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21 Mar 2022

Confiscation proceedings cannot be initiated against the assessee on the ground that there has been contravention of law by other persons in the supply chain: High Court of Punjab.

Crux:

In the case of Shiv Enterprises vs. State of Punjab ([2022] 135 taxmann.com 123 (Punjab & Haryana) [04-02-2022]), it has held that the goods cannot be detained in conveyance if the goods are accompanied with the documents prescribed under Rule 138A of CGST Rules, as it is not the liability of the tax payer to find out that whether or not any other person in supply chain has paid the tax under the GST law.

Facts:

M/S Shiv Enterprises is engaged in selling copper scrap. On 30.08.2021, some of his goods were detained by the officer while in transit despite having all the requisite documents (invoice and E-way bill) related to the goods. Form MOV-02 dated 30-08-2021 was issued for detention and physical verification of goods and the goods were stationed at the office of Assistant commissioner. No order was passed and nor the goods were released even after 14 days so the petitioner filed a reply to Form MOV-02 by E-mail on 05-09-2021.

The petitioner was informed that the seller or supplier of the petitioner did not have inward supply and is only engaged in outward supply and is not paying any tax. Therefore, proceedings under Section 130(1) CGST Act have been initiated against the Petitioner.

However, there were no findings with respect to contravention of any provision by petitioner with intent to evade payment of tax.

Also, a SCN was issued against him under the allegation of invading the tax by making fraudulent invoices to claim inadmissible ITC. On 14.09.2021, the petitioner has filed a petition, challenging the detention of the goods under section 129 of the CGST Act and for the release of the same.

The Hon’ble Punjab and Haryana High Court in CWP-18392-2021 dated February 04, 2022 held that it was not possible for petitioner to virtually verify whether the tax has been paid by its predecessors in the supply chain or not and the petitioner can only be alleged with the opinion to invade tax when he has directly or intentionally contravened a provision of CGST Act related to goods in transit. Further noted that the wrongful claim of ITC only, cannot be held as intention to evade payment of tax and also it is also not one of the conditions of Section 130 of the CGST Act that could entail confiscation of the goods.

Held:

Held that, in case the goods in transit are accompanied with the documents as prescribed, the department need not proceed under Section 129 of the CGST Act. Further, it is mandatory to conclude inspection within a prescribed time limit.

Invocation of Section 130 must have nexus with action of person against whom proceedings are initiated therefore, petitioner cannot be held liable for contravention of provision of law by any other person in supply chain. Thus, the action of the department in initiating proceedings under Section 130 on the basis of show cause notice dated 14.09.2021 cannot be sustained. The department was further directed to release the goods and conveyance.