Bombay High Court: GST Not Payable For Machine Transportation From JNPT To Factory; Does Not Constitute ‘Supply’

Bombay High Court: GST Not Payable For Machine Transportation From JNPT To Factory; Does Not Constitute ‘Supply’

Rules that the State authority erred in applying the tax.

The Bombay High Court has held that transportation of machinery from the Jawaharlal Nehru Port Authority (JNPT) to the factory of the assessee did not constitute supply. Hence, the Goods and Services Tax (GST) was not payable.

The bench comprising Justice K.R. Shriram and Justice Jitendra Jain observed that the first part of Section 129(1)(a), providing a penalty equal to 100 percent of the tax payable, could not be invoked.

In the impugned order, the State GST Authority erred in applying the GST without noting if the transportation to one's own factory fell within the Section. It could apply only if a transaction fell within the term ‘supply’ as per Section 7 of the Maharashtra Goods and Services Tax (MGST) Act).

The petitioner-assessee imported machinery from China, and it was received at the JNPT.

Fully exempted under the Customs Act, 1962, and the Integrated Goods and Services Tax Act, 2017, it was covered under the Export Promotion Capital Goods (EPCG) scheme.

The petitioner arranged for a transporter to carry the machine from the port to his factory in Surat, Gujarat. However, intercepted at Palghar in Maharashtra, it was found that the vehicle’s e-way bill was missing, which is mandatory under Rule 138A of the MGST Rules, 2017. However, the bill of entry contained all the details.

The State GST authority issued a show-cause notice under the MGST Act, imposing a penalty, to which the petitioner responded.

Thereafter, 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 explained that at the time of the machinery’s import, customs duty or IGST liability was not applicable since the goods were exempt under Notification No.16 of 2015, read with Notification No.18 of 2020. Once the goods were cleared by the customs department, they were being transported to the petitioner's factory.

He acknowledged the absence of the e-way bill when the vehicle was intercepted. However, he stated that there’s no GST liability when goods are transported by an importer to his own factory. Thus, the State GST authority was not justified in imposing a penalty.

The petitioner added 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 the exempt goods. The authorities had not considered his submission in response to the notice, therefore, he requested to reduce the penalty to Rs.25,000.

The department contended that when the vehicle was intercepted, it did not have the e-way bill, which was in contravention of Rule 138A. As per Section 129(1), the petitioner was liable for a penalty equivalent to the applicable tax.

Section 129(1)(a) of the MGST Act provides a penalty equal to 100 percent of the tax payable on goods detained or seized. The phrase ‘tax payable’ contemplates that the transaction is liable for tax on which the tax becomes payable.

Therefore, when the machinery was transported from JNPT to the petitioner's factory after customs clearance, there was 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 is to be paid by the taxable person.

Section 7(1)(a) of the MGST Act defines ‘supply’, including all forms of goods or services or both, such as sale, transfer, barter, exchange, and license made or agreed to be made for a consideration by the businessperson.

Sections 7(1)(b) and 7(1)(c) were not applicable, and the transaction did not fall within Schedules I, II, and III.

When a petitioner imported the machinery and the customs cleared it, the transportation would fall under Section 7 definition ‘supply.

Therefore, Justice Shriram and Justice Jain held that the activity of transporting the machine from JNPT to the petitioner's factory would not fall within Section 7.

The judges modified the order by holding that under Section 129(1) of the CGST Act, the petitioner was liable to pay only Rs.25,000 fine.