2021 (12) TMI 321 - AAR - GST

Interpretation of 'Supply' under GST Act: Joint custody and goods destruction scenarios clarified by AAR

The case involved the interpretation of 'Supply' under the GST Act in two scenarios: joint custody of goods without ownership rights and goods destroyed ... Supply - Agreement to sell vs Agreement of sale - Time of supply - Delivery and appropriation of goods - Passing of property and risk - Goods perishing before sale - Admissibility of advance ruling 'in relation to' supplySupply - Delivery and appropriation of goods - Passing of property and risk - Whether mere acceptance of joint custody of goods without rights and privileges of ownership amounts to a 'supply' under Section 7 of the GST Act. - HELD THAT: - The Authority examined the inclusive definition of 'supply' under the GST Act together with provisions on time and place of supply and invoice issuance. For goods, supply envisages movement or transfer of possession (actual or constructive) from one person to another and is linked to delivery and issuance of invoice. The terms of the contract showed numerous conditions precedent to transfer - payment of instalments, acceptance of quality, appropriation to the contract - and the Federation retained control (including rights to seize or re sell). The insurance policy in the Federation's name and conduct of the parties (no certificate of sale, no invoice or delivery note for the third and fourth instalments) indicate that neither property nor risk had passed to the applicant prior to the fire. Joint custody under a double lock, where control and rights of ownership remain with the supplier, was held to be symbolic and not constitutive of delivery or transfer of property. Consequently, mere joint custody without fulfilment of contractual conditions and without issuance of invoice does not constitute supply under Section 7. [Paras 8, 9]Taking joint custody of Tendupatta by the applicant does not amount to supply of the goods if the invoice is not issued and conditions for transfer of property/ risk are not satisfied.Goods perishing before sale - Agreement to sell vs Agreement of sale - Time of supply - Whether goods destroyed by fire before delivery under an agreement to sell can constitute a 'supply' under Section 7 of the GST Act after their destruction. - HELD THAT: - The Authority applied the Sale of Goods Act principles to the facts: the transaction was for future goods and, absent unconditional appropriation to the contract, property and risk do not pass to the buyer. Section 8 of the Sale of Goods Act provides that where specific goods perish before the risk passes, the agreement is avoided. The GST law requires the subject matter of supply to exist; non existent or destroyed goods cannot be the subject of supply. Time of supply (earlier of invoice issuance or receipt of payment) had not occurred before the perishance; consequently, there could be no taxable supply after destruction of the goods. [Paras 8, 9]Goods that are the subject matter of an agreement to sell and that are destroyed before sale cannot constitute a 'supply' under Section 7 of the GST Act after their destruction.Final Conclusion: The Authority ruled that (i) mere joint custody of goods without transfer of ownership, appropriation, delivery or issuance of invoice does not amount to supply under the GST Act, and (ii) goods destroyed before they became the subject of sale cannot be treated as supply after destruction; the ruling is subject to statutory provisos for advance rulings. Issues Involved:1. Whether joint custody of goods without ownership rights amounts to 'Supply' under Section 7 of the GST Act.2. Whether goods destroyed by fire before delivery under an agreement to sell can be considered as 'Supply' under Section 7 of the GST Act.Detailed Analysis:Issue 1: Joint Custody and 'Supply' under GST ActThe applicant argued that joint custody of Tendupatta without ownership rights does not constitute 'Supply' as per Section 7 of the GST Act. The applicant was engaged in purchasing Tendupatta from the Federation and had paid for the first two installments. The remaining Tendupatta was destroyed by fire while in joint custody. The Federation demanded GST on the destroyed Tendupatta, treating the goods as supplied.The definition of 'Supply' under Section 7 includes all forms of supply such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration in the course of business. The applicant contended that the mere joint custody without the rights and privileges of ownership does not amount to 'Supply.'The Authority for Advance Ruling (AAR) analyzed the provisions of the GST Act and the Sale of Goods Act, 1930. It was noted that the delivery of goods was conditional upon full payment, and the property in goods would not pass to the applicant until payment was made. The joint custody was symbolic, and the actual control remained with the Federation. The insurance policy was also in the name of the Federation, indicating that the risk had not passed to the applicant.The AAR concluded that accepting joint custody without ownership rights does not constitute 'Supply' under the GST Act.Issue 2: Destruction of Goods and 'Supply' under GST ActThe applicant questioned whether goods destroyed by fire before delivery under an agreement to sell could be considered as 'Supply.' The Federation had obtained insurance for the Tendupatta, and upon destruction, the insurance proceeds were received by the Federation. The Federation demanded GST on the destroyed Tendupatta, considering it as supplied.The AAR referred to Section 8 of the Sale of Goods Act, 1930, which states that if specific goods perish before the risk passes to the buyer, the agreement becomes void. The AAR noted that the property and risk in the goods had not passed to the applicant, as the goods were still under the control of the Federation. The destruction of goods resulted in the agreement to sell becoming void.The AAR ruled that goods destroyed before sale could not be considered as 'Supply' under Section 7 of the GST Act.Conclusion:1. Joint custody of goods without ownership rights does not amount to 'Supply' under Section 7 of the GST Act.2. Goods destroyed before sale cannot be considered as 'Supply' under Section 7 of the GST Act.Order:1. Taking joint custody of Tendupatta by the applicant does not amount to supply if the invoice is not issued.2. Goods destroyed before sale cannot form the subject matter of 'Supply' under Section 7 of the GST Act after their destruction.