NOVEMBER 04, 2020

By Vijay Kumar

Does Rule 138(7) exist?

In a recent judgement (Bon Cargos Pvt Ltd - 2020-TIOL-1825-HC-KERALA-GST), the Kerala High Court reproduced Rule 138(7) of the CGST Act as:

(7) Where the consignor or the consignee has not generated the e-way bill in FORM GST EWB-01 and the aggregate of the consignment value of goods carried in the conveyance is more than fifty thousand rupees, the transporter, except in case of transportation of goods by railways, air and vessel, shall, in respect of inter-State supply, generate the e-way bill in FORM GST EWB-01 on the basis of invoice or bill of supply or delivery challan, as the case may be, and may also generate a consolidated e-way bill in FORM GST EWB-02 on the common portal prior to the movement of goods:

But is this Rule 138(7) notified, effective and enforceable?

A little bit of history is worth a read. Three years of GST has produced so much history that the present is complicated maze. The first CGST Rules came into existence by Notification No. 3/2017 - Central Tax, dated 19th June, 2017 and were to come into force with effect from 22nd June, 2017. On 28th June 2017, the Government by Notification No. 10 /2017 - Central Tax amended the Rules and were to come into force on the 1st day of July, 2017. In this notification, there was a rule 138, which read as:

138. E-way rule.- Till such time as an E-way bill system is developed and approved by the Council, the Government may, by notification, specify the documents that the person in charge of a conveyance carrying any consignment of goods shall carry while the goods are in movement or in transit storage.

Thus, the e-way bill was only an idea with the government as on 1 st July 2017. As GST was unfolding dramatically, the Government again amended the rules by Notification No. 15/2017 - Central Tax, dated 1st July, 2017, to come into force with effect from the 1st day of July, 2017. But Rule 138 and the e-way bill were untouched. Obviously, government had not yet thought of developing the system. Two more amendments by Notification No.7/2017-Central Tax, dt. 27-07-2017 and 22/2017-Central Tax, dt. 17-08-2017, left the Rule 138 and e-way rule untouched.

Then came the (Sixth Amendment) Rules in Notification No.27/2017 - Central Tax dated 30th August, 2017 by which the Government amended Rule 138 to introduce the e-way bill. Clause (7) of the newly amended Rule 138 read as:

(7) Where the consignor or the consignee has not generated FORM GST EWB-01 in accordance with the provisions of sub-rule (1) and the value of goods carried in the conveyance is more than fifty thousand rupees, the transporter shall generate FORM GST EWB-01 on the basis of invoice or bill of supply or delivery challan, as the case may be, and may also generate a consolidated e-way bill in FORM GST EWB-02 on the common portal prior to the movement of goods.

But, wait, the government was not yet ready with the system - they were ready only with the Rules. The amended Rule 138 was to come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

By Notification No. 74/2017 - Central Tax, dated 29th December, 2017, the Government appointed the 1st day of February, 2018 as date on which the amended rule was to come into force.

But before the appointed date, by Notification No. 3/2018 - Central Tax, dated 23rd January, 2018, they overhauled the entire yet-to-come-into-existence Rule 138. This overhauled Rule was also to come into force on 1st day of February, 2018, as proposed in the previous notification. So, on 1st February 2018, Notification No. 27/2017 - Central Tax, came into force and so did Notification No. 3/2018 - Central Tax, dated 23rd January, 2018, but Notification No. 3/2018 virtually superseded Notification No. 27/2017. So, notification 27/2017 was in force on 1 st February 2018. Realising this, on 2nd February, 2018, by Notification No. 11/2018 - Central Tax, they rescinded Notification No. 74/2017. That is, there is no appointed date for notification 27/2017 to come into force. Were they killing a dead notification? But Notification No. 3/2018 still remained.

