JANUARY 25, 2020

By Karthik S Nair, Advocate

ON 23.12.2019, a Division Bench of the Hon'ble High Court of Gujarat had passed a judgment in a batch of Special Civil Applications (writ petitions) reported as Synergy Fertichem Pvt Ltd. V. State of Gujarat, - 2019-TIOL-2950-HC-AHM-GST analyzing the interplay between Sections 129 and 130 of the Central Goods and Services Tax Act, 2017 (CGST Act). As the said provisions are pari materia to Sections 129 and 130 of the State Goods and Services Tax Act, 2017 (SGST Act), both CGST Act and SGST Act are collectively referred to as "GST laws" for the purpose of this article.

Facts of the case

In the said matters, the writ petitioners had imported ceramic pigment inks on payment of all applicable customs duties. According to the petitioners, it is evident from the bill of entry that Integrated Goods and Services Tax (IGST) as applicable to the imported goods was paid at the time of importation itself. Owing to urgency, the goods were moved to their warehouse without waiting for the generation of the e-way bill. The goods were accompanied by the bill of entry evidencing the payment of IGST and transport receipt. However, the goods were intercepted and detained by the Department for absence of e-way bill. When informed of the said detention, the importers generated the e-way bill and approached the Department with explanations. It was inter alia explained that the goods have already suffered IGST at the time of importation itself. However, the Department insisted on payment of not only tax and penalty but also redemption fine under Section 130 of the Act. According to the Petitioner, for goods admittedly worth Rs. 39,43,272/- on which customs duty of Rs. 3,00,526/- and IGST of Rs. 7,09,789/- have already been paid, the Department is further demanding an amount of Rs. 60,72,639/-. In this context, the petitioners approached the Hon'ble High Court and the issues raised were principally on the scope and application of Sections 129 (dealing with detention/seizure of goods in transit) and 130 (confiscation). The Hon'ble High Court has passed a lengthy and detailed judgment on the said issue.

Judgment

The Court has given findings and observations on various issues, a few important ones of which are discussed below.

(i) One of the main contentions raised by the Petitioners is that Section 130 (confiscation) can be resorted to only in accordance with Section 129(6) i.e. after the goods are detained/seized, if the tax and penalty have not been paid within seven days of such detention or seizure. In other words, had the said amounts been paid, confiscation is not sustainable. It was also contended that, therefore, Section 130 cannot be invoked without resorting to Section 129 first. The Court negated this argument and held that Sections 129 and 130 are independent of each other on two grounds: (i) that both the said provisions have non-obstante clause and (ii) that goods confiscated under Section 130 becomes the property of the State whereas if the amount of tax and penalty is determined by the authority concerned under Section 129 of the Act for the purpose of release of the goods and the conveyance, and such amount is, ultimately not deposited, then the obvious consequence of the same would be forfeiture of the goods along with the vehicle by the Government. The authorities are not expected to keep the goods or the vehicle in their possession for an indefinite period of time. The Court also clarified the observations made by the Hon'ble High Court of Kerala in the case Noushad Allakkat v. State Tax officer, - 2019-TIOL-411-HC-KERALA-GST finding that the Hon'ble Kerala High Court had clearly stated that "we would not look at other situations wherein confiscation is mandated which is not relevant for the purpose of detention simplicitor under Section 129" and therefore the said decision cannot be interpreted to say that confiscation is permitted only after invocation of Section 129. The Court also held that notice under Section 129 (3) is not a pre-requisite to initiate the confiscation proceedings under Section 130.

(ii) It was also held that for the purpose of invoking Section 129 of the Act, all that is required is "contravention of the provisions of the Act or the Rules" whereas specific circumstances are set out in sub-section (1) of Section 130 for invoking the provisions relating to confiscation which are basically related to "intent to evade payment of tax" and therefore the said provisions are independent of each other. The Court also observes that ordinarily, mens rea is foreign to the scope of confiscation proceedings but Section 130 specifically requires "intent to evade payment of tax" and therefore in such case what is covered is not a mere failure to pay the duty. Although in the case at hand, the tax was already paid and no intention to evade payment of tax was established, the Court has not given any findings on the facts of the case.

