GST liability order quashed for school supplies under government project due to contradictory findings on ownership

Kerala HC quashed GST liability order against petitioner who supplied goods and services to schools as special purpose vehicle implementing government project. Court found adjudicating authority's decision contained contradictory findings regarding goods ownership and failed to properly consider relevant notification provisions. Authority incorrectly concluded KIIFB funding couldn't be treated as government grant despite KIIFB being statutory body under state control. Matter remanded for fresh adjudication considering whether supply exists without consideration and whether KIIFB funds constitute government grant under applicable notifications.

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Issues Involved:

1. Liability of the petitioner to pay Goods and Services Tax (GST) on the supply of goods and services.
2. Contradictory findings in the adjudication order regarding ownership and supply.
3. Consideration under Section 7 of the CGST Act.
4. Applicability of Ext.P10 notification regarding tax exemption.
5. Availability of alternate remedies and the appropriateness of writ jurisdiction.

Issue-wise Detailed Analysis:

1. Liability to Pay GST:
The petitioner, a company registered under Section 8 of the Companies Act, 2013, and holding 99.99% of shares by the Government of Kerala, was adjudicated to be liable to pay GST amounting to Rs.99,05,74,260/- for the period from July 2017 to March 2021, along with interest and a penalty of Rs. 4,95,28,713/-. The adjudication was based on the premise that the petitioner was effecting a composite supply of goods and services to schools, thus falling under the purview of GST. The petitioner contested this liability, arguing that the transactions did not amount to a 'supply' as defined under Section 7 of the CGST/SGST Acts.

2. Contradictory Findings in the Adjudication Order:
The court noted contradictions in the adjudication order (Ext.P1), particularly regarding the ownership of goods. While paragraph 48 of Ext.P1 established that the petitioner (KITE) held the title to the goods, paragraph 55 contradicted this by stating that the General Education Department (GED) was the owner of the goods. This inconsistency was highlighted as a significant flaw, undermining the coherence and reliability of the adjudication order.

3. Consideration under Section 7 of the CGST Act:
Under Section 7 of the CGST Act, consideration is a crucial element to establish a supply of goods or services unless specified in Schedule I. The court observed that there was no indication in Ext.P1 that the petitioner received any consideration from the Government, KIIFB, or the General Education Department for the alleged supply. The petitioner received grants for operational expenses, which could not be deemed consideration for supply. The revenue did not argue that the petitioner's activities fell under Schedule I, further weakening the case for GST liability.

4. Applicability of Ext.P10 Notification:
The petitioner argued entitlement to tax exemption under Ext.P10 notification, which exempts supplies made from government grants. The adjudicating authority failed to adequately consider this notification, particularly the classification of funds received from KIIFB as government grants. The court criticized the adjudicating authority for adopting a narrow interpretation of the notification, failing to recognize the petitioner as a government entity executing a government project.

5. Availability of Alternate Remedies and Writ Jurisdiction:
The respondent Department argued that the petitioner should pursue alternate remedies, such as an appeal under Section 107 of the CGST/SGST Acts, instead of seeking relief through a writ petition. However, the court found merit in the petitioner's arguments and decided to exercise its writ jurisdiction, emphasizing the lack of a coherent and principled approach in Ext.P1 and the need to address the contradictions and misinterpretations therein.

Conclusion:

The court quashed Ext.P1, directing the 3rd respondent to re-adjudicate the matter, considering the absence of consideration, the applicability of Ext.P10 notification, and the nature of funds from KIIFB as government grants. The adjudicating authority was instructed to pass fresh orders within three months, ensuring a fair and reasoned decision-making process. The court clarified that its observations were not final findings on the issues but were made to facilitate a just resolution.

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