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Authorities were right in levying GST on non-registered branded rice: High Court

As per amendment dated 22.09.2017, for the original expression of "put up in unit container and bearing a registered brand name" what is now substituted is that it should be put in unit container and may be bearing a registered brand name or bearing a brand name on which an actionable claim or enforceable right in a court of law is available. Thus, the requirement of the brand name being registered is no longer necessary. This Notification itself, however, 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.

- High Court 

Facts

According to petitioner, it is a dealing in Non-Basmati un-branded rice. However, revenue submits that petitioner is dealing in branded goods.

On a prior intelligence, the officials of GST department had carried out a surprise visit to the premises of the petitioner, from where several incriminating documents and sizable quantity of packaged rice were seized. The invoices and other sales details established that for the period under consideration, the petitioner had supplied rice in packages of 25 kg each which carried the brand name Aahar Normal, Aahar Gold or Aahar Premium. Sizable quantity of such packaged branded rice was also seized from the premises. It was on the basis of such materials that the adjudicating authority came to the conclusion that the petitioner was engaged in supply of packaged branded rice without payment of GST. The Appellate authority also confirmed the finding of the adjudicating authority and dismissed the Appeal of the petitioner. The authorities did not accept the petitioner’s ground of the seized rice being only for the internal use and purposes.

Petitioner

The stand of the petitioner was that 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. It was contended that 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. The stock of rice found from the godowns was meant for internal use and was not meant for taxable supply. It was contended that the petitioner had not supplied any branded rice in unit containers after 22.09.2017. There was internal grading of rice as per the quality variety and price which was grsded under the erstwhile brand name of Aahar Normal, Aahar Gold and Aahar Premium, which was strictly for internal use and not for supply. It was also contended that 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.

Learned counsel for the petitioner submitted that the petitioner was not supplying branded packaged rice and therefore, the supply of the petitioner was exempt from GST levies. He submitted that the authority has committed a serious error in coming to the conclusion that the petitioner was supplying branded rice in packaged units. He pointed out that the brands Aahar Normal, Aahar Gold and Aahar Premium were not registered brands and therefore, would not come within the purview of taxable supplies. He also submitted that 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. In the present case, the GST authorities have based their assessment on quantity of rice found in the godown.

Revenue

The Assistant Commissioner of GST did not accept these defences of the petitioner and passed the impugned order dated 03.07.2020 in which he referred to the documents and other materials seized during the raid at the premises of the petitioner-company. He noted that during such 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. He also referred to invoices and bills of supply of such products by the petitioner during the period under consideration. On basis of such materials he came to the conclusion that the petitioner was supplying branded rice in packaged units. 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. 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. 

High Court

We do not find any error in the view of the authorities. Firstly, the conclusions of these authorities are based on assessment of materials on record.

Secondly, the seizure of sizable quantity of packaged branded rice was an indication of the petitioner dealing in such product.

Thirdly, 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. Further, the petitioner’s defence that the quantity of rice lying in the godowns was merely for internal use was also not backed by any evidence. Close to three thousand bags of rice were found lying in the godown. The petitioner’s bare contention that it was not meant for supply but only for internal purposes of grading the rice or part of the stock was lying because of quality disputes, was not backed by any evidence and was therefore correctly not accepted by the authorities. Lastly, 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. As pointed out by the counsel for the petitioner himself under a Notification dated 22.09.2017 issued by the Government of India, following amendment in the previous Notification was made:

"(v) in S. No. 49, in column (3), for the words "put up in unit container and bearing a registered brand name", the words brackets and letters "put up in unit container and, -

(a) bearing a registered brand name; or

(b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any such actionable claim or enforceable right in respect of such brand name has been voluntarily foregone, subject to the conditions as specified in the ANNEXURE]", shall be substituted;"

As per this amendment, thus, for the original expression of "put up in unit container and bearing a registered brand name" what is now substituted is that it should be put in unit container and may be bearing a registered brand name or bearing a brand name on which an actionable claim or enforceable right in a court of law is available. Thus, from the previous requirement of supply of goods in unit container and bearing a registered brand name, the expanded requirement is of the same either bearing of registered brand name or bearing a brand name on which actionable claim or enforceable right in a court of law is available. Thus, the requirement of the brand name being registered is no longer necessary. This Notification itself, however, 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.

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. 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.

Stupid decision !. The issue of filing declartion for foregoing actionable claim is a mere technicality. On that ground and on the ground that affidavit was not filed, the Department had confirmed the entire demand even after filing declaration, which is not correct even after filing the declaration

Replied to murali

Hello Sir,

In my opinion, by not expressly forgoing actionable claim on brand name, taxpayer enjoy all the direct or indirect benefit of that brand but save tax, which is not the intention of legislature.

Considering the above mentioned case, the only fault of a trader is he didn't submitted an affidavit to the concern office regarding forgone the actionable claim. The lesson to other millers /traders that first check if your trading mark has been submitted or not. This is very important to do so.

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