LEVY OF PENALTY UNDER GST LAW – OPPORTUNITY TO BE GIVEN TO THE ASSESSEE

[Mr. M. GOVINDARAJAN]

Detention, seizure and release of goods and conveyances in transit

Section 129 (1) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides that 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 there under, 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-

• on payment of the applicable tax and penalty equal to 100% of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to 2% of the value of goods or ₹ 25,000/-, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;
• on payment of the applicable tax and penalty equal to the 50% of the value of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of an amount equal to 5% of the value of goods or ₹ 25,000/-, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty;
• upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed.

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

Section 129(3) of the Act provides that the proper officer detaining or seizing goods or conveyances shall issue a notice specifying the tax and penalty payable and thereafter, pass an order for payment of tax and penalty under clause (a) or clause (b) or clause (c).  Section 129(4) provides that no tax, interest or penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.

In re ‘Bansal Earthmovers Private Limited v. Assistant Commissioner, State Goods and Service Tax & others’ -2020 (1) TMI 170 - CALCUTTA HIGH COURT, the petitioner is a company trading in heavy machineries. In the course of its business the petitioner had bought one Soil Compactor machine from M/s. JCB India Limited, Maharashtra for the purpose of selling the same in the local market pursuant to an order placed by Akash Enterprise.  The sale invoice and the delivery challan was raised and the insurance policy in favor of the buyer had also been taken out. On March, 23, 2019 the petitioner dispatched the goods to the destination at Banarhat, Jalpaiguri from the premises of the petitioner company at Salbari. The vehicle was loaded with the goods and was accompanied with the relevant sale documents and the insurance policy documents. However, as per the petitioner the waybill could not be generated as the server of the GST Portal remained continuously non-functional.   The vehicle had left the premises of the petitioner at 4.15 p.m. and the waybill was generated at 5.10 p.m. In the meantime, the vehicle had been intercepted at Phool Bari and because of the lack of the waybill the vehicle was detained by the relevant authorities. 

The statement (Form GST MOV - 01) of the driver of the vehicle was recorded at 5.00 p.m. on March 23, 2019.  The vehicle was inspected on the same day at 5.00 p.m. (Form GST MOV – 02). Subsequently, an order of detention under Section 129(1) Act, was passed on March 25, 2019 on the ground that no e-waybill was tendered for the goods that were in movement.  The petitioner filed a writ petition challenging the detention by the Authorities.  Subsequently, the goods were released subject to furnishing of bank guarantee by an order of a coordinate bench of this Court.  The respondent authorities also informed the Court that the final order had been passed in the matter. The petitioner alleged that they were not aware of the date of passing of the order and had no intimation of any hearing with regard to the same.  

A copy of the order dated April 03, 2019 was handed over to the petitioner demanding a sum of ₹ 4,22,890/- along with a penalty of Rs.  4,22,890/-.  The events that have taken place subsequent to the initial filing of the writ petition have been brought on record by the petitioner by way of a supplementary affidavit.  The petitioner challenged the detention of the vehicle and the order passed demanding tax and penalty and submitted the following before the High Court-

• The goods were not detained by the proper officer.
• The waybill had been generated prior to the date, that is, March 25, 2019, when the order for detention was passed. 
• The petitioner did not possess the waybill at the time of interception was not entirely its fault but also as a result of the malfunctioning of the server of the respondent department.  
• The Authorities in their affidavit have stated have stated that the petitioner had generated two e-waybills on March 23, 2019 at 4.25 p.m. and 4.35 p.m.  but not controverted the factual aspect with regard to non-functioning of the server.
• The officer passing the order of penalty did not take into consideration the fact that the e-waybill had been generated by the petitioner at 5.10 p.m., only ten minutes after the vehicle was intercepted and inspected.
• As all other documents such as the invoice, challan and insurance policy were with the goods, there was no question of any mens rea for evading tax.  
• The penalty that has been imposed was done so in contravention of Clause (3) and Clause (4) of Section 129 of the WBGST Act, 2017, that is, proper notice of the imposition of penalty was not provided to the petitioner.
• The notice of hearing of the penalty to be imposed has to be given to the petitioner and not to the driver of the vehicle who was not the employee of the petitioner.
• The compliance of the principles of natural justice is inbuilt in Section 129 of the WBGST Act, 2017 and is a sine qua non for any imposition of penalty.
• The imposition of penalty has to be based on the mens rea and culpability arising from such mens rea for the purpose of evasion of taxes that would lead to imposition of penalty.
•  The entire action of levying of penalty had been exercised without following the proper procedure as established in law.

