Since an invoice was raised in this case, KER-1 might not be required under that specific condition.
  • Furthermore, the Court considered the transition period from the Kerala VAT regime to GST, and the phased introduction of the E-way bill system. It held that non-generation of KER-1 alone, when other required documents (like the invoice) were accompanying the goods, would not be sufficient to constitute a violation, especially during such a transition.
• Conclusion on Jurisdiction: The Court concluded that the respondents proceeded on an erroneous assumption that the supply was intra-state and therefore entirely lacked jurisdiction to issue the detention notice and order.

6. Statutory References
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 7 (Scope of Supply)
* Section 31(1) (Tax invoice)
* Section 77(2) (Tax wrongly collected and paid)
* Section 129 (Detention, seizure and release of goods and conveyances in transit)
* Section 129(3)
* Section 143 (Procedure for job work)
* Section 149 (Power to issue removal order)
* Section 168 (Power to issue instructions or directions)
* Kerala Goods and Services Tax Act, 2017 (KGST Act):
* Section 129
* Rule 138 (E-way Bill)
* Rule 138(1) (Documents to be carried with the consignment of goods)
* Integrated Goods and Services Tax Act, 2017 (IGST Act):
* Section 7 (Inter-state supply)
* Section 8 (Intra-state supply)
* Section 10 (Place of supply of goods)
* Section 10(1)(a)
* Section 10(1)(b)
* Section 20 (Application of provisions of Central Goods and Services Tax Act)
* Section 20(xxii)
* CGST Rules, 2017:
* Rule 45 (Issue of challan in certain cases)
* Rule 46(o) (Tax Invoice)
* KGST Rules, 2017:
* Rule 55 (Transportation of goods without issue of invoice)

7. Precedents Cited
* By Revenue (not relied upon by the Court for its decision):
* State of Punjab v. Shiv Enterprises, C.A No.359 of 2023 (Supreme Court, 16.01.2023)
* Assistant State Tax Officer v. Indus Towers Limited, [2018(3)KLT Online 2053]