(iii) The Court also carves out an exception to the aforesaid requirement of mens rea by holding that if Section 130 is invoked in the eventuality of failure to pay tax and penalty within 14 days from the date of detention in such cases, the Department need not establish any intention to evade payment of tax.

(iv) The facts of the case begged the consideration of whether mere absence of e-way bill, even when the goods have already suffered IGST, is sufficient to invoke Section 129. The Court referred to Circular F. No. CBEC/20/16/03/2017-GST (Circular no. 64/2018) dated 14.09.2018, wherein the situations in which Section 129 need not be invoked have been identified and observed that Department does not paint all violations/ transgressions with the same brush and makes a distinction between serious and substantive violations and those that are minor/procedural in nature.

(v) However, the Court refused to answer whether the absence of E-way bill constitutes a substantive violation or not and held that such issues are to be considered by the assessing officer by considering the relevant circulars including the aforesaid circular. The aforesaid circular clearly states in Para 4 that in case a consignment of goods is accompanied by an invoice or any other specified document and not an e-way bill, proceedings under Section 129 of the CGST Act may be initiated. It is also understood that the list of situations mentioned in the said circular in which Section 129 is not to be invoked is exhaustive. In this context, the usage of the term 'may' and not 'shall' in the said circular assumes significance. Therefore, it can be understood that the Court has held that absence of e-way bill does not by itself constitute a substantive breach mandating the invocation of Section 129. Even in cases of absence of E-way bill, the Assessing Officer must first see if it is a mere technical breach or a substantive error and Section 129 is to be invoked only in the event of substantive breaches. It may also be said that the Court suggests that the situations mentioned in the said circular are only indicative and not exhaustive.

(vi) Another issue that has been addressed in the said judgment is whether Section 130 can be invoked at the detention stage itself. The Court observed that once the notice under Section 130 issued at the inception, i.e. right at the time of detention and seizure, then the provisions of Section 129 pale into insignificance. The Court goes on to introduce a new mechanism for invoking Section 130 at the outset itself, holding that without any application of mind and without any justifiable grounds or reasons to believe, the authorities may not be justified to straightaway issue a notice of confiscation. In this context, the Court clarified that the presumption of culpable mental state in Section 135 is not applicable in such cases and thus the burden of proof is on the Revenue. The Court holds that if the authorities are of the view that the case is one for invoking Section 130 at the threshold, then they need to record their reasons for such belief in writing and the same must be looked into by the superior authority so that the superior authority can take an appropriate decision whether the case is fit for invoking Section 130. It is also held, applying the principle of Sheonath Singh's case (AIR 1971 SC 2451) that such reasons must also be stated in the notice issued under Section 130. On this issue also, the Court has not rendered any decision on the facts of the case but interestingly in para 101 observes as follows:

"We may give one simple example. The driver of the vehicle is in a position to produce all relevant documents to the satisfaction of the authority concerned as regards payment of tax etc., but unfortunately, he is not able to produce the e-way bill, which is one of the important documents so far as the Act, 2017 is concerned. The authenticity of the delivery challan is also not doubted. In such a situation, it would be too much for the authorities to straightaway jump to the conclusion that the case is one of confiscation i.e. the case is of intent to evade payment of tax."

(vii) The facts stated in the said illustration are identical, if not same, as the facts of the case before the Court. However, the Court chose not to record its observations as a dictum but as an illustration. In fact, the Court has categorically stated that "we have not examined individual petition for the purpose of finding out whether the notice for confiscation under Section 130 of the Act is justified in the facts and circumstances of the case or not. We have laid down the general principles with regard to the applicability of Sections 129 and 130 of the Act. Let these matters now be notified before the Hon'ble Court taking up tax matters for the purpose of deciding whether the confiscation notice deserves to be quashed and set aside."

(viii) Further, the Court also clarifies that confiscation proceedings can be initiated even after the release of goods detained under Section 129.

(ix) The Court also held that detention and seizure of goods on grounds such as tax paid was less when the dispute is bona fide cannot be justified. In such cases, the squad officer may intercept and detain the goods for preparing relevant papers for effective transmission to the jurisdictional assessing officer. The goods cannot be detained beyond a reasonable period, at best a few hours.

