DECEMBER 01, 2021

By Vijay Kumar

GOODS can be released on fine in lieu of confiscation, even before adjudication.

Beedi is an indigenous smoking product like a cigar or a cigarette, made by rolling a dried leaf filled with flaked tobacco and is undoubtedly perishable in nature, with a limited shelf life

On 03.08.2021, officers of the Kerala State GST Department seized beedis stored in the godowns of a taxpayer. (We will call him TP and the tax officer as TO) When attempts to obtain release of the seized beedis were unsuccessful, the TP filed a writ in the Kerala High Court, wherein, by an interim order dated 26 08 2021, the Court observed that the dealer is free to approach the Tax Officer for release of goods.

In the meantime, the Tax Officer issued three separate show cause notices, all dated 25 08 2021, proposing to confiscate the goods and the conveyances and levied penalty under section 130 of the Act.

The Taxpayer immediately filed another writ petition. The High Court in its order dated 07 09 2021 directed the Tax Officer to release the goods, on payment of the amounts contemplated under section 130(2) of the Act, after adverting to the plea of the TP that the Tax Officer was refusing to abide by the mandate of the Statute, despite the TP offering to pay the amounts in lieu of confiscation. The Court observed,

On a perusal of the provisions of Section 130 of the Central Goods and Service Tax Act, 2017, it is seen that, when confiscation proceedings are authorized by the Act, the officer is bound to give to the owner of the goods an option to pay in lieu of confiscation, such amount as contemplated under the said provision.

The 1st respondent is bound to abide by the mandate of the Statute. The Statute provides an opportunity for the owner of every goods, to pay in lieu of confiscation the amounts as contemplated under the Statute.

Since the Statute is clear in its terms, there is no reason to doubt that the 1st respondent shall not abide by the terms of the Statute. Accordingly, if the petitioner offers to pay the amount as contemplated under Section 130(2) of the Act, it is needless to mention the 1st respondent shall release the goods in favour of the petitioner, on such payment being made.

Our TO (Tax Officer) was not happy with this decision of the Court which simply asked him to obey the law. But the concept of obeying the law, as understood by tax officers, is only for the taxpayers and not tax officers. The aggrieved Tax Officer filed a review petition in the High Court against the interim order.

The Court - 2021-TIOL-2230-HC-KERALA-GST noted that the following questions arise for consideration.

(i) Whether the provisions of section 130 of the Act contemplate any provisional release of goods, as directed in the interim order of this Court?

(ii) Whether the amount payable for release of the goods under section 130 of the Act is fine alone or is it fine, penalty and tax to be paid together for securing release of the goods? and,

(iii) What is the basis or rate for calculating the fine under section 130 of the Act?

The High Court observed,

Confiscation is a drastic power. It is no doubt penal in nature and the owner of the goods will be deprived of the title to the goods. The scheme and objective of the Act are not at all to appropriate goods. Its intent is to ensure that tax is paid for every taxable transaction. The power of confiscation is vested only when the tax officer is satisfied that there was an intent to evade payment of tax or to avoid the rigours of the taxing provisions of the Act. The Gujarat High Court had elaborately dealt with the scope of section 130 of the Act in the decision in Synergy Fertichem Pvt. Ltd. v. State of Gujarat - 2020-TIOL-445-HC-AHM-GST and had held that confiscation is an aggravated form of action, intended to deter the dealers from evading tax.

A perusal of sub-clause (2) of section 130 of the Act reveals that, while adjudging, the Tax Officer is bound to give an option to the owner of the goods to pay a fine, which the officer thinks fit, in lieu of confiscation. Section 130(2) is worded in the form of a command to the officer to offer the option to the owner of the goods.

In cases where the goods are perishable or where the goods are of extreme significance in terms of time, should the owner of the goods be left to a possible long drawn-out process of adjudication, the period of which is left to the discretion of the officer and wait till the entire adjudication process is completed, to pay that 'fine in lieu of confiscation'? The hurdle of storing the goods and conveyances until adjudication is completed is one of the reasons for incorporating a provision to redeem the goods on payment of a fine.

There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him because the legislature failed to express itself clearly .

The two different stages in which the goods can be released - during adjudication and post-adjudication are obviously created with a purpose. The purpose of the two-stage release is that, if the owner of the goods, even before being deprived of his title to the goods or conveyance, is ready to pay the fine stipulated by the officer, then without further wrangles, if the goods and or conveyance can be released to the said owner, the same avoids unnecessary procedural formalities. If the fine in lieu of confiscation is paid at the initial stage, no prejudice would be caused to the revenue also, since by virtue of section 130(7) even after adjudication, an option to pay fine in lieu of confiscation is to be offered peremptorily.

Thus, section 130(2) of the Act applies before the order of confiscation is issued.

In Meghdoot Logistics case - 2021-TIOL-14-HC-KAR-GST, the Karnataka High Court had observed,

Insofar as proceedings for confiscation under Section 130 of the Act, there is no provision for the provisional release of the detained conveyance and seized goods. 

The Kerala High Court was of the considered view that the observations were only obiter dicta of the Karnataka High Court. So, the Kerala High Court held that goods can be released while the proceedings for confiscation are continuing and before orders of adjudication are passed.

The Court also held that:

- To obtain the release of the goods or conveyances, while the adjudication proceedings are continuing, the taxpayer needs to pay only the fine and not the tax, penalty and charges thereon. The tax, penalty and charges can be paid after adjudication.

- the proper officer cannot base the fine on the MRP imprinted on the goods, if there are other materials available to fix the market value.

The Court concluded:

(1) The provisions of section 130 of the Act contemplate release of goods on payment of fine in lieu of confiscation at two stages

i during the process of adjudication, under section 130(2) and,

ii post-adjudication under section 130(3) of the Act.

(2) At the time of release of goods under section 130(2) of the Act, the owner of the goods is required to pay the fine in lieu of confiscation alone, while penalty, tax and other charges can be paid after adjudication.

(3) The basis for calculating the fine in lieu of confiscation under section 130 of the Act is only the market value as defined under section 2(73) of the Act and not the maximum retail price.

Thus, the High Court found no merit in the review petition and dismissed the same.

The Revenue has three options:

1. Release the goods on a fair redemption fine

2. File an intra-court appeal

3. File an appeal in the Supreme Court

The High Court so pertinently raised the question,

In cases where the goods are perishable or where the goods are of extreme significance in terms of time, should the owner of the goods be left to a possible long drawn-out process of adjudication, the period of which is left to the discretion of the officer and wait till the entire adjudication process is completed, to pay that 'fine in lieu of confiscation'?

In the meantime, what will happen to the perishable beedis? Should the owner and his employees and other dependents perish too. Do the tax laws really require such demonic destruction or does the fault lie in our understanding?

It seems, recently a GST officer detained three live horses. He collected the alleged tax and released the horses before they could bolt. Just imagine the possibilities, if the horses were not released, but proposed to be confiscated. Who would feed them and look after their other interests? What will happen if they procreate or die while under seizure? The Government can incur expenditure for maintaining seized vehicles and can even use them to keep them in condition; will this apply to seized horses? Obviously, beedis are better for seizure than horses.

The Kerala High Court referred to the pristine principle that in our Constitutional framework, rule of law is attained only when there is fairness, not only in the substantive law and the procedural law, but even in its application .

We should be grateful to the Taxmen for their deep love of litigation, but for which such a marvellous judgement would not have come. Litigation has its rewards.

Until Next Week.