Facts of the Case

The Petitioner, Philips Carbon Black Limited, a manufacturer of Carbon Black registered under the CGST Act and Kerala GST Act, 2017, transported a consignment of Carbon Black to M/s. Carbomix Polymers (India) Pvt. Ltd., a job worker at Kannur, Kerala, pursuant to a purchase order placed by MRF Limited, Arakonam, Tamil Nadu. The invoice named MRF Limited as the buyer and Carbomix as the consignee, and IGST was charged treating the transaction as an inter-state supply. On 27.02.2018, the consignment was intercepted en route to Kannur, and a detention order along with a notice under Section 129(3) of the CGST/KGST Act was issued, alleging that CGST and SGST — not IGST — ought to have been charged, and that the movement lacked the KER-1 declaration. The goods were released only after the Petitioner made payment under protest. The Petitioner challenged the detention notice and the subsequent communication (Ext.P8) before the High Court of Kerala, contending that the entire proceeding under Section 129 was without jurisdiction.

Issues Involved

  1. Whether the supply of goods to the job worker at Kannur, on the direction of the principal MRF Limited located in Tamil Nadu, constituted an inter-state or intra-state supply.
  2. Whether the proceedings initiated under Section 129 of the CGST/KGST Act against the Petitioner were without jurisdiction.
  3. Whether non-generation of the KER-1 declaration vitiated the transaction independent of the place-of-supply determination.

Petitioner's Arguments

  • Under Section 10(1)(b) of the IGST Act, where goods are delivered to a job worker on the principal's instructions, the place of supply is deemed to be the principal's place of business — Tamil Nadu — making the transaction inter-state.
  • Under Section 7 of the IGST Act, the place of delivery is immaterial; what determines inter-state supply is the place of supply, and the Respondents erroneously equated delivery with supply.
  • The invoice, naming MRF Limited as buyer and the job worker as consignee, complied with Section 143 of the CGST Act read with CBEC Circular No. 38/12/2018.
  • The E-way bill system commenced only from 01.04.2018, after the date of transport (27.02.2018), so none was required; KER-1 under Rule 138(1) applies to physical delivery, not place of supply.

Respondent's Arguments

  • Since the place of delivery was in Kerala, SGST ought to have been credited to Kerala, and the IGST-only invoice violated the statute.
  • The mandatory online declaration KER-1 was not generated, in violation of the applicable Rules, and the Petitioner had acknowledged this requirement in its reply.
  • Mens rea is not a prerequisite for imposing penalty under Section 129, relying on Assistant State Tax Officer v. Indus Towers Limited.
  • Relying on State of Punjab v. Shiv Enterprises, the writ ought not to be entertained against what was, in substance, a show cause notice.

Court Order/Findings

  • Applying Sections 7, 8 and 10 of the IGST Act, the Court held that the determination of inter-state versus intra-state supply turns on the place of supply and not the place of delivery, and since the supply was made on the direction of the principal (MRF Limited, Tamil Nadu), the place of supply was Tamil Nadu, making it an inter-state supply correctly taxed under IGST.
  • The invoice, describing the buyer as customer and the job worker as consignee, was found compliant with Section 143 of the CGST Act read with the CBEC job-work circular.
  • Since the transaction was inter-state and not governed by KER-1/Rule 138 requirements applicable to intra-state movement, and given the transitional period before the E-way bill regime, the Respondents' assumption of jurisdiction under Section 129 was without authority of law.
  • The writ petition was allowed and the impugned detention notice and communication were set aside.

Important Clarification

For determining whether a supply is inter-state or intra-state under Sections 7, 8 and 10 of the IGST Act, 2017, the decisive factor is the place of supply — deemed to be the principal's place of business under Section 10(1)(b) in job-work situations — and not the physical place of delivery of the goods.

Sections Involved

  • Section 129 of the Central Goods and Services Tax Act, 2017 — detention and penalty for contravention during transport.
  • Sections 7, 8 and 10 of the Integrated Goods and Services Tax Act, 2017 — inter-state and intra-state supply, place of supply.
  • Section 143 of the Central Goods and Services Tax Act, 2017 — procedure for job work.
  • Rule 138 of the Kerala Goods and Services Tax Rules, 2017 — documents to accompany goods in transit.

Decision – In Favour of

The decision is clearly in favour of the Assessee. The Kerala High Court held that the detention and penalty proceedings under Section 129 were without jurisdiction since the transaction was correctly classified as an inter-state supply, and quashed the impugned notice and communication in their entirety.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No.19058 of 2018
  • CNR: Not available
  • Coram: Hon'ble Mr. Justice Dinesh Kumar Singh
  • Decision Date: 16 November 2023
  • Disposal Nature: Writ petition allowed; goods-detention proceedings set aside

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