GST Update No 297 on simultaneous invocation of power of confiscation and detention

The continuous and consistent hike in cases of confiscation ad detention has increased the anxiety of the taxpayers. Adding fuel to the fire, the revenue authorities further impose high penalties which has its adverse effect on the business of taxpayers. The revenue authorities needlessly invoke these powers because of which the ultimate repercussions are faced by the business community. Recently, one case was reported before Karnataka High Court in the case of RAJEEV TRADERS V/S UNION OF INDIA. The decision imparted in this case is subject matter of our present update.
The inspector intercepted seven trucks during transit of Areca Nuts being done on behalf of the petitioner. The proper officer passed order of physical verification on the same day alleging that the documents were found to be defective prima facie and the e-way bill had not been tendered for the goods in movement. Furthermore, there was a difference in the quantity mentioned in the invoice and the quantity found upon physical verification. The detention order was passed on 28.09.2021. Furthermore, the Deputy Director, DGGI, Zonal Unit, Belagavi, proceeded to issue a notice for confiscation of goods, conveyances and levy of penalty under section 130 of the CGST Act, in FORM GST MOV-10. To this, reply was filed by petitioner on 27.10.2021. The Deputy Director, after granting personal hearing to the authorised representative of the petitioner, proceeded to pass an order of confiscation under section 130 of the CGST Act, on 24.11.2021 by issuing FORM GST MOV-11. Being aggrieved, the appeal was preferred by petitioner which was further rejected by appellate authority. As the GST Appellate Tribunal has not been constituted, the petitioner has filed the present writ petition.
The petitioner submitted that once the goods in transit are detained, confiscation cannot be initiated under section 130 of CGST Act, 2017. It wasargued that in case owner or person in charge of goods come forward to pay tax and penalty, the officer is bound to release the goods and vehicle. The officer is required to issue notice and thereafter pass order and in case no payment is made, then only proceedings under section 130 are to be invoked. Furthermore, the power of confiscation would apply only in respect of either non-taxable persons or persons not chargeable to tax. Hence, the entire proceedings were without jurisdiction and liable to be quashed.
The Counsel of revenue argued that the there was no e-way bill and gross undervaluation of goods when compared with valuation reports by CAMPCO. Hence, it is contravention of provisions of CGST Act. Furthermore, it was argued that it is a case of non-existent dummy supplier and a recipient. Reference was further drawn to Circular dated 13.04.2018 wherein powers are given to officer to directly invoke Section 130 of the CGST Act if he was of the opinion that there is tax evasion. Therefore, confiscation powers are correctly invoked. It was stated that an opportunity was given to petitioner and the appellate authority rightly dismissed the appeal since it is a fit case for passing confiscation order.
The Court stated that after hearing a question arises as to whether the officer while detaining the goods under section 129 of the Act, possess the power to initiate confiscation proceedings under section 130 of the Act? In this respect, it was stated that the objective of the Act is to facilitate levy and collection of tax on intra-state supply. The tax is collected in prescribed manner and various provisions of the Act were referred to and it was concluded that provisions are framed in a manner that envisages the taxable person to be voluntarily tax compliant. It was observed that power of inspection, search and seizure can be exercised when the proper officer has reasons to believe that goods are secreted away with an objective of tax evasion. The seized goods can be released on furnishing of bond and the proper officer is bound to do so. It was stated that from the statutory framework it is showered that lenient and liberal approach is followed even in case of wrongdoing. If in case there is an error which is rectified immediately and appropriate amount of tax is paid, no penalty is levied on the assessee and if it is on account of immoral conduct, penalty at the rate of 15% is only levied. The primary intention of law is not toconfiscate the goods as a penal measure and just to recover applicable tax along with interest and penalty. Further, differentiation in the powers under section 67 and 129 was explained. The section 129 was discussed in detail wherein it was explained in two parts. The first part empowers officers to detain or seize goods while they are in transit and second part casts an obligation on the officer for the release the goods and conveyances and the documents related to them which have been detained or seized on payment of prescribed amount. It was therefore, stated that the power of confiscation can be exercised only when the applicable tax and penalty is not paid.
Aligning with the above it was observed that proper officer is obliged to give the owner of the goods an option to pay fine in lieu of confiscation which is subject to upper and lower limits. Furthermore, after going through the provisions of Section 67 and 129 of the Act, it was observed that in both the cases, the proper officer is bound to release the goods or conveyances if the applicable tax and penalty prescribed is paid. Therefore, the intention of statue indicates that the power to detain and seize is only designed to ensure that the applicable tax and penalty is collected and paid. On similar lines, procedure is incorporated under Section 73 and 74 of CGST Act, 2017.
