2022 (2) TMI 296 - HC - GST

Maintainability of petition - Seeking release of detained goods alongwith the vehicle - availability / production of all the required statutory documents or not - no order was passed within fourteen (14) days as per the procedure provided under Section 129(6) of the Punjab / Central Goods and Services Tax Act, 2017 - validity of proceedings under Section 130 of the 2017 Act - HELD THAT - Where the goods in transit in contravention of the provisions of the Act invites detention under Section 129, to invoke Section 130, the supply should not only be in contravention of the provisions of the Act, but such contravention should be with an intent to evade payment of tax. Thus, where there is a contravention of the provisions of the Act or the rules made thereunder and is punctuated with an intent to evade payment of tax, Section 130 can be invoked - A person can be attributed intent to evade payment of tax only if the contravention of the provisions of the Act or the rules made thereunder has some direct nexus with his action. He cannot be held liable under Section 130 for contravention of the provision of law by other person in the supply chain. Wrongful claim of input tax credit may be result of a bonafide claim as well and does not necessarily involve intent to evade payment of tax. Moreover, wrongful claim of input tax credit is not one of the conditions enumerated under Section 130(1) of the 2017 Act that could entail confiscation of the goods. Section 130 being penal in nature has to be construed strictly. The investigation report relied upon by the respondents to initiate proceedings under Section 130 against the petitioner lacks sting. Under the 2017 Act, a trader is either a 'supplier' qua 'outward supply' or is a 'recipient' of 'inward supply'. The alleged 'intent to evade tax' must have a direct nexus with the activity of trader. The opinion formed by the authorities must reflect such nexus before proceeding under Section 130 of 2017 Act. A trader cannot be accused of having intention to evade payment of tax for act or omission on part of a person not immediately linked to his activity. It is virtually impossible for a trader to ascertain as to whether input tax has been paid by his predecessors or not and it is for this reason also that the claim to input tax credit has been made subject to scrutiny and assessment. It is the fundamental legal principle embedded in legal maxim LEX NON COGIT AD IMPOSSIBILIA -That the law does not compel a man to do that which he cannot possibly perform . Once a person cannot be compelled to do something not possible, definitely he cannot be penalized for not doing so. In the present case, the goods and conveyance in transit were accompanied with the documents as prescribed under Rule 138A, i.e. the invoice and the e-way bill. No discrepancy has been pointed out in the said documents even in the reply filed by the respondents - from the pleadings on record, it is clear that there is no allegation that the petitioner has contravened any provision of the Act or the rules framed thereunder much less with an intent to evade payment of tax. It is also not the case of the State that the petitioner did not account for any goods on which he is liable to pay tax under the Act or that he supplied any goods liable to tax under the Act without having applied for registration or that he supplied or received any goods in contravention of any of the provisions of the Act. From the perusal of show cause notice issued to the petitioner under Section 130, the case alleged against the petitioner is that of wrongful claim of input tax credit. The authorities are well within their power to check the goods in transit. In case goods in transit are being transported in contravention of any provision of the Act or the rules framed thereunder, the goods are liable to be seized and detained as per provision of Section 129 of the Act. However, in case the goods in transit are accompanied with the documents as prescribed under the Act, authorities need not proceed under Section 129 of the 2017 Act. The provisions prescribing time limit to conclude inspection in circular dated 13.04.2018 are mandatory. The goods/conveyance cannot be detained without passing appropriate orders in accordance with law. In case, the authorities find that action of the person falls within four corners of Section 130(1), the authorities have right to proceed under Section 130 of the Act. Respondent No.4 is directed to release conveyance and goods in question forthwith - Application allowed.

Summary

Issues Involved:
1. Maintainability of the writ petition.
2. Legality of the detention and subsequent proceedings under Section 130 of the CGST Act, 2017.

Detailed Analysis:

Issue 1: Maintainability of the Writ Petition

The court considered whether the writ petition should be dismissed for not being maintainable. It was determined that judicial review is founded on the premise that a public body is entitled to decide wrongly but not to exceed its jurisdiction. The court cited De Smith's Judicial Review, emphasizing that the touchstone is whether the error alleged is manifest on the face of the record. The court decided that the answer to the first question depended on the decision of the second question.

Issue 2: Legality of the Detention and Subsequent Proceedings under Section 130

Background and Petitioner’s Argument:
The petitioner sold copper scrap, and the goods were detained despite having proper documents (invoice and E-way Bill). The petitioner argued that the detention was unwarranted as all statutory documents were in order. The petitioner also contended that the proceedings under Section 130 of the CGST Act were malicious and initiated only after the writ petition was filed.

State’s Argument:
The State argued that the petitioner’s actions were detrimental to the revenue and that detailed verifications revealed tax evasion through fraudulent transactions. It was asserted that the petitioner should respond to the show cause notice under Section 130, making the writ petition not maintainable.

Court’s Analysis:
The court examined the provisions related to input tax credit and goods in transit under the CGST Act, 2017. It noted that the liability to pay tax arises at the time of supply and that input tax credit claims are subject to scrutiny and assessment. The court highlighted that Section 129 deals with detention for contravention of provisions during transit, while Section 130 deals with confiscation and is more stringent, requiring intent to evade tax.

The court emphasized that intent to evade tax must have a direct nexus with the trader's actions. Wrongful claim of input tax credit could be a bona fide error and does not necessarily imply intent to evade tax. The court found no evidence that the petitioner contravened any provisions of the Act with intent to evade tax. The investigation report did not establish any direct nexus between the petitioner’s actions and the alleged tax evasion.

Conclusion:
The court concluded that the investigation report lacked sufficient grounds to initiate proceedings under Section 130 against the petitioner. The goods and conveyance were accompanied by the required documents, and no discrepancies were found. The notice issued to the petitioner was based on the actions of other entities in the supply chain, not the petitioner.

The court held that the authorities could check goods in transit and detain them if transported in contravention of the Act. However, if the goods are accompanied by the prescribed documents, authorities should not proceed under Section 129. The provisions prescribing time limits for inspection are mandatory, and goods cannot be detained without appropriate orders.

The court quashed the detention order and the notice under Section 130, directing the release of the goods and conveyance. It clarified that this decision does not prevent the authorities from proceeding against the petitioner for any other contraventions under the Act.

Judgment:
The order dated 30.08.2021 and the notice dated 14.09.2021 were quashed. The respondent was directed to release the conveyance and goods forthwith. The writ petition was held maintainable, and the court emphasized that bonafide issues subject to assessment cannot be grounds for proceedings under Section 130 unless they fall within its specific provisions.