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Sale of Rice under an Unregistered Brand name liable to GST if actionable claim or enforceable right has not been foregone not proved

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Brief summary of the case

Court: HIGH COURT OF TRIPURA
AGARTALA
Number: W.P. (C) No.279/2021
Petitioner: M/S Sarvasiddhi Agrotech Pvt. Ltd.    
Respondent: The Union of India
Date of decision: 20.04.2021
Judges: Honourable Mr.T.K.Deb,Advocate and Mr. Biswanath Majumder,CGC.

Facts

  1. The petitioner, the company supplies Non-Basmati un-branded rice.
  2. The State Goods and Service Tax Authorities, on a prior intelligence that the petitioner is dealing in branded rice, carried out a raid at the godown and other premises of the petitionercompany.
  3. SGST seized certain documents and stock of rice lying in the godowns.
  4. The Assistant Commissioner of GST(adjudicating authority) issued a Demand cum Show Cause Notice u/s 74 of the Central Goods & Services Tax 201 dated 11.03.2019 to the petitioner in which it was conveyed that on a prior intelligence that the petitioner was engaged in manufacturing, package and supply of branded rice in 25 kilogram bags having product names “Aahar Normal”, “Aahar Gold” and “Aahar Premium”
  5. Enforcement officers of the department visited the factory premises found that the petitioner was supplying branded packaged rice in unit containers without payment of GST.
  6. During raid, 1975 bags of Aahar Normal rice, 802 bags of Aahar Gold and 445 bags of Aahar Premium were seized which were later on released on production of bank guarantee by the petitioner.
  7. Aahar Normal, Aahar Gold and Aahar Premium on which an actionable claim or enforceable right in a court of law is available. It was also alleged that the noticee had not voluntarily forgone the actionable claim or enforceable right in respect of the brands in question
  8. In view of these averments, it was alleged that the assessee was liable to pay CGST as well as SGST at prescribed rates on the taxable value of its sales for the period in question which was assessed at Rs.1,03,35,028/-

Defense put up by the petitioner in adjudicating authority

The petitioner had submitted an affidavit dated 05.04.2019 forgoing the actionable claim or enforceable right on the brand name printed in the unit containers for supply of rice.

  1. The petitioner has not supplied rice with any package markings on the rice bags with the brand name such as Aahar Normal, Aahar Gold and Aahar Premium.
  2. The stock of rice found from the godowns was meant for internal use and was not meant for taxable supply.
  3. It was contended that the petitioner had not supplied any branded rice in unit containers after 22.09.2017.
  4. There was internal grading of rice as per the quality variety and price which was graded under the erstwhile brand name of Aahar Normal, Aahar Gold and Aahar Premium, which was strictly for internal use and not for supply.
  5. The quantity of rice seized included packages marked prior to 22.09.2017, which was meant to be returned as an old stock due to quality disputes, which was still lying with the petitioner.

The Assistant Commissioner of GST (adjudicating authority) did not accept these defenses of the petitioner and passed the impugned order dated 03.07.2020 in which he referred: –

  • The petitioner’s declaration for forgoing actionable claim on the un-registered brand of Aahar Normal, Aahar Gold and Aahar Premium was rejected on the ground that the same was without accompanying affidavit which was required as per the Notification (dated 22.09.2017 issued by the Government of India).
  • He rejected the petitioner’s defence that the quantity of branded packaged rice seized from the godowns of the company was only for internal use.
  • He eventually held the petitioner liable to pay CGST and SGST at prescribed rates with interest and penalty u/s 74(1) of the Central Goods & Services Tax 2017 read with Section 74(1) of the Tripura State Goods & Services Tax 2017.

The petitioner filed Appeal (Appellate authority) against the said order of the adjudicating authority.

Petitioner’s argument in Appellate authority.

  1. Neither cross examination was allowed nor relied upon documents were supplied in support of allegations by the adjudicating authority.
  2. The petitioner was not supplying branded packaged rice and therefore, the supply of the petitioner was exempt from GST levies.
  3. The authority has committed a serious error in coming to the conclusion that the petitioner was supplying branded rice in packaged units
  4. The authority has committed a serious error in coming to the conclusion that the petitioner was supplying branded rice in packaged units
  5. The seized quantity of rice was only meant for internal use and not for sale. In any case, no demand of GST can arise unless and until the goods are supplied
  6. The GST authorities have based their assessment on quantity of rice found in the godown.