Therefore, the power of confiscation is the ultimate penal measure which is to be exercised with great care and caution and as a last measure. This power is distinct and independent which can be exercised only in case the power to detain and seize is not invoked. Once the power to inspect, seize or detain the goods and conveyances is invoked either under Section 67 or 129, the power to confiscate under Section 130 would not be available. Therefore, the procedure adopted by the officer is contrary to the provisions of the Act. However, the argument of the officer regarding placing reliance on the Circular dated 13.04.2018 cannot be accepted for more than one reason. Therefore, the obligation of the officer to release the goods cannot be bypassed by permitting the proper officer to invoke confiscatory proceedings under Section 130. Further, it is vested right of the owner of goods and conveyance to release the goods on fulfilment of conditions under Section 129. The confiscation can be invoked by the officer only by virtue of 129(6). The officer cannot himself choose the manner to penalise the wrongdoerwhen the statue prescribes the same. If it is exercised, the true intent of law would be defeated since the proper officer would basically ensure that the entire goods vest in the Government apart from the imposition of the liability. Furthermore, power to issue instructions under section 168 for the uniform implementation of the Act cannot vest the Commissioner to prescribe a set of instructions which go against the law. Hence, power under Section 129 cannot be converted into power under section 130 and they operate independently to each other. Thus, the reliance placed on the Circular can be of no avail. The power to detain is only to stop transit of goods and thereby prevent its movement till the tax and penalty is paid. The intention behind section 129 is to ensure that the applicable tax and penalty is recovered whereas behind 130 is to divest the owner of the goods itself and also impose liability of payment of the applicable tax and penalty. Therefore, it won’t be appropriate for the officer to initiate confiscation under section 130 when section 129 is already invoked since specific provisions are prescribed in law and the same cannot be sidestepped and resort to any other provision. The power of confiscation would be applied only in situations other than when the goods are in transit and the confiscatory powers cannot be switched in the middle of the proceedings.
In the present case goods were intercepted on 13.09.2021 and MOV-06 was passed on 28.09.2021 and the hence, rights were secured under section 129 to get the goods released. However, MOV-10 was issued. Therefore, the confiscatory proceedings are illegal. In the present case, since movement of goods was not accompanied with adequate documents i.e. e-way bill, penalty under section 122 shall be levied. However, the requirement of the law that a tax invoice is required to be issued containing the particulars was complied with. Further, Rule 46 does not mandate the market value of the goods to be mentioned on the tax invoice. In case there is reason to believe that applicable tax has not been paid either by mistake or by reason of fraud, proceedings under Section 73 or 74 is to be initiated. However, the detention proceedings cannot be transformed into confiscatory proceedings and the rights of taxpayers cannot be snatched away by invoking confiscation. It can be invoked in most extreme circumstances only.Further, as regards to undervaluation of goods, it was stated that the provisions of Section 15 are complied with and the authorities could not have proceeded on the assumption that there was an undervaluation. Moreover, no law demands that the supply of goods should be made only at a market value and hence, the allegation of tax evasion raised by department is illogical. The allegation as regards to non-existence of supplier is incorrect since the petitioner is a registered person. Therefore, it was held that the entire proceedings are illogical and incorrect and set aside. Since the confiscated goods are sold in auction, the respondents are directed to pay the petitioner the sale proceeds after deducting penalty. The officer is at liberty to initiate proceedings under Section 73 or 74 of the Act and decide the case at merits.
The above favourable decision is a landmark judgment wherein differentiation has been carved out between the detention and confiscation proceedings. The intent behind conferring power to detain the goods under Section 129 is fundamentally to ensure that the applicable tax and penalty is recovered whereas the intent behind confiscation under Section 130 is to divest the owner of the goods itself and also impose liability of payment of the applicable tax and penalty. Moreover, when goods are in transit, statue has prescribed procedure for detention only and confiscation cannot be resorted to. This decision will restrict the simultaneous invocation of the proceedings of detention and confiscation for goods in transit by the departmental authorities.

Comments

GST Update No 297 on simultaneous invocation of power of confiscation and detention

Post a Comment

Query