Demand of tax and penalty for release of goods without mentioning the reasons is unsustainable

[CA Bimal Jain]

The Hon’ble Delhi High Court in RAM PRAKASH CHAUHAN VERSUS COMMISSIONER OF DELHI (GOODS AND SERVICE TAX) & ANR. - 2023 (1) TMI 983 - DELHI HIGH COURT set aside the order raising a demand of tax and penalty for release of the goods. Held that, neither the Show Cause Notice (“SCN”) nor the order of demand stated the reasons for imposing the tax liability as well as penalty. Further, the payment made by the Petitioner for release of the goods was not voluntary. Remanded the matter back and directed the Revenue Department to issue a fresh SCN and pass an appropriate order after affording a reasonable opportunity to the Petitioner to be heard.

Facts:

Ram Prakash Chauhan (“the Petitioner”) carries on the business of trading in steel/iron bars as a sole proprietor. The Petitioner had purchased a consignment of steel (“the goods”) from M/s Mahendra Steels and sold it to M/s S.K. Integrated Consultant (“the Recipient”) and the goods were transported directly to the Recipient through E-way bill dated October 19, 2020, containing all the details of the transport and clearly mentioning the Goods and Services Tax Identification Number (“GSTIN”) of the Petitioner. However, since the goods were sold to the Recipient, therefore, their address was written on the E-way bill.

During transit, the truck was intercepted by the GST Authorities (“the Respondent”) on October 19, 2020 and the truck along with the goods were detained on the grounds that prima facie, the documents were found defective vide Order dated October 23, 2020 (“the Detention Order”) and on the same date, an SCN under Section 129(3) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) was issued and an order of demand in Form GST MOV-09 was passed raising demand of INR 2,78,129 and penalty of equivalent amount (“the Demand Order”).

Subsequently, the Petitioner paid the tax liability and penalty for release of goods and thereafter, filed an appeal before the Appellate Authority challenging the demand of tax and penalty, which was dismissed vide Order dated December 31, 2021 (“the Impugned Order”) on the grounds that the order passed by the proper officer was legally justified and required no interference.

Being aggrieved this petition has been filed by the Petitioner.

Issue:

Whether the Petitioner is liable to pay tax and penalty under Section 129(3) of the CGST Act?

Held:

The Hon’ble Delhi High Court in RAM PRAKASH CHAUHAN VERSUS COMMISSIONER OF DELHI (GOODS AND SERVICE TAX) & ANR. - 2023 (1) TMI 983 - DELHI HIGH COURT held as under:

• Noted that, the Respondent had not mentioned any specific reason for detaining the goods, raising the demand of tax or for levying penalty, in any of the orders passed as to why the documents accompanying the goods were found to be defective.
• Observed that, the order which formed the basis for penalising the Petitioner, does not disclose the discrepancy or mismatch between the E-Way Bills, quantity of the goods found in the vehicle and the invoices produced.
• Further noted that, there is an error in the E-Way Bill inasmuch as it does not reflect the name of the Petitioner but merely mentions the Petitioner’s GSTIN.
• Stated that, it is unable to accept that the Demand Order and penalty is a consent order and the Petitioner was precluded from challenging the same. Further, the payment made by the Petitioner for release of the goods was not voluntary.
• Opined that, neither the SCN nor the Demand Order clearly sets out the reason for imposing the tax liability as well as penalty.
• Held that, it would be apparent to remand the matter to the Respondent to decide afresh after giving the Petitioner full opportunity to address the allegation against him.
• Set aside the Impugned Order and the Demand Order.
• Directed the Respondent to issue a fresh SCN within 2 weeks and pass an appropriate order after affording a reasonable opportunity to the Petitioner to be heard.

Relevant Provisions:

Section 129 of the CGST Act:

“Detention, seizure and release of goods and conveyances in transit

(1) Notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released––

(a) on payment of penalty equal to two hundred per cent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such penalty;

(b) on payment of penalty equal to fifty per cent. of the value of the goods or two hundred per cent. of the tax payable on such goods, whichever is higher, and in case of exempted goods, on payment of an amount equal to five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;

(c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:

Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.

(3) The proper officer detaining or seizing goods or conveyance shall issue a notice within seven days of such detention or seizure, specifying the penalty payable, and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).

(4) No penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.

(5) On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded.

(6) Where the person transporting any goods or the owner of such goods fails to pay the amount of penalty under sub-section (1) within fifteen days from the date of receipt of the copy of the order passed under sub-section (3), the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable under sub-section (3):

Provided that the conveyance shall be released on payment by the transporter of penalty under sub-section (3) or one lakh rupees, whichever is less:

Provided further that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of fifteen days may be reduced by the proper officer.”

(Author can be reached at [email protected])