The Madhya Pradesh Authority of Advance Ruling (AAR) ruled that Mere acceptance of joint custody of goods without rights, privileges of ownership of goods does not amount to ‘Supply’.
The applicant, Mohammad Arif Mohammad Latif is engaged, inter alia, in purchase of Tendupatta from the MP State Minor Forest Produce (Trading and Development) Cooperative Federation Limited (hereinafter referred to as the Federation for the sake of brevity)for the purpose of trading of Tendupatta.
The sale of Tendupatta, was made to a successful bidder or lender floated by the Federation and the transaction of the sale of Tendupatta was governed by the agreement that the successful bidder entered into with the Federation. The text of the agreement formed part of Fender.
The Tcndupaua he procured was to be verified by the successful bidder to establish its quality and usefulness for the purpose for which it was to be procured. Once the quality was accepted, the bidder would make the payment for the Tendupatta as per the instalments stipulated in the agreement and take delivery of the Tendupatta, In case the bidder was not able to make the payment, the Tendupatta was to be stored in the Godown of the Federation till such time as the payment for the Tendupatta was not made in full. The tendupatta so stored in the Godown of the Federation was under the joint lock of the Federation and the successful bidder.
The applicant has sought the advance ruling on the issues whether under the circumstances of the case, mere acceptance of joint custody of the goods without the rights and privileges of ownership of the goods amounts to ‘Supply’ within the meaning of Section 7 of the GST Act.
Yet another issue raised was whether under the circumstances of the case, where the goods are destroyed by flic before being delivered under an agreement to sell, can there be “Supply” within the meaning of Section 7 of the GST Act after the destruction of the goods by fire.
The Coram of Manoj Kumar Choubey and Virendra Kumar Jain ruled that upon acceptance of the quality of the Tendupatta, they were kept under Joint Custody of the Federation and the applicant. However, as per the terms of the agreement between the parties, the delivery of the Tendupatta was to be given only upon payment of the installment due. In case of delay in payment of the instalment, the amount of interest for the period of default was also to be paid before the delivery of the Tendupatta. Once the delivery was given, invoice was also concurrently issued for the value of the goods delivered; Since the sale was that of future goods, in the absence of the appropriation of the goods to the contract, the property in the goods did not pass to the applicant prior to the sale. Therefore, sale of Tendupatta in joint custody of the Federation and the applicant did not take place prior to the destruction of the Tendupatta.
AAR ruled that in the given circumstances, taking joint custody of Tendupatta by the applicant shall not amount to supply of Tendupatta to the applicant if the invoice of the said transaction is not issued.
“Supply” within the meaning of Section 7 of the GST Act can only be of goods that are in existence. Although a contract may be entered into for supply of future goods and consideration also be received for such supply of future goods, non-existent or future goods cannot be supplied in terms of Section 7 of the GST Act. In this case, the goods are destroyed by fire. There cannot be any transaction in respect of such non-existent goods after their destruction that would amount to supply,” the AAR said.
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