2018 (12) TMI 66 - HC - GST

Levy of penalty - Confiscation of goods - invocation of Section 129 of the Integrated Goods and Services Tax Act, 2017 - appellant obtained provisional release of the goods by furnishing bank guarantee for the applicable tax and penalty as spoken of under Section 129 of the Integrated Goods and Services Tax Act, 2017, as also bond for production of the goods and furnishing security for the value of the goods as spoken of under Rule 140(2) of the Central Goods and Services Tax Rules, 2017. Held that - We notice from Section 129 that the confiscation proceedings under Section 130 would be possible only if the dealer fails to pay the applicable tax and penalty imposed by an order under Section 129(3). Confiscation is hence a coercive measure to ensure payment of the tax and penalty levied on a delinquent dealer; who otherwise is at threat of loosing the goods itself. Confiscation is not an automatic consequence ensuing from detention and an order passed under Section 129(3), of there being a contravention of the provisions of the Act or rules made thereunder - In the present case, the dealer was allowed release of the goods by furnishing bank guarantee for the tax and penalty. The dealer has also furnished a security equivalent to the value of the goods. There is, hence, no question of the applicable tax and penalty being not paid, since at any time the bank guarantee could be enforced. Penalty - Held that - The production of goods under Rule 140 is only for invocation of confiscation proceedings, which would not be necessary if the security equivalent to the value of the goods is furnished under Rule 140, in case of detention under Section 129 - the non-production of goods as noticed in the order is not a ground for imposition of penalty. Appeal disposed off.

Summary

Issues:
1. Challenge to the judgment directing an appeal to be filed regarding payment of tax and penalty under Section 129 of the IGST Act and Rule 140(2) of the CGST Rules.
2. Interpretation of Rule 140(2) of the CGST Rules.
3. Confiscation proceedings under Section 130 in case of failure to pay applicable tax and penalty.
4. Imposition of penalty for non-production of goods under Rule 140.
5. Examination of the necessity of invoking confiscation proceedings when security equivalent to the value of the goods is furnished.

Issue 1:
The appellant challenged the judgment directing an appeal to be filed regarding payment of tax and penalty under Section 129 of the IGST Act and Rule 140(2) of the CGST Rules. The appellant, a timber dealer, faced detention of goods in Kerala for not paying IGST on inter-state sales and for non-production of goods as required under Rule 140(2). The appellant furnished a bank guarantee for tax and penalty and a bond for security. The Single Judge refused to intervene citing the availability of an appellate remedy. However, the High Court noted the challenge against Rule 140(2) and the need to independently consider it despite not interfering with the impugned order.

Issue 2:
The interpretation of Rule 140(2) of the CGST Rules was crucial in this case. The Division Bench in a previous case highlighted the provision for the release of goods on a provisional basis upon fulfilling certain conditions. The requirement to produce goods on demand was emphasized, with a direction for expedited adjudication proceedings. The judgment did not establish an absolute mandate to produce goods upon an order under Section 129(3). Another Division Bench decision reiterated that release of goods could be allowed upon furnishing a bank guarantee and executing a bond without the necessity to produce the goods.

Issue 3:
Confiscation proceedings under Section 130 are triggered only if the dealer fails to pay the applicable tax and penalty imposed under Section 129(3). Confiscation serves as a coercive measure to ensure payment. The High Court clarified that confiscation is not automatic upon detention and an order under Section 129(3) unless the dealer defaults in paying the tax and penalty. In this case, the dealer had provided a bank guarantee and security equivalent to the value of the goods, eliminating the need for confiscation due to non-payment.

Issue 4:
The imposition of a penalty for non-production of goods under Rule 140 was a point of contention. The adjudicating officer highlighted the failure to produce goods, but the High Court held that non-production alone cannot be a ground for imposing a penalty. The security furnished by the dealer, equivalent to the value of the goods, could be utilized instead of confiscation proceedings. The High Court emphasized that the production of goods under Rule 140 is primarily for invoking confiscation proceedings, which may not be necessary if adequate security is provided.

Issue 5:
The necessity of invoking confiscation proceedings when security equivalent to the value of the goods is furnished was examined. The High Court clarified that confiscation proceedings are only initiated if the applicable tax and penalty remain unpaid. In this case, as the dealer had provided a bank guarantee and security, there was no question of non-payment. The High Court confirmed that non-production of goods does not warrant a penalty, and the challenge under Rule 140 was not pressed by the appellant, leading to the disposal of the appeal without costs.

This detailed analysis of the judgment from the Kerala High Court provides insights into the challenges faced by the appellant regarding tax payment, non-production of goods, and the interpretation of relevant rules under the IGST Act and CGST Rules. The High Court's clarification on the necessity of confiscation proceedings, imposition of penalties, and the significance of providing security in lieu of production of goods adds depth to the understanding of the legal implications in such cases.