Detention of goods in transit-What to expect when your goods are detained or seized while in transit

[Pradeep Reddy]

Navigating the GST law in India: What to expect when your goods are detained or seized while in transit

Imagine this: you're a busy business owner, your goods are on their way smoothly, and suddenly, they're halted by GST officials. It's a twist you didn't expect, right?

Welcome to the world of GST—a law that was promised to be Good and Simple! While it is good as it consolidated fragmented multiple markets across States into one market, it has not lived up to its promise of being simple.

This law that can catch you off guard, especially when your goods are stopped or seized while in transit.

Despite its intention to streamline India's indirect tax system, the GST law has introduced a new layer of complexity for businesses. The process of detaining and seizing goods in transit often reveals the practical challenges in balancing strict compliance with the law and the day-to-day realities of running a business. This tension between law enforcement and business operations becomes even more pronounced when minor clerical errors result in significant penalties, suggesting that the "simple" part of GST still has a long way to go.

For every business owner, understanding GST isn't just important—it's essential. If you're dealing with goods in transit, don't risk getting caught off guard by the complexities of the law.

Dive in now to arm yourself with the knowledge you need to navigate GST with confidence!

A. INSPECTION OF GOODS AND VEHICLES IN TRANSIT

Section 68 of the CGST Act, 2017 - It empowers the GST authorities to inspect the vehicles in transit and requires the person in charge of a vehicle carrying any consignment of goods of value exceeding INR 50,000 to produce the documents carried in connection with the said goods.

Rule 138B and 138C of the CGST Rules, 2017- They empower the GST authorities to intercept any vehicle to verify the e-way bill or other relevant documents.

B. DETENTION, SEIZURE, AND RELEASE OF GOODS AND VEHICLES IN TRANSIT

Section 129 of the CGST Act, 2017 -It deals with the detention, seizure, and release of goods and vehicles in transit. If goods are transported without proper documentation or in violation of the law, they can be detained or seized. Such goods shall be released only on payment of a penalty or furnishing of a security deposit.

Rule 138A of the CGST Rules, 2017 -It requires the person in charge of a vehicle carrying goods valued above INR 50,000[1] to carry the following documents

• Invoice or bill of supply or delivery challan
• E-way bill in physical or in electronic form or E-way bill mapped to radio frequency identification device
• A copy of the bill of entry in case of movement of imported goods from a port or airport or land customs station

GST Circular number 41/15/2018 dated April 13, 2018

It clarified the procedures concerning the interception of vehicles for inspection of goods in movement and the detention, release, and confiscation of such goods and vehicles. It provides guidelines related to the documentation required, the role of officers, and applicable penalties for any failure to comply with the provisions laid down in the CGST Act during the transit of goods.

C.  How to deal with detention or seizure while in Transit?

No penalty in  case of clerical errors as clarified by CBIC Circular No. 64/38/2018-GST

CBIC has explicitly clarified that proceedings under section 129 of the CGST Act may not be initiated, inter alia, in the following situations:

1. Spelling mistakes in the name of the consignor or the consignee but the GSTIN, wherever applicable, is correct;

2. Error in the pin-code but the address of the consignor and the consignee mentioned is correct, subject to the condition that the error in the PIN code should not have the effect of increasing the validity period of the e-way bill;

3. Error in the address of the consignee to the extent that the locality and other details of the consignee are correct;

4. Error in one or two digits of the document number mentioned in the e-way bill;

5. Error in 4- or 6-digit level of HSN where the first 2 digits of HSN are correct and the rate of tax mentioned is correct;

6. Error in one or two digits/characters of the vehicle number.

In case of the above situations, a penalty to the tune of Rs. 500/- each under section 125 of the CGST Act and the respective State GST Act should be imposed (Rs.1000/- under the IGST Act) in FORM GST DRC-07 for every consignment

The most common issues dealt with by the taxpayers; and judgments of the High Courts while dealing with such issues are discussed below:

1. Is a penalty justified for mere technical errors in an e-way bill if no intention to evade tax is established?

No, penalties are not justified for mere technical errors in an e-way bill if no intention to evade tax is established.

