NO POWER IS VESTED IN THE AUTHORITY TO UNDERTAKE THE DETERMINATION OF LIABILITY UNDER SECTION 130 OF THE GOODS AND SERVICES TAX ACT, 2017

[Mr. M. GOVINDARAJAN]

 In M/S MAA MAHAMAYA ALLOYS PVT. LTD. VERSUS STATE OF U.P. AND 3 OTHERS - 2023 (3) TMI 1358 - ALLAHABAD HIGH COURT, the petitioner duly incorporate the material purchased in GSTR-3B.  The Deputy Commissioner (SIB), Commercial Tax inspected the registered premises of the petitioner under Section 67(1) and (2) of the Act and drew a panchnama on 29.09.2018.  On the same day a seizure memo was also prepared.   The petitioner was compelled to deposit Rs.52,20,000/- and released the goods seized.   Further the petitioner was issued with a show cause notice on 29.09.2018. The petitioner was called up to produce documents on the date fixed.  The petitioner was against issued with another summon calling for documents from the petitioner which have already produced by the petitioner.  An order was issued without issuing show cause notice to the petitioner imposing tax liability to the extent of Rs.26,10,000/- along with equal penalty and fine of Rs.25,000/- totaling to Rs.52,45,000/-.  The petitioner paid Rs.52,20,000/- and did not pay the penalty.  The petitioner filed an appeal to the Appellate Authority challenging the order of the Adjudicating Authority.  The Appellate Authority partly allowed the appeal.  The Appellate Authority, vide their order quantified the tax @ Rs.7,92,405/- and equal penalty.  According to this order the petitioner is liable to pay Rs.15,84,810/-.  Since the petitioner paid Rs.52,20,000/- the Appellate Authority directed the Department to refund the excess amount deposited by the petitioner.

The petitioner filed the present writ petition challenging the order of Appellate Authority before the High Court.  The petitioner submitted the following before the High Court-

• Though the power of search and seizure is conferred upon the authorities, the manner in which the goods were held to be in excess of the recorded goods is wholly arbitrary.
• The goods were quantified only on the basis of eye estimation which was accepted by the Appellate Authority. 
• Once the Appellate Authority accepted the contention of the petitioner that the valuation of goods on the basis of eye estimation was not possible the entire proceedings ought to have been declared as null and void.
• The determination of tax liability can be done only revoking section 73 or section 74 of the Act.
• Under section 130 of the Act no power is vested in the authority to undertake the determination of tax liability of tax.

The High Court asked the Department as to whether a show cause notice was issued under Section 130(4) of the Act or not.  The respondent produced the instructions and argued that prior to passing the order a show cause notice was issued on 27.12.2018 to the petitioner and also produced a copy of the show cause notice.    The Department submitted the following before the High Court-

• The estimation of various goods was done in the manner prescribed.
• At the appellate stage, the contention of the petitioner was partly accepted and with regard to the demand quantified at the appellate stage, the Appellate Authority had applied its mind and arrived at a conclusion with regard to the goods available and on the said basis the demand was quantified and substantially released. 
• The writ petition is liable to be dismissed since the petitioner did not file any reply to the show cause notice.

The High Court considered the submissions of both the parties.  The High Court considered the following questions for its determination-

1. Whether the tax can be determined in exercise of powers under Section 130 of the Act?
2. Whether penalty can be levied only on the allegations that at the time of verification of goods, the goods in excess were found at the premises?
3. Whether the service of notice as claimed by the respondent satisfies the requirement contemplated under section 169 of the Act?
4. Whether the valuation of goods can be done on the basis of eye estimation alone and on the basis of production capacity and/or the consumption of electricity etc.?

Issue No. 1

The High Court relied on the judgment in M/S METENERE LTD. VERSUS UNION OF INDIA AND ANOTHER  - 2020 (12) TMI 790 - ALLAHABAD HIGH COURT in which the High Court held that the demand for tax can be quantified and raised only in the manner prescribed in Section 73 or Section 74 of the Act.  The High Court observed that the entire exercise resorted to under Section 130 of the Act for determination of tax liability and the penalty is neither stipulate under the Act nor can be done in the manner in which it has been done, more, so, in view of the fact, the department itself had undertaken the exercise of quantifying the tax due, by taking recourse under section 74.  The High Court, therefore, held that the impugned order is clearly unsustainable.

Issue No. 2

For this issue the High Court analyzed the provisions of Section 130 of the Act.  The High Court observed the following on the reading of the said section-

• The allegations leveled against the petitioner with regard to the improper accounting of goods, the only stipulation contained in clauses (ii) and (iv) of Section 130(1) can be invoked by the department.
• In the present case even assuming for the sake of arguments, that the goods were lying in excess of the goods in record, the case against the petitioner would not fall under Section 130(1)(ii) of the Act for the simple reason that the liability to pay the tax arises at the time of point of supply and not at the time earlier that that.
• According to section 130(1)(ii) of the Act any assessee who is liable to pay tax and does not account for such goods, after the time of supply is occasioned, would be liable to penalty under clause (ii).
• The contravention of any provision of the Act or the Rules made there under should be in conjunction with an intent to evade payment, tax and penalty can be levied by invoking clause (iv) only when the department establishes the there was a contravention of the Act and Rules coupled with the intent to make payment of tax.  There is no such allegation in the show cause notice or any of the orders.

The High Court held that section 130(1)(iv) would not be attracted in the present case.

Issue No. 3

For the purpose of the third issue the High Court analyzed the provisions of Section 169 which provides the procedure of service of notice in certain circumstances.  The High Court observed that according to Section 169(1)(a) of the Act a service would e completed only when it is served to the taxable person or on his Manager or authorized representative.  The High Court held that the serving the notice on the Accountant of the firm is neither contemplated nor provided under Section 169(1)(a) of the Act.  Therefore the entire proceedings are liable to be quashed.

Issue No. 4

The High Court observed that Section 15 of the Act provides for valuation of the taxable supply.  Rule 27 provides for the manner of valuation of supply of goods or services.  In the present case the valuation is required to be done in terms of the mandate of Section 15(1) read with Section 15(2) and read with section 15(3).  In the said provisions there no prescription for valuation of the goods on the basis of eye estimation as has been done by the department in both levels.  The order has been issued without taking the mandate requirement under Section 15 read with rules.   On this count also, the High Court held that the impugned order is not sustainable.

The High Court allowed the writ petition and set aside the impugned order.  The High Court further directed to refund to the petitioner subject to the outcome of the demand quantified under section 74 of the Act.