By TIOL News Service

ERNAKULAM,, JULY 18, 2018: THIS is a Writ Appeal filed by the State against the order passed by the Single Judge in the Writ Petition filed by the petitioner engaged in the establishment of infrastructure for cellular telephone Companies, meaning the erection and activation of towers and other infrastructure for effective services of the mobile companies.

The petitioner, for the purpose of such installation, had imported from other States, batteries, which were stored in its go-downs at Ernakulam. These were to be installed in two sites at Gandhinagarat Kadavanthara and at Ambalappuzha.

The vehicle in which the transport was made was detained. On examination of the documents, it was found that the goods were accompanied with a delivery chalan as provided under Rule 55 of the Kerala GST Rules, 2017. However, the declaration as required under Rule 138 being KER-I, was not seen uploaded or the print out accompanied with the goods. The detaining officer issued a notice detaining the goods against which a writ petition was filed.

In the other appeal, the writ petitioner, dealer in surgical gloves, sent the goods for quality appraisal on job-work and was transporting the same to their business premises for further sale; when the vehicle was detained.

The Single Judge adverted to the provisions of sections 129 & 130 of the Act and observed that since the goods were procured for own use at the site, the transaction is not for consideration and would not even fall within the scope of Schedule I i.e. it was not a taxable supply and in such circumstances, the goods can be said to have been detained only for the infraction, insofar as a declaration under Rule 138 (KER-I) having not been uploaded and accompanied with the transport. Adverting to the FAQ published by the CBEC, it was concluded that - "mere infraction of the procedural Rules like Rules 55 and 138 of the State GST Rules cannot result in detention of goods, though they may result in imposition of penalty. In other words, detention of goods merely for infraction of the procedural Rules in transactions which do not amount to taxable supply, is without jurisdiction."

The goods were directed to be released unconditionally and this decision has been challenged by the Revenue. Please see 2018-TIOL-12-HC-KERALA-GST.

In appeal, the counsel for the Revenue places reliance on the decision in Guljag Industries = 2007-TIOL-142-SC-CT and Bajaj Electricals Ltd. - 2008-TIOL-207-SC-CT to further buttress the Revenue contention that taxability is of no consequence, since what is imposed under Section 129 is a civil liability for contravention of the Act and Rules.

The respondents submitted that Section 129 specifically speaks of penalty as relatable to the tax applicable equal to 100% of the tax payable on such goods and this would necessarily indicate that there can be no penalty imposed under Section 129 if the transaction itself is proved to be one having no tax liability.

The High Court considered the elaborate submissions made by both sides and inter alia observed thus -

+ In the present cases, where there was absence of the declaration under KER-1, it cannot be said that there is only a technical or venial breach and there should definitely be a guilty mind and a malafide intention.

+ The delivery chalan having been produced, the transaction was found to be one having no tax liability; which necessarily required a declaration in Form KER-1. Sub-section (3) of section 55 specifically speaks of a declaration as specified in Rule 138, when goods are transported on a delivery chalan in lieu of invoice.

+ This specifically is a violation of the Act and Rules and we cannot agree with the learned Single Judge that the genuineness of the delivery chalan was accepted by the department.

+ A delivery chalan, under section 55, is not one issued by the Department and is one prepared by the assessee who is only obliged to maintain it serially numbered. It does not lie in the detaining officer's mouth to suspect the genuineness of the delivery chalan when the consignor swears by it.

+ But, however, the non taxable nature of the transaction will be justified as per the Rules only if a declaration is made as per Section 138. Only when there is a declaration uploaded in Form KER-1 would the transaction, which is non-taxable, would be intimated to the Department and available in its site. If not, there could definitely be a sale effected without an invoice; if the delivery chalan goes undetected, resulting in evasion of tax.

The High Court further emphasised that in interpreting a provision it would and should be averse to speculation on facts. Nonetheless, the High Court remarked that considering the ramifications of its decision, in a fledgeling statute, it is constrained to do so.

It was further observed -

++ In the present case the delivery chalan which accompanied the transport is one issued by the assessee respondent, over which the assessee has absolute control and could be subject to manipulation. The assessee having transported the goods with delivery chalan, could very well sell the goods if the transport is undetected and then tear it up, as also issue a chalan with the same number for the next transport. The intimation regarding the transport of goods to the Assessing Officer is not achieved by the mere issuance of a chalan under Section 55. This would be achieved only if there is a declaration under Section138, which would ensure that the transaction is not otherwise and there is no diversion of the goods. This would establish the bonafides of the assessee and the transport, which could very well be checked and verified by the Department.

++ The exercise of speculation is insofar as there could have been a sale of batteries or the surgical gloves by the assessee, when there was no declaration uploaded, before the transport commenced, to the site as prescribed in the statutory rules; if the transport went undetected. There is no dispute that in the present case the declaration uploaded was subsequent to the detention of the vehicle. This would not absolve the liability to tax and penalty under Section 129.

++ In both the instances, the assessee had known that the transport was one where there was no tax liability to the goods and had also issued a delivery challan under Rule 55. When a delivery challan is issued under Rule 55, it is a mandate under sub-rule (3) of Rule 55 that there should be a declaration as specified in Rule 138.

++ The fact that there was no such declaration uploaded in the site as an intimation to the Department of the transport of such goods raises a reasonable presumption of attempt to evade tax, against the respondents herein.

++ We cannot agree with the learned Single Judge that merely because there was no suspicion raised against the delivery challan there is an admission of non-taxability of the goods transported.

++ The finding that the transaction would not fall within the scope of taxable supply under the statute, cannot be sustained for reason of there being no declaration made under Rule 138. The resultant finding that mere infraction of the procedural rules cannot result in detention of goods though they may result in imposition of penalty cannot also be sustained.

++ If the conditions under the Act and Rules are not complied with, definitely Section 129 operates and confiscation would be attracted. The respondents are entitled to an adjudication, but they would have to prove that, in fact, there was a declaration made under Rule 138 before the transport commenced. If they do prove that aspect, they would be absolved of the liability; otherwise, they would definitely be required to satisfy the tax and penalty as available under Section 129.

In fine, the judgment of the Single Judge was vacated and the Writ appeals by the department were allowed.

Order: The vehicle and the goods having been already released unconditionally, further notice shall be issued and the adjudication under sub-section (3) completed; upon which if penalty is imposed, definitely the respondents would have to satisfy the same.

(See 2018-TIOL-2808-HC-KERALA-GST)