2. What happens if a notice for penalty under Section 129 is issued after a period of 7 days from the date of detention?

The order of detention is not valid and liable to be set aside if the notice for penalty under Section 129 is issued after the period of 7 days from detention

3. Does a minor discrepancy in vehicle details in an e-way bill attract proceedings for penalty

No, a minor discrepancy in vehicle details in an e-way bill would not attract proceedings for a penalty

4. What if the respondent authorities fail to prove any mens rea (i.e. criminal intent) for tax evasion?

If the respondent authorities fail to prove any mens rea for tax evasion, order imposing penalty liable to be set aside

5. Is merely not extending the e-way bill validity sufficient for a penalty under Section 129(3)?

No, merely not extending the e-way bill validity is insufficient for a penalty under Section 129(3) without the intent to evade tax.

6. What penalty is imposed if a vehicle breakdown prevents the update of an e-way bill and there is no intent to evade tax?

The penalty order is to be set aside and a general penalty of INR 25,000 under Section 125 of the CGST Act, 2017, may be imposed on the assessee.

7. Are tax and penalty demands valid if neither the invoice nor the e-way bill were accompanying goods at the time of interception but were produced subsequently?

Yes, the order of demand of tax and penalty is valid and just in law if the documents are produced subsequently

8. Can search and seizure of a godown result in penalty proceedings under Section 129?

No, search and seizure of a godown cannot result in penalty proceedings under Section 129

9. Is a penalty justified under Section 129(3) for not filling up Part 'B' of an e-way bill if the error is technical and without intent to evade tax?

No, a penalty under Section 129(3) is not justified if the error is technical and without intent to evade tax

10. What is the initial burden of proof for clerical or typographical errors in e-way bills?

The initial burden of proof lies on the GST authorities to demonstrate an intention to evade tax; penalties should only be imposed for intentional tax evasion, not inadvertent errors.

11. Is there a penalty to be refunded if the e-way bill expires but there was no intention to evade tax?

Yes, the penalty deposited for the expiry of an e-way bill should be refunded if there was no intention to evade tax.

12. What happens if there is a vehicle number mismatch on the e-way bill due to a replacement truck after a breakdown?

The tax and penalty demand under Section 129 should be set aside if the discrepancy is deemed a minor error per Circular No. 64/38/18, warranting a penalty of INR 25,000 under Section 125 of the GST Act

13. Adoption of an alternate route for delivery of goods-

No penalty can be levied for choosing a circuitous route in preference to a linear one if the travel time and destination point remain intact

14. Can a penalty under Section 129(3) be imposed solely due to a mismatch in dispatch address, despite no other discrepancies between the E-way bill and invoice?

Penalty cannot be imposed solely due to mismatched dispatch address

15. Can be goods and vehicles of the purchaser be detained for default committed by the supplier ( not related to current shipment) in the supply chain?

No, the goods/vehicles of the purchaser cannot be detained as long as there is no non-compliance with E-way bill rules.

16. Can goods be detained on the ground that the consignment of heavier goods or with a short distance was not offloaded first as against the lighter consignment or a longer distance?

It is not mandatory that the consignment of heavier goods or short distances must be offloaded first.

On a reading of the above, the single important the High Courts have held is that no penalty under Section 129 (3) ( which is 200% of the GST involved) can be imposed for clerical errors or minor deviations, as long as there is no criminal intent to evade payment of GST.

While taxpayers whose goods or vehicles are detained for clerical errors or minor deviations, can seek relief from the Court's law upon proving the absence of intention to evade, such an exercise is expensive and time-consuming. Therefore, the taxpayers should leave no stone unturned to ensure compliance with the E-way bill regulations discussed above.

Practical tips to avoid detention or seizure while in Transit

1. Ensure E waybill is generated for every movement of goods irrespective of the threshold

2. Use software for generating E waybill (which integrates into the accounting software) as against using a government portal

3. Prepare an SOP containing the list of documents to be carried by the person in charge of vehicle for various scenarios like sales, sales returns, purchase returns, import of goods, stock transfer, etc

4. Conduct periodic training for the supply chain teams to ensure 100% compliance with E waybill rules, non-compliance of which will have a disastrous effect on the business

5. Wherever the transporter customer or supplier is responsible for generating E waybills, incorporate appropriate clauses in the contract, to offload liability of penalty, interest, fine, etc on account of non-compliance with E waybill rules onto them.

The author is reachable at [email protected].

 

[1] A threshold value of goods below which E-way bill is not mandatory varies from State to State, by and large, such threshold for most of the States is INR 50,000. Moreover, it should be noted that each State has declared the list of goods for which an E-way bill is not mandatory.