Grants Given To Assessee For Day-To-Day Expenses Not Consideration For Alleged Services Rendered Or Goods Supplied: Kerala HC

The Kerala High Court has held that grants given to assessee for day-today expenses cannot be deemed as consideration/ payment for services rendered or goods supplied.

The Court was considering a Writ Petition against the CGST & Central Excise Department's order  under the provisions of the CGST/SGST Acts whereby it held that the petitioner is liable to pay Goods and Services Tax amounting to Rs.99,05,74,260/- for the period from July 2017 to March 2021 and interest thereon and imposing a penalty of Rs. 4,95,28,713/- on the petitioner principally on the premise that the petitioner is effecting a composite supply of goods and services to the schools and is therefore liable to pay Goods and Services Tax.

The single-bench of Justice Gopinath P. observed, "A reading of Section 7 makes it clear that in respect of transactions which do not fall under Schedule I, consideration is an essential ingredient to establish that there is either a supply of goods or services. There is nothing in Ext.P1 which would indicate that the petitioner had received any consideration from the Government, the KIIFB or the General Education Department as consideration for the supply of goods or services. The petitioner has only received grants to meet its day-to-day expenses including salary, allowances etc. Such payment cannot be deemed to be a consideration for the alleged services rendered or for goods supplied by the petitioner. The revenue has no case that the activity of the petitioner falls within Scheduled-I."

The Petitioner was represented by Advocate V.A. Haritha while the Respondent was represented by Advocate P.G. Jayashankar.

The Petitioner Firm was constituted as a special purpose vehicle in accordance with Government directives for procurement of hardware required for the purposes of IT education in Government schools by floating competitive tenders and thereafter supplies the hardware to various schools on the basis of requirements and directives issued by the General Education Department. It is by the Government through the Kerala Infrastructure Investment Fund Board (KIIFB), which is again a statutory body under the Government of Kerala.

The Counsel for the Petitioner submitted that there is no finding in Ext.P1 that any supply has been made by the petitioner on receipt of consideration and therefore, there cannot be any doubt that the activity of the petitioner does not amount to supply for the purpose of Section 7 of the CGST / SGST Acts. It was also averred that if at all the activity of the petitioner were to be treated as a supply under Section 7 of the CGST / SGST Acts, the petitioner is entitled to the benefit of Ext.P10 notification issued under Section 11 of the CGST Act, 2017. It was submitted that while the adjudicating authority accepts that a supply of goods procured out of Government grants would be exempt from the levy of GST by virtue of Ext.P10 notification, the adjudicating authority proceeds to hold that there is a transfer of property in goods by the petitioner to the General Education Department and further that the amounts received by the petitioner from the KIIFB do not constitute a grant by the Government. It was submitted that the petitioner had procured the goods after paying GST and even assuming that the subsequent transfer to the Government Schools etc. amounted to supply for the purposes of Section 7 of the CGST/SGST Acts such a supply would be a revenue-neutral exercise as the petitioner would be entitled to take the benefit of input tax credit and that would completely cover the tax liability of the petitioner on the supply as there is no finding that the petitioner had charged any further amount for supplying the goods to the Schools etc. It was submitted that several of the findings of the adjudicating authority in Ext.P1 are contradictory and mutually irreconcilable. 

The Court found the Petitioner entitled to the relief claimed and observed, "A reading of Ext.P1 order does not lead me to conclude that there is a coherent and principled approach to the contentions taken by the petitioner before the adjudicating authority. The learned Senior Counsel for the petitioner is right in contending that there are contradictory findings in Ext.P1."

The Court pointed out that there are several contradictions in Ext.P1 order. It observed that grants given to carry out day-today expenses cannot be deemed as consideration/ payment for services rendered or goods supplied.

"The adjudicating authority has taken the view that since the goods were purchased by utilising the funds of KIIFB, the same cannot be treated as a grant for the purposes of Ext.P10 notification. This, in my view, is a rather myopic view of the notification, in the facts and circumstances of this case," the Court observed.

The Court thus quashed Ext.P1 and ordered afresh adjudication of the issue.

The Petition was accordingly allowed.

Cause Title: Kerala Infrastructure and Technology for Education vs. Union of India (2024:KER:88020)

Appearances:

Petitioner-Advocate V.A. Haritha, Advocate Midhuna Bhaskar 

Respondent- Advocate P.G. Jayashankar

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