(x) Yet another issue that was discussed in the said judgment is whether redemption fine is leviable when the goods are not physically available. The Court relied upon the decision of the Hon'ble Madras High Court in the case of Visteon Automotive Systems v. CESTAT, C.M.A No.2857 of 2011, decided on 11th August, 2017 and held that redemption fine is imposable if the goods are liable to confiscation and, therefore, actual physical availability of the goods is not relevant.

(xi) Finally, in the concluding para, the Court also states that Sections 129 and 130 are valid but there is no discussion on this aspect. In the concluding para, the Court also contemplates a dispute resolution mechanism (Committees consisting of legal and audit experts) for settling the dispute in time-bound manner, and instructs the States that the authorities should adopt a practical approach to resolve the dispute rather than enter into a long drawn litigation.

Points to ponder

First of all, although the Court has mentioned about a dispute resolution mechanism for time bound settling of disputes, it is not clear as to what is meant by such a mechanism and whether it is practical in the functioning of tax machinery. The observation of the Court that the authorities should adopt a practical approach to resolve the dispute rather than enter into a long drawn litigation is also ambiguous.

Similarly, the Court has established a new, extra-statutory mechanism for outset initiation of the confiscation proceedings. The Court held that the decision as to whether the confiscation proceeding is warranted at the outset must be decided by a superior officer. When no such condition is laid down in the statute, it is to be seen whether such stipulations will stand the test of law. In fact, a similar mechanism has been stipulated under Section 67 of the GST law, where an officer not below the rank of Joint Commissioner authorizes any other officer to conduct an inspection of premises and based on such inspection or otherwise, the Joint Commissioner having reasons to believe that the goods are liable to confiscation, he may either himself or authorize any other officer to search and seize any goods, documents etc. Thus, it is clear that the legislature consciously avoided such a mechanism for seizure under Section 129. Therefore, it is debatable if it is permissible for the Court to add such conditions to the statutory provision. But it could be argued that both Section 67 and Section 129 deal with seizure and that it is unfair not to have such check and balance in Section 129 that are present in Section 67 and therefore the Court has rightly ordered such a mechanism to be in place for Section 129 also.

Another major issue that flows from the said decision is when the tax has already been paid, whether tax needs to be paid again under Section 129(1)(a), as the provision stipulates payment of 'applicable' tax and penalty equal to the 'tax payable' as a condition for release of the goods. On a peripheral reading of the provision, although it appears unfair, one may understand that irrespective of earlier payment of tax, tax must again be paid for the release of goods under Section 129(1). Also, in this context, the quantification of penalty is on the tax 'payable'. Whether, in such a case where the tax is already 'paid' and no further tax is 'payable', penalty can be imposed is an issue that has been left open.

The Court, also, has categorically held that Section 129 and 130 are independent of each other. It was held that it is not correct to say that confiscation can be initiated only after invoking Section 129. It is true that both the said provisions begin with non-obstante clause and there may be situations in which confiscation may be resorted to without going through Section 129. However, the Court has not considered whether, when Section 129 is resorted to, then Confiscation can be resorted to only in the eventuality of Section 129(6) being satisfied. In other words, although Section 130 is independent of Section 129, since Section 129 also begins with non-obstante clause, irrespective of what is stated in Section 130, once goods have been detained, whether confiscation can be resorted to only if clause (6) of Section 129 is met, and in no other situation, has not been considered by the Court. How the Court has treated the special route under Section 129(6) leading to confiscation is that in such cases, intention to evade tax need not be established by the Department unlike in the normal case of confiscation.

It also needs to be seen as to how the said decision will affect the operation of Section 67 of the Act.

The concurring view in the said decision also raises some questions. Although the concurring view has fully agreed with the majority view, Hon'ble Mr. Justice A. C. Rao adds that the Legislature should, once again, look into both the provisions, i.e. Sections 129 and 130 of the Act and amend the sections accordingly so as to remove certain inconsistencies in the two provisions. It is not clear as to what are the inconsistencies referred to in the said concurring view but it appears that the Court has noticed some inconsistencies in the said provisions.

In the humble opinion of the author, it may be interesting to see how the afore discussed decision impacts the jurisprudence and implementation of GST laws, especially in the context of detention, seizure and confiscation.

(The author is Principal Associate, Lakshmikumaran & Sridharan, Kochi and the views expressed are strictly personal.)