JANUARY 07, 2020

By Dr G Gokul Kishore

ONE of the stringent provisions in GST law pertains to seizure of goods and conveyances. Such provision was present in pre-GST law as well but the reason and manner of invoking such provisions in GST regime makes us sit and take a serious note for possible redressal. This 68th part focusses on this issue.

Safeguarding revenue and balancing commercial interest

Statutory provisions in GST law relating to seizure of goods and vehicles are confiscatory in nature. When goods are seized, the supplier is compelled to commit breach of contract with his buyer. Even if the goods are released later, since time is the essence of any contract, delay in supply and delivery amounts to breach of contract terms and in some cases, entitling the buyer to claim damages for such delay. But commercial transactions cannot override tax laws and, therefore, the former will have to give way to the latter. In particular, when there is a reasonable belief that what is due to the State is not being paid which is otherwise termed as ‘attempt to evade tax', the act of transportation of such goods has to be restrained and both the vehicle and the goods should temporarily remain out of bounds for the parties involved. Law is conscious of the fact that business will suffer by such process and, therefore, remedies like provisional release of such seized goods have been provided while the adjudication of the dispute may go on separately. However, there is no semblance of balance between commercial interest and the need to safeguard tax revenue when the provisions are implemented.

Adoption of strict construction by Apex Court

Recently, the Supreme Court had an occasion to deal with this issue. A batch of appeals filed by the Revenue Department against orders of the High Court (Uttar Pradesh) was disposed by the Apex Court quashing the impugned orders. The High Court had ordered release of seized goods directing furnishing of security other than bank guarantee and it provided an alternative of executing a bond. After such interim orders were passed, the High Court subsequently dismissed the main petitions as the goods had already been released. The Supreme Court adopted strict interpretation of law and did not take kindly to High Court's indulgence. According to it, the High Court should have relegated the assessees before the appropriate authority for complying with the procedure prescribed in Section 67 of CGST Act read with rules viz., Rules 140 and 141 of CGST Rules - State of Uttar Pradesh v. Kay Pan Fragrance Pvt. Ltd - 2019-TIOL-517-SC-GST.

Rationale behind the provisions

Section 67(6) states that seized goods shall be released on provisional basis. The conditions prescribed are (a) execution of bond in such manner as prescribed (b) furnishing of security, quantum of which is as prescribed. Alternatively, such provisional release of seized goods may be made on payment of applicable tax, interest and penalty. The provision is benign insofar as providing two options to assessees to get the goods released is concerned. Payment of tax with interest and penalty is an alternative and is not appliable if the first option is complied with. This requires both execution of a bond as well as furnishing of security. As per Rule 140, bond should be for the value of goods and executed in prescribed format and security should be in the form of a bank guarantee for amount equivalent to tax, interest and penalty.

The provision is meant to enable the taxpayer and the transporter to carry on their business after complying with such provisions and to participate in the adjudication proceedings which will decide whether any contravention of law has taken place or not. Seizure of goods for infraction in details in e-way bills has been the reported the most. E-way bill is a document prescribed for transportation and is not a proof of payment of tax. It is the tax invoice which evidences the fact of taxable supply being made. If goods are transported without a copy of invoice, pressing into service, of the provisions relating to seizure of goods may be justified. However, for not filling information in full in the e-way bill does not mean that the goods are being supplied with an intent to evade payment of tax. Not generating an e-way bill is not synonymous with an erroneous e-way bill.

Provisions on seizure are intended to primarily cover situations when goods are being moved without an e-way bill and without an invoice. In most of the cases where goods and vehicles are seized for e-way bill related issues, the nature of such goods is tax-paid. If, for release of goods, tax is required to be paid again, then it would be a case of State getting unjustly enriched if refund of the amount paid for the second time is not granted. It is for such purpose, tax payment has been provided as an alternative or the second option and not the first one. The first option merely seeks to safeguard the interest of revenue during the pendency of proceedings by obtaining a bond and bank guarantee. If contravention is made out, then whatever has been paid as tax by the supplier should get appropriated towards such demand without necessitating encashment of bank guarantee. After all, it is tax payment that is sought to be secured by suspecting movement of goods without proper e-way bill and once it is evidenced that such tax has been paid, the rationale for continuing with such seizure does not exist.

These are situations which may warrant a nominal penalty but certainly not in the league of supply of goods without invoice and attempt to evade payment of tax. This is clear from Rule 140(2). As per this rule, provisionally released goods should be presented before the department and failure in this regard will invite encashment of security to be adjusted against tax, interest and penalty (fine if payable).

Safeguards against indiscretion

Contravention of law is a ground mentioned in Section 67 for seizure of goods but the same has to be for evading payment of tax. It is well-settled that the officer taking actions like seizure should entertain reasonable belief and such belief must be based on credible and sufficient evidence that the act is intended to evade payment of tax. Mere presumption or apprehension will not be a ground for entertaining such belief. Despite existence of considerable amount of jurisprudence on this subject, powers of detention, seizure of goods and vehicles and imposition of penalties in cases involving infractions in documents are being frequently used even in these initial years of GST. It is time the industry voices its concerns against absence of discretion in exercise of such powers. This will enable the GST Council to recommend suitable safeguards against unrestrained use of such powers.

[To be continued…]