Observation made by Appellate authority:

  1. Appellate authority observes that the adjudicating authority has determined taxable value on the basis of introduction of levy on the packaging rice under the provision of Notification No.27/2017 CT (Rate) dated 22.09.2017.  
  2. Appellate authority  find from the order in original that the adjudicating authority imposed duty on the rice found in the factory awaiting for supply which was computed as per the provisions of the Notification No. 27/2017 CT (Rate) dated 22.09.2017 for safeguarding the revenue.
  3. Invoices and sales register, with other contact established that there are buyers and seller.
  4. The appellant has failed to submit manufacturing date or old stock or any valid records to prove that the same has returned back from the buyer.
  5. Legal Metrology Act and Food Safety and Standard Act is established that the product belonged to the Brand guardian.
  6. All records along with the physical goods under detention, sales records supplied by the appellant reveals that the party has supplied goods during the period liable for payment of GST I do not find any reason to interfere the decision of the adjudicating authority and appellant is liable to pay GST with applicable interest under the provision of Notification No.27/2017 CT (Rate) dated 22.09.2017.

Judgment: – Appellate authority

  1. Invoices and sales register, with other contact details for customer as per records established that there are buyers and seller.
  2. Legal Metrology Act and Food Safety and Standard Act is established that the product belonged to the Brand guardian and thus violated the provisions of Notification No.27/2017 CT (Rate) dated 22.09.2017 with intend to evading payment of GST under Section 74(p) of the CGST, 2017 read with Tripura SGST, 2017.
  3. The appellant has suppressed the material facts from the department with intent to evade payment of service tax.
  4. And thus the Appellate authority dismissed the Appeal.

Under CGST Act and SGST Act further Appeal would be available before a Tribunal to be constituted for such purpose. Since the Tribunal is not yet constituted the petitioner has filed the present petition to challenge the order in original and order in Appeal.

Petitioner’s argument before the hon’ble High court of Tripura:

  1. The petitioner was not supplying branded packaged rice therefore, the supply of the petitioner was exempt from GST levies.
  2. The authority has committed a serious error in coming to the conclusion that the petitioner was supplying branded rice in packaged units.
  3. The name ‘Aahar Normal’, ‘Aahar Gold’ and ‘Aahar Premium’ were registered brands and therefore, would not come within the purview of taxable supplies.
  4. He also submitted that the seized quantity of rice was only meant for internal use and grading  of the rice or part of the stock was lying because of quality disputes, and not for sale.
  5. No demand of GST can arise unless and until the goods are supplied.
  6. The GST authorities have based their assessment on quantity of rice found in the godown.

Observation made by Hon’ble High court of Tripura.

  1. The conclusions of the authorities (adjudicating authority and Appellate authority) are based on assessment of materials on record.
  2. The seizure of sizable quantity of packaged branded rice was an indication of the petitioner dealing in such product. Close to three thousand bags of rice were found lying in the godown.adadad
  3. The tax is not demanded on rice stored and seized but on the quantity of rice already supplied which was assessed from the bill books and invoices seized from the premises of the petitioner company.
  4. The petitioner’s bare contention that the seized quantity of rice was only meant for internal use and grading of the rice or part of the stock was lying because of quality disputes, and not for sale, was not backed by any evidence and was therefore correctly not accepted by the authorities.
  5. In order to avoid inviting liability of tax, the petitioner had to forgone such actionable claim which also the authorities found the petitioner had not done.

Judgment: High Court

  1. The petitioner’s contention that the brand was not a registered brand and therefore the petitioner had no liability to pay tax also was rightly not accepted.
  2. The brand names under which the petitioner was selling the rice may not have been registered; nevertheless it could lead to an actionable claim in a court of law.
  3. Thus, the requirement of the brand name being registered is no longer necessary.
  4. The notification(dated 22.09.2017 issued by the Government of India,) itself, provides that the exemption could be availed where such actionable claim or enforceable right in respect of such brand name has been voluntarily forgone subject to the conditions specified in the Notification.
  5. In order to avoid inviting liability of tax, the petitioner had to forgone such actionable claim which also the authorities found the petitioner had not done.
  6. And thus petition is dismissed.

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