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17 August 2021

No Confiscation order can be passed without considering the objections against penalty order raised by the Taxpayer

Background: In case of any movement of goods either intrastate or interstate, e-way bill is required to be generated. In case of any discrepancies in E-Way bill, goods or documents, goods along with the vehicle can be detained.

Detention of Goods: As per the provisions of Section 129 of the CGST Act, 2017, “where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released:

  • on payment of penalty equal to hundred per cent of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;
  • on payment of penalty equal to fifty per cent of the value of the goods or two hundred per cent of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five per cent of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty
  • upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed.

Confiscation of Goods: Further any confiscation of goods shall be done only after finalization of tax and penalty payable and after giving opportunity of being heard as per the provisions of Section 130.

Now the question that arises, whether the revenue officer can pass order under Section 130 for confiscation of goods irrespective of the fact that the notice for penalty was issued by the respective officer and counter submission thereof by the tax payer has already been provided? A similar issue has been addressed in case of Shree Enterprises vs. CTO (Karnataka High Court). The relevant excerpt of the case law has been reproduced as follows:

Shree Enterprises vs. CTO (Karnataka High Court)

[2019] 105 taxmann.com 154 (Karnataka)[14-03-2019]

Fact of the Case:

  • Goods of the assessee along with the vehicle has been detained by the competent authority and penalty notice was issued u/s 129(1)(b) of the act.
  • Objections were raised by the assessee (petitioner) claiming such detention of more than 1 month to be illegal and against the procedure as prescribed by the government.
  • Competent Authority without considering the objections filed by the assessee passed order of confiscation of goods and conveyance under section 130(1)(ii) read with section 122(1)(ii) and (iv), whereby he quantified penalty and fine payable by the assessee.

Analysis of the Case:

  • Section 129 deals with the detention, seizure and release of goods and conveyances in transit stating that detained goods shall be released on payment of penalty lower of 100% of tax payable or 25000 rupees However such detention shall be done post serving of detention order on person transporting the goods. Proper Officer (PO) shall also issue notice providing details regarding the finalized amount of tax and penalty payable and after giving opportunity of being heard to the concerned person. Such amount shall be payable within 7 days otherwise proceeding under Section 130 shall be invoked.
  • Section 130 deals with Confiscation of goods or conveyances and levy of penalty.
  • Circular No.41/15/2018-GST as issued by the Department states following major points regarding procedure for interception of conveyances for inspection of goods in movement, and detention, release and confiscation of such goods and conveyances is prescribed:
    • Where the proper officer is of the opinion that the goods and conveyance need to be detained under Section 129 of the CGST Act, he shall issue an order of detention in Form GST MOV-06 and a notice in form GST MOV-07 in accordance with the provisions of Sub-section (3) of Section 129 of the CGST Act, specifying the tax and penalty payable.
    • Further in Clause h it is stated that where the person in-charge accepts to pay the tax and penalty there on then the proper officer shall, after the amount of tax and penalty has been paid in accordance with the provisions of the CGST Act and CGST Rules, release the goods and conveyance by an order in Form GST MOV-05
    • However, as per the Clause (j), if any objections then such objections should be considered by passing of any speaking order by the PO

Observations by the court:

  • In the given case the dispute is not that the notice was issued under Section 129(1)(b), but is that the objections as raised by the respondents were not given due considerations and tax and penalty were not quantified before passing of the order under section 130.
  • Further owing to the provisions of Section 160, threating the order passed as the order of penalty cannot be supported as it is not mere wrong quotation of provisions of law in passing the order impugned but the procedure prescribed is disturbed.
  • It is well settled law that unless the tax and penalty are quantified, no confiscation order could be passed. It is necessary to provide an opportunity to the owner of the goods or person in-charge of the goods vehicle to make payment of tax and penalty subsequent to any objections filed.
  • It is a manner of fundamental flaw and can’t be cured by referring Section 160 specifically when directions are there regarding procedures to be followed.

Decision as Held:

  • Court deems it appropriate to quash the order impugned and restore the notice issued by the respondent under Section 129(1)(b) of the Act on account of the penalty.
  • Respondent shall consider the objections/reply filed by the petitioners and pass appropriate orders in accordance with law in an expedite manner after quantifying the tax and penalty for the purpose of Section 129 of the Act after quantification of the tax and penalty.
  • Goods shall be released subject to the payment of duty.
  • Writ was disposed of.