Transportation Of Machinery From JNPT To Factory Doesn't Constitute Supply, GST Not Payable: Bombay High Court

The Bombay High Court has held that transportation of machinery from Jawaharlal Nehru Port Authority (JNPT) to the factory of the assessee does not constitute supply, and hence GST is not payable.

The bench of Justice K.R. Shriram and Justice Jitendra Jain has observed that the first limb of Section 129(1)(a), which provides for a penalty equal to one hundred percent of the tax payable, cannot be invoked in the present case. The State GST Authority in the impugned order has erroneously applied the rate of GST without first satisfying itself whether the transportation to one's own factory can at all fall within the charging section. The applicability of the rate of tax would get triggered only if a transaction falls within the meaning of the term “supply” as per Section 7 of the Maharashtra Goods and Service Tax Act (MGST Act).

The petitioner/assessee imported, at JNPT Port, certain machinery from China that was fully exempted under the Customs Act as well as the Integrated Goods and Services Tax Act of 2017 since it was covered by the Export Promotion Capital Goods (EPCG) scheme.

The petitioner arranged for a transporter to transport the machinery from the port to its factory in Surat. The vehicle in which the machinery was being transported from the port to Surat was intercepted at Palghar in Maharashtra. On interception, it was found that the e-way bill did not accompany the vehicle in which the machinery was transported as mandated by Rule 138A of the MGST Rules, 2017. However, the bill of entry accompanying the vehicle contained all the details.

The state GST authority issued a notice under the MGST Act for the imposition of a penalty. The petitioner replied to the said show cause notice. The state GST authority passed the impugned order imposing a penalty under Section 129(1) of the MGST Act equivalent to a tax applicable to the value of the machinery.

The assessee contended that at the time of the import of machinery, there is no customs duty or IGST liability since goods are exempt under notification no. 16 of 2015, read with notification no. 18 of 2020. After the goods were cleared by customs, they were being transported to the petitioner's factory in Surat.

The petitioner admitted that the e-way bill did not accompany the vehicle when it was intercepted. However, the petitioner submits that there cannot be any GST liability when goods are transported by an importer to his own factory, and therefore the state GST authority was not justified in imposing a penalty by applying the rate of tax to the value of machinery and arriving at the tax amount to determine the penalty.

The petitioner submitted that a penalty of only Rs. 25,000 should have been imposed under Section 129(1) of the MGST Act since it was less than two percent of the value of exempt goods.

The petitioner submitted that while passing the order, the state GST authority has not considered any of its submissions made in response to the show cause notice. The petitioner, therefore, prayed for reducing the penalty to Rs. 25,000 only.

The department contended that at the time when the vehicle was intercepted, there was no e-way bill, and therefore, there had been a contravention of Rule 138A of the MGST Rules. As per Section 129(1) of the MGST Act, the petitioner is liable for a penalty equivalent to the tax applicable.

Section 129(1)(a) of the MGST Act provides for a penalty equal to one hundred percent of the tax payable on goods detained or seized. The phrase “tax payable” would contemplate that the transaction is liable for tax and on which the tax becomes payable.

In the instant case, when the machinery is being transported from JNPT to the petitioner's factory after customs clearance, there is no tax payable under the GST Act. Section 9 of the MGST Act levies a tax on all intra-state supplies of goods or services or both, and such a tax shall be paid by the taxable person.

Section 7(1)(a) of the MGST Act defines “supply” to include all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, license, etc., made or agreed to be made for consideration by a person in the course or furtherance of business.

Sections 7(1)(b) and 7(1)(c) are not applicable, and the transaction under consideration also does not fall within Schedules I, II, and III. When a petitioner imports machinery and, after Customs clearance, transports the machinery to its own factory, it cannot be said that such a transportation would fall within the definition of the term “supply” as defined by Section 7.

The court held that the activity of transporting machinery from JNPT to the petitioner's own factory would not fall within Section 7, which deals with scope of supply, and consequently, in the absence of any supply and absence of consideration, the charging of Section 9 would also not get attracted so as to make the petitioner liable to pay any tax.

The court modified the order by holding that the petitioner is liable for a penalty of Rs. 25,000 only under Section 129(1) of the CGST Act.

Counsel For Petitioner: Ishaan Patkar

Counsel For Respondent: S.D. Vyas

Citation: 2024 LiveLaw (Bom) 318

Case Title: Fabricship Pvt. Ltd. Versus UOI

Case No.: Writ Petition No.2611 Of 2021

Click Here To Read The Order