2025 (12) TMI 1727 - HC - GST

IGST paid on goods delivered outside State: CGST/SGST show-cause notice challenged u/s10(1)(a), partly quashed

The dominant issue was whether a show cause notice demanding CGST and SGST on the same supplies was lawful when the taxpayer had already discharged IGST ... Legality of SCN issued upon the petitioner to pay CGST and SGST - petitioner having already paid the entire IGST in terms of Section 10(1)(a) of the IGST, whether the petitioner would once again be liable to pay CGST and KGST in relation to the very same amount? - HELD THAT:- A plain reading of Section 10(1)(a) of the IGST Act will indicate that “where supply of goods supply (of goods) involves movement of goods whether by the supplier or by the recipient or by any other person (common carrier), the place of supply of goods shall be the location of the goods at the time at which the movement of the goods terminates for delivery the recipient”. It follows therefrom that the movement of the goods terminates for the purpose of handing over delivery to the recipient and to enable the recipient to take delivery of the goods not when the goods are handed over to the ‘common carrier’ but only when the goods reach the destination for the purpose of enabling the recipient to obtain / take delivery as is clear from the aforesaid provision. In the instant case, notwithstanding the fact that the petitioner had not handed over the goods to the common carrier for the purpose of delivery to the ultimate destination, the liability to pay IGST under Section 10(1)(a) would arise only upon the movement of the goods terminating for delivery to the recipient at various places outside Karnataka. Undisputedly the supply of goods is inter-State supply and not intra-State supply so as to attract CGST or KGST as contented by the respondents. The impugned Show Cause Notice calling upon the petitioner to pay CGST / KGST on the aforesaid supply of goods is clearly erroneous, arbitrary and contrary to Section 10(1)(a) of the IGST Act and the same deserves to be quashed - It is also pertinent to note that there is no nexus or connection whatsoever between passing of title of goods from the petitioner to the respondents by virtue of the terms and conditions of the Sample Dealership Agreement, invoice and the Sale of Goods Act and the liability to pay IGST in terms of Section 10(1)(a) of the IGST Act, which specifically contemplates that the place of supply of goods would be the place of the recipient when movement of goods terminates for delivery to the recipient. The impugned Show Cause Notice insofar as it relates to the demand made is hereby quashed - Petition allowed in part. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, for inter-State supplies involving movement of goods, the tax authority could treat the 'place of supply' as the origin point where goods are handed over to a common carrier (based on invoice/dealership terms and 'passing of title/risk'), and consequently demand CGST and KGST despite the taxpayer having discharged IGST. (ii) Whether the show cause notice, to the extent it proposed CGST/KGST demand on the above 'place of supply' reasoning, was liable to be quashed as being contrary to Section 10(1)(a) of the IGST Act and resulting in impermissible double taxation / revenue-neutrality considerations on the facts found. (iii) What directions were required regarding adjudication of the remaining audit observations in the show cause notice (other than the 'place of supply' issue), including opportunity to reply, personal hearing, and supply of relevant documents. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i)-(ii): Place of supply for inter-State movement supplies; validity of CGST/KGST demand despite IGST payment Legal framework (as discussed by the Court): The Court extracted and applied Section 10(1)(a) of the IGST Act, which provides that where supply involves movement of goods (by supplier/recipient/any other person), the place of supply is the location of the goods at the time when movement terminates for delivery to the recipient. Interpretation and reasoning: The Court held that, on a plain reading of Section 10(1)(a), 'movement terminates for delivery to the recipient' not when goods are handed over to the common carrier but when goods reach the destination enabling the recipient to obtain/take delivery. The authority's reliance on dealership agreement/invoice terms to treat delivery as completed at the factory (origin) and to infer that IGST was wrongly paid was rejected. The Court found no nexus between 'passing of title/risk' under contractual terms and the statutory 'place of supply' test under Section 10(1)(a), which turns on where movement terminates for delivery. Conclusions: The Court concluded that the supplies were undisputedly inter-State (ultimate destination outside Karnataka), attracting IGST and not CGST/KGST. Therefore, the show cause notice demand for CGST/KGST on this issue was 'clearly erroneous, arbitrary and contrary' to Section 10(1)(a) and was quashed to that extent. The Court also noted that IGST had already been paid (including on freight), and any further demand would amount to double taxation; additionally, on these facts non-payment of CGST/KGST would be revenue neutral and cause no prejudice to the revenue. Issue (iii): Course of action for remaining audit observations in the show cause notice Interpretation and reasoning: For the remaining issues (other than the quashed 'place of supply' issue), the Court accepted that the matter should proceed through the statutory process on merits after the taxpayer files a reply and supporting material, with due opportunity. Conclusions: The Court relegated the taxpayer to the stage of filing reply for all other issues in the show cause notice, directed the authority to consider the reply, provide sufficient and reasonable opportunity including personal hearing, and then proceed in accordance with law. To enable effective participation, the authority was directed to furnish all relevant documents during the proceedings. The Court granted eight weeks' time to file the reply on the remaining issues.