Then, by Notification No. 12/2018 - Central Tax, dated 7th March, 2018, the Rule 138 was again substituted and was to come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

By Notification No. 15/2018 - Central Tax, dated 23rd March 2018, the Government notified the 1st day of April, 2018, as the date from which the provisions of this Rule 138 would come into force, but there was a catch many missed. Our clause (7) of Rule 138, was excluded from the notified appointed date. That means that Rule 138(7) was not notified. And it is not notified till date, which means that it is not effective in the statute, that is, it does not exist.

But in the case referred to above, the Kerala High Court mentioned this clause several times, as seen below.

Para 3: Learned counsel appearing on behalf of the petitioner submits that……. So when there were two invoices it constituted two consignments as far as the petitioner, who is a transporter, is concerned whereas Sub-Rule 7 of Rule 138 stated the transporter is with obligation to generate e-way bill when the aggregate of the value of the goods carried in a conveyance is more than Rs.50,000/-. 

Para 6: I have heard the learned counsel for the parties and appraised the book, I am of the view that the contention of the petitioner in the present writ petitions by relying upon the provisions of Sub-Rule 7 of Rule 138 is wholly fallacious and illegal much less misplaced as Rule 138 falling under chapter XVI pertains to e-way Rules ie., the information to be furnished prior to the commencement of the movement of the goods and generation of e-way bills.

Para 7: Emphatic reliance upon the interpretation of Rule 7 that it is the duty of the transporter or the consignor, consignee to generate e-way bill when the aggregate value of the consignment is more than Rs.50,000/- and if otherwise ie., less than Rs.50,000/- there is no such requirement is not acceptable….

It looks like that both the appellant and respondent were not aware of the fact that Rule 138(7) had not come into force - yet. And so perhaps, this fact was not brought to the notice of the High Court. Anyway, the High Court did not agree to accept this 138(7), even if it was there in the statute.

What is happening? Isn't this the height of confusion?

This confusion was actually noticed by the Gujarat high Court more than two years ago in the case of Godrej And Boyce Manufacturing Company Ltd - 2018-TIOL-2868-HC-ALL-GST, when it was observed,

It appears that legislative changes were made in such a quick succession that field authorities could not track themselves with such changes and, hence, adhered to compliance of provisions which stood already substituted by new provisions and earlier ones had become otiose.

Notification dated 31.01.2018 whereby Rule 138 was completely changed by substitution and made effective from 01.02.2018, it appears, escaped attention of authorities concerned, though it is this provision which had to be complied by petitioners. Unfortunately, authorities concerned have completely failed to observe the same. It appears that for the field authorities there was a gross chaos on account of quick changes in relevant provisions, hence, authorities concerned could not appreciate, what provision is supposed to be followed by concerned person and what is actual default, if any, which has been committed by such person.

Petitioners when goods in transit were intercepted and impugned orders were issued, met an unauthorized act and suffered illegal order.

To complete the story, we may observe that Rule 138 again stood substituted by Notification dated 26.03.2018 which has come into force on 01.04.2018 but here also sub rule (7) has not been made effective.

In a Press Note issued on March 10, 2018, the CBIC had clarified,

The provisions of sub-rule (7) of Rule 138 will be notified from a later date. Therefore, at present there is no requirement to generate e-way bill where an individual consignment value is less than Rs. 50,000/-, even if the transporter is carrying goods of more than Rs. 50,000/- in a single conveyance.

Should there be so much noise on a non-existing provision?

The CGST Rules have been amended nearly 50 times in the last 40 months, which means the SGST Rules were also amended 50 times by each State. About 650 Notifications, 200 circulars, several Press Notes, FAQs and tweets have been given by the Central Government. And the exercise is repeated by 28 states and 9 Union Territories. Mind boggling mountain of LAW, ignorance of which, mind you, is not an excuse.

It is said that American roads are not good because America is rich, but America is rich because American roads are good. The GST Road is in a terribly bad shape and needs urgent repairs.

With a little technology, we can manage the entire GST structure by just capturing the output invoice and the input invoice - all that a taxpayer has to do would be simply upload his output and input invoices and pay the tax. But then, what will you do with the army of tax collectors?

Until next week