2020 (3) TMI 1125 - HC - GST

Release of detained goods - section 129 of GST Act - classification of goods - whether the Officers of Kerala would have a jurisdiction to detain and seize the goods or at the best could have intimated the jurisdictional Officer in Karnataka to initiate proper proceedings against the petitioner in view of the report? - HELD THAT - It is evident that Section 129 opens with a non obstante clause empowering the Officers to detain and seize the goods, if it found to be in contravention of any of the any of the provisions of the Act and release of the vehicles, as per the conditions, enumerated, therein. In case of a bonafide dispute with regard to the classification between a transitor of the goods and the squad officer, the squad officer may intercept the goods and detain them for the purpose of preparing the relevant papers for effective transmission to the judicial assessing officers and nothing beyond. In the present case, it is a case of bonafide miscalculation as to whether the goods would be exigible to 12% or 28%. The upshot of the reasoning aforementioned is that the impugned order of detention Ext.P3(c) and consequential notices are not sustainable and hereby quashed - goods are directed to be released to the petitioner with a further direction that the inspecting authority of Kerala would prepare a report and submit the same to the assessing authority, Karnataka for taking action - Petition allowed.

Issues Involved:
1. Jurisdiction of GST authorities in Kerala to issue a show cause notice.
2. Classification of carbonated fruit drinks under GST.
3. Legality of detention of goods based on alleged misclassification.
4. Interpretation of Section 129 of the GST Act.
5. Applicability of precedents in similar cases.

Detailed Analysis:

1. Jurisdiction of GST Authorities in Kerala:
The petitioner argued that the GST authorities in Kerala lacked jurisdiction to issue a show cause notice regarding the tax on imported goods, asserting that only Karnataka officers could initiate such proceedings. The petitioner suggested that the Kerala authorities should have informed the Karnataka authorities instead. This jurisdictional challenge is based on the premise that the goods were transported from Karnataka to Kerala, and any dispute regarding classification should be handled by the originating state.

2. Classification of Carbonated Fruit Drinks:
The petitioner classified their carbonated fruit drinks under HSN 2202 9920, attracting a 12% GST rate. However, the Kerala authorities intercepted the goods, claiming they should be classified under HSN 2202 10, which attracts a 28% GST rate. The petitioner contended that this was a bona fide dispute concerning the exigibility of tax and not an evasion case. The petitioner had also applied for an advanced ruling in Gujarat, which was pending with an interim stay favoring them.

3. Legality of Detention Based on Alleged Misclassification:
The petitioner challenged the detention of goods under Section 129(1) of the GST Act, arguing that the goods were accompanied by valid documents, including a tax invoice and an E-way bill. The only reason for detention was the alleged misclassification, which the petitioner argued did not warrant detention under Section 129. The petitioner cited precedents, including N.V.K Mohammed Sulthan Rawtger and Sons v. Union of India and Synergy Fertichem Pvt. Ltd. v. State of Gujarat, to support their contention that detention on the grounds of tax rate disputes is unjustified.

4. Interpretation of Section 129 of the GST Act:
Section 129 of the GST Act empowers officers to detain or seize goods in transit if they are found to be in contravention of the Act. The Kerala authorities argued that the misclassification constituted such a contravention. However, the court noted that Section 129 should be interpreted in light of practical commercial considerations and that bona fide disputes regarding tax rates should not result in detention. The court referenced the Gujarat High Court's decision in Synergy Fertichem Pvt. Ltd., which held that detention for tax rate disputes is unjustified and that the proper procedure is to alert the assessing authority.

5. Applicability of Precedents:
The court relied on several precedents, including the Kerala High Court's decision in N.V.K Mohammed Sulthan Rawtger and the Supreme Court's decision in Voltas Ltd. v. State of Gujarat, which emphasized that any ambiguity in tax classification should be resolved in favor of the assessee. The court also referenced the Allahabad High Court's decision in Commissioner of Commercial Tax v. Racket Backizer India Ltd., which followed the same principle. These precedents supported the petitioner's argument that the detention was arbitrary and illegal.

Conclusion:
The court concluded that the Kerala authorities did not have jurisdiction to detain the goods based on the alleged misclassification. The impugned order of detention and consequential notices were quashed, and the goods were directed to be released to the petitioner. The court further directed the Kerala authorities to prepare a report and submit it to the Karnataka assessing authority for appropriate action, if deemed necessary. The judgment emphasized that bona fide disputes regarding tax rates should not result in detention and that the proper procedure is to alert the jurisdictional assessing authority.

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