ORDER

The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and MP Goods & Services Tax Act, 2017 (hereinafter also referred to CGST Act and MPSGT Act respectively) by Mohammad Arif (hereinafter also referred to as applicant) registered under the Goods & Services Tax,

2. The provisions of the CGST Act and MPGST Act are identical, except for certain provisions. Therefore. unless a specific mention of the dissimilar provision is made, a reference to the CGST Act would also mean a reference to the same provision under the MPGST Act. further, henceforth, for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST or MPGST Act would be mentioned as being under the GST Act.

3. BRIEF FACTS OF THE CASE –

The Applicant in his argument gave following brief facts of the case.

3.1 The applicant is engaged, inter alia, in purchase of Tendupatta from the MP State Minor Forest Produce (Trading and Development) Cooperative Federation Limited (hereinafter referred to as the Federation for the sake of brevity) for the purpose of trading of Tendupatta.

3.2 The sale of Tendupatta, was made to successful bidder of lender floated by the Federation and the transaction of the sale of Tendupatta was governed by the agreement that the successful bidder entered into with the Federation. The text of the agreement formed the part of the Fender.

3.3 The Tendupatta to be procured was to be verified by the successful bidder to establish its quality and usefulness for the purpose for which it was to be procured. Once the quality was accepted, the bidder would make the payment for the Tendupatta as per the instalments stipulated in the agreement and take delivery of the Tendupatta. In case the bidder was not able to make the payment, the Tendupatta was to be stored in the Godown of the Federation till such time as the payment for the Tendupatta was not made in full. the tendupatta so stored in the Godown of the Federation was under the joint lock of the Federation and the successful bidder

3.4 The successful bidder, under the terms of contract was required to pay for the lots of Tendupatta in instalments and obtain the Tendupatta from the Federation to complete the sale. Since the Tendupatta, till the time the pay merit was made by the bidder, was to be kept in the godown of the Federation, the Tendupatta was insured by the Federation. The insurance was obtained by the Federation at the cost of the successful bidder in the joint name of the Federation and the successful bidder.

3.5 The applicant was the successful bidder in NIT No. T.P.2 Dated 01.11.2016 and accordingly entered into an agreement for sale of Tendupatta with the Federation and the paid the first two instalments out of the four instalments which were to be paid under the terms of the agreement The Federation had duly issued the invoice for the Tendupatta covered under the first two instalments and delivered the Tendupatta to the applicant.

3.6 Unfortunately, due to a fire in the Godown of the Federation, the tendupatta stored, relating to the subsequent installments, was destroyed and could not ultimately be delivered to the applicant (Successful bidden by the Federation.

3.7 The federation had obtained insurance of the Tendupaua at the cost of the applicant (Successful bidder), wherein the Federation was the joint beneficiary of the insurance. Upon the fire, the claim for insurance was filed and the insurance proceeds were received by the federation.

3.8 Thereafter, the Federation directed the applicant (Successful bidder) to pay for the subsequent installments for the Tendupatta that was destroyed in the fire, after appropriating the Security Deposit and adjusting the claim received from the insurance company. while computing the amount to be paid by the applicant (Successful bidder), the Federation added GST, treating the goods destroyed in the fire to have been supplied in terms of the GST Act. 2017.

4. QUESTION RAISED BEFORE THE AUTHORITY –

4.1 Whether under the circumstances of the case, mere acceptance joint custody of the goods without the rights and privileges of ownership of the goods amounts to “Supply” within the meaning of Section 7 of the GST Act?

4.2 Whether under the circumstances of the case, where the goods are destroyed by fire before being delivered under an agreement to sell, can there be “Supply” within the meaning of Section 7 of the GST Act after the destruction of the goods by fire?

5. DEPARTMENT VIEW POINT-

The Asstt Commissioner, State Tax, Sagar vide his letter No.Vak/ARA/2021/M5 dated 06.02.2021 informed that on the following reasons, the issued covered in the application should not be considered as supply under Section 7(1):-

(i) All forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

Although this definition is inclusive but for supply the condition, is in the course of furtherance of business in addition to made or agreed to be made and for a consideration is essential. In the said issue, the condition of consideration is not fulfilled as in the definition of consideration, the deposit is excluded.

(ii) In this case, the title of goods not transferred, hence the goods not to be considered as supply.

(iii) As per the provision of Section 31:-

A registered person supplying taxable goods shall before or at the time of

(a) Removal of goods for supply to the recipient, where the supply involves movement of the goods or

(b) Delivery of goods or making available thereof to the recipient in any other case.

Issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed:

In the above case, neither the removal of goods nor issue of tax invoice, hence not qualify as supply.

6. RECORD OF PERSONAL HEARING –

6.1. Counsel for the Applicant appeared personal hearing on 05.09.2020 and then on 18.09.2020 and 01.10.2020 through electronic mode and inform that no invoice has been issued of goods destroyed in joint custody. He made the following submission on 05.09.2020 in support of his contention.

“16.1 The provisions relating to levy are given in Section 9 of the GST Act. The text of the provision is as under:

9. (1) Subject to the provisions of sub-section (2). there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

(emphasis supplied)

The taxable event for levy of GST is thus supply”. The moment there is supply, the liability to GST arises, even though the payment of GST may have happened prior to the supply or is to happen at a later date as per the machinery provisions. Therefore, it is important to ascertain, in all cases that supply within the meaning of the GST Act has taken place.

16.2 The provisions relating to “Supply” are contained in Section 7 of the GST Act. 2017, which states as under:-

7. (1) For the purposes of this Act. the expression “supply” includes-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business:

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I. made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Of the four limbs to Section 7(1), the limbs, (b), (c) and (d) do not apply to the transaction at hand Also, out of the forms of supply given in sub-clause (a), except for the term “sale”, none of the types of supplies are applicable in this case If the transaction at hand can be classified us “sale’ then there shall be supply within the meaning of the GST Act. else the transaction cannot be classified as Supply”. Therefore. in the given facts of the case where the goods stand destroyed, it has to be seen whether sale has happened or not.

16.3 A joint reading of the two sections, viz and 7(1)(a) and (9(1) would show that for the liability to pay GST to arise, there has to be supply of goods or services. Unless there is supply, there cannot be a taxable transaction. In the instant case the item involved is “goods”. Therefore, for liability pay GST to arise, goods i.e. Tendupatta has to be shown to have been supplied. The type of supply in this case is sale and therefore it has to be established that “sale” has taken place.

16.4 The term sale is defined under the Sale of Goods Act, 1930 and Sale as well as Agreement to Sell are defined in Section 4 of the Act. The text of the Section is reproduced hereunder for ready reference,-

(4) Sale and agreement to sell.- (1) A contract of sale of goods is a contract whereby the Federation transfers or agrees to transfer the property in goods to the bidder for a price. There may be a contract of sale between one part-owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the Federation to the bidder, the contract is called a sale but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property, in the goods is to he transferred.

16.5 According to this section, where the transfer of the property in the goods is to take place in the future time or subject to some condition thereafter to be fulfilled the contract is an agreement to sell. In the case of the purchase of Tendupatta the goods in question (that is. Tendupatta fit for use for making bidi) were not in existence at the point of time when the Federation and the applicant (Successful bidder) entered into the contract for the purchase of Tendupatta The sale of tendupatta was subject to the acceptance of the tendupatta for its quality. Also, the sale way to be made at a future point of lime and accepted for its quality. This fact is duly narrated in the Agreement al para 5(IV), the relevant text of which is as under:

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