The Departmental authorities submitted the following before the High Court-

• The generation of the e-way bill just after the vehicle was detained clearly reveals that the petitioner had an intention to evade tax. 
• The officer who had intercepted the vehicle and carried out the inception and passed the detention order was the proper officer under the Act.
• The driver of the vehicle had been served with the notice of imposition of penalty and such service was sufficient.
• Nowhere in the Act is there a requirement of service of the notice for imposition of penalty on the owner of the goods.
•  The burden of proof is on the dealer to prove that the declaration/ e-waybill required to be furnished by the dealer was made before commencement of the transportation.
• It is the duty cast upon the dealer to ensure that the e-waybill is obtained prior to initiation of the transportation.
• As per the Circular  No.41/15/2018-GST dated April 13, 2018  the service of notice is required to be served upon the person-in-charge of the conveyance. 
•  Since the petitioner has not challenged the particular Circular, he cannot avoid his liability. 
•  In certain forms, such as, FORM MOV-04, the acknowledgement portion requires the signature of either the owner or the person-in-charge.
• In the particular FORM GST MOV-07, the acknowledgement is to be done by the driver or the person-in-charge. The legislature has deliberately omitted the owner from the FORM GST MOV-07.

The High Court considered the arguments put forth by both the parties.  The High Court also analyzed the provisions of section 129 of the Act.  The provision of section 129 starts with a non-obstante clause and provides that any goods that are in transit in contravention of any of the provisions of this Act or rules made there under shall be liable to detention or seizure.   Section 129(3) states that the proper officer detaining the goods shall issue a notice specifying the tax and penalty payable and thereafter pass an order for payment of tax and penalty under Clause (a) or Clause (b) or Clause (c) of Section 129 (1).  Section 129 (4) specifically states that no tax, interest or penalty shall be determined under sub-Section (3) without giving the person concerned an opportunity of being heard.

The High Court observed that on an interpretation on first principles, it is clear that notice for imposition of penalty requires to be served upon the person on whom the penalty is to be imposed.  An opportunity of hearing has to be granted. In the event, such hearing is not granted, the same would definitely amount to violation of principles of natural justice. No person should be judged without a fair hearing which is the minimum necessity that is required to be followed as per the above provision. 

The High Court opined that  when the respondent authorities had in their possession documents such as invoice and challan that showed as to who was the owner of the goods, it was incumbent upon them to serve a copy of the notice upon the owner of the goods. Service simpliciter on the driver of the conveyance who was not even an employee of the owner of the goods cannot be construed to be good service under sub-sections (3) and (4) of Section 129.  The High Court further pointed out that the neither the Circular relied by the Officers nor the Form is in consonance with Section 129.  The Circular issued by the Central Board of Indirect Tax and Customs is only binding upon the authorities and not upon the assessee.  The Circular and the Form are not complying with the mandatory provision of giving notice to the person who is the owner of the goods and upon whom the imposition of penalty is to be made.

The reason for non-service of the notice by the Assistant Commissioner of State Goods and Service Tax, Siliguri upon the petitioner-company that was located within 15 kms remains unexplained.  In the present case, there has been more than a technical infringement of the statutory provision as no hearing whatsoever was granted to the petitioner. Having not been granted an opportunity of hearing, the petitioner was unable to put his case before the concerned authority. The authorities did not consider it necessary to put on notice the person upon whom the penalty was being imposed.

The High Court quashed the impugned order and directed the Assistant Commissioner to issue a fresh notice upon the petitioner on the imposition of penalty since the petitioner paid the tax. Thereafter, the Assistant Commissioner is to grant an opportunity of hearing and pass a reasoned order. It is made clear that notice for hearing should be given seven days in advance and the petitioner should not seek any adjournment on the date of hearing.