Kerala HC Sets Aside GST Advance Ruling in Manappuram Finance Case — Authorities Failed to Rule on Core 'Supply' Question Under Section 7
Background and Context
A significant procedural and substantive issue in GST advance ruling jurisprudence has emerged from the Kerala High Court in the matter of Manappuram Finance Limited Vs Union of India. The case revolves around a fundamental question that the advance ruling mechanism is designed to resolve — whether a specific payment made to the State Government attracts GST liability under the reverse charge mechanism — and yet, paradoxically, the very authorities empowered to answer that question left its most critical component unaddressed.
The dispute originates from payments made by Manappuram Finance Limited to the Government of Kerala under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2008. These payments were made for two specific purposes:
- Reclassifying land in Government village office records from wetland to ordinary land
- Obtaining permission to construct an office complex for business use
The central legal question was whether Notification No. 13/2017-CT (Rate) dated 28.06.2017 triggers a reverse charge liability on such payments made to the State Government.
The Advance Ruling Application and Issues Framed
Manappuram Finance Limited approached the Kerala Authority for Advance Ruling by filing an application — Ext.P2 — seeking clarity on the GST implications of the aforementioned payments. The Authority, upon examining the application, identified and framed the following two issues for adjudication:
- Whether any supply of service existed within the meaning of
Section 7of the Central Goods and Services Tax Act, 2017 - Whether any consideration was involved for rendering such service by the service provider
These two questions, properly answered together, would have resolved the reverse charge query comprehensively. However, what followed fell significantly short of that expectation.
What the Authorities Actually Decided — And What They Missed
The Advance Ruling Authority's Approach
According to the petitioner's counsel, Sri. R. Jaikrishna, the Kerala Authority for Advance Ruling — the 3rd Respondent — while framing both issues, proceeded to adjudicate only the exemption limb of the matter. The Authority concluded that the activity in question could not be treated as falling outside the scope of "supply of goods or supply of services."
Critically, however, the Authority never examined the anterior question — namely, whether the fee paid under Section 27A of the Kerala Conservation of Paddy Land and Wetland Act, 2008 in the first place constituted a "supply" within the meaning of Section 7(1) of the CGST Act, 2017.
This is a fundamental omission. Before examining whether an activity qualifies for exemption from supply, the logical and legal prerequisite is to first determine whether it constitutes a supply at all. By skipping this foundational question, the Authority rendered an incomplete ruling.
The Appellate Authority's Identical Error
Aggrieved by Ext.P3, the order of the Advance Ruling Authority, Manappuram Finance Limited challenged the ruling before the 4th Respondent — the Appellate Authority for Advance Ruling, Kerala. Unfortunately, the Appellate Authority in Ext.P5 arrived at the same conclusion, endorsing the reasoning of the original Authority without independently examining whether the Section 27A payment fell within the ambit of Section 7(1) of the CGST Act.