GST Update No 148 on initiation of confiscation proceedings for default of any person in supply chain

GST law was implemented with a motive of “ease of doing business” and “hassle free movement of goods” from one place to other. However, the intended purpose seems to be defeated as the goods are being detained and confiscated for defaults committed by other persons in the supply chain. The High Court has intervened when the provisions of section 129 and 130 have been invoked for flimsy grounds such as suspicion of undervaluation, classification dispute, adoption of different route by the truck driver etc. Recently, an interesting case came before the Hon’ble Punjab and Haryana High Court in the case of SHIV ENTERPRISES V/S STATE OF PUNJAB AND OTHERS [CWP-18392-2021] wherein the issue was regarding invocation of the provision of confiscation of goods under section 130 of the CGST Act, 2017 for non-payment of tax by one of the suppliers in the supply chain. The extensive analysis of the decision is subject matter of discussion of our present update. The petitioner sold scrap to M/s Mittal Engineering Industries, Jagadhri. The goods were in transit via Vehicle No. No.PB-11CP/0194 which were inspected. The driver produced the necessary documents i.e. invoice and E-way bill. However, despite of the fact that documents were in order, the goods were detained on the basis that “genuineness of documents need verification from regular bills of A/c” and the petitioner was informed of the detention of goods. A reply was filed to GST MOV -02 through e-mail. The petitioner was informed one of his supplier i.e. M/s Balbir Enterprises is not making any inward supply and makes only outward supply without payment of tax. The counsel of the petitioner argued that the act of taking action u/s 129 of CGST Act is baseless since appropriate documents were furnished by the driver of the vehicle. Also, initiation of Section 130 of CGST Act is incorrect as it was initiated after filing the present writ petition. Therefore, it was pleaded that the action taken by the revenue authorities is incorrect. The counsel of the department argued that action of petitioner is detrimental to the interest of revenue. The authorities were of the view that the petitioner has a mala fide intention and is routing the transactions in order to avail input tax credit. Since the purchase is made from non-existing supplier, ITC on the same should be denied to the petitioner failing which will result into violation of the Act. Further, it was contended that MOV-02 was issued to the petitioner during detention which clearly specifies that detention was for verification of documents. Hence, show cause notice was issued and as alternate remedy is available to the petitioner, therefore, the present Writ petition is not maintainable. The Court analyzed provisions of relevant sections of CGST Act, 2017 such as 129, 130, 16, 37, 38 etc and Rule 138 of CGST Rule. Further, reliance was placed on CBIC Circular No. 41/15/2018-GST. It was held that Section 129 and 130 can be initiated only in case of contravention of provisions of this Act. A person can be attributed to evade payment of tax only in contravention has direct nexus with the intention of tax evasion. He cannot be held liable under section 130 in case contravention is done by any other supplier in the supply chain. Wrongful availment of claims neither imply that there is evasion of tax nor it is one of the condition of taking action u/s 130(1) of CGST Act, 2017. Section 130(1) being a penal section has to be interpreted strictly. Reliance was placed on the decision given in the case of XCELL AUTOMATION VS. STATE OF PUNJAB AND ANOTHER wherein it was held that various check post should be available to exercise powers and straight jacket approach cannot be adopted. The court held that there is a legal maxim i.e. “LEX NON COGIT AD IMPOSSIBILIA” which means that a man cannot be compelled to perform any impossible task and hence cannot be penalized for the same as well. Reference was made to the decision of Apex Court in the case of WHIRLPHOOL CORPRATION VS. REGISTRAR OF TRADE MARK, MUMBAI. The Court stated that goods can be detained and seized only in case the authorities find that the action of the persons falls under the four corners of Section 130(1). However, the opinions of the authorities which forms basis of the proceedings under Section 130 should have a reasonable nexus with the action of the person against whom proceedings are initiated so the order was quashed by the High Court. The above decision by the High Court is a landmark decision on the settled principle that one should not be held responsible and liable for the fraud committed by any other person. The goods of one assessee cannot be detained or confiscated on the grounds that the predecessor supplier in the supply chain has defaulted in payment of tax to the government or has simply issued GST invoices without actual supply of goods. The department should understand the fact that the power of detention and confiscation is sensitive which is required to be exercised cautiously and with due diligence otherwise the assessees will have to knock the doors of the High Court to seek appropriate relief. The assessees with mala fide intention should not be treated at par with those having bona fide intention.

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GST Update No 148 on initiation of confiscation proceedings for default of any person in supply chain

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