Detention and Confiscation of Goods

[Rachit Agarwal]

Whether Inter-Related or Independent?

Legal Provisions

Section 68- Inspection of Goods in Movement

Section 129- Detention and Seizure of Goods and Conveyance

Section 67- Seizure of Goods secreted or likely to be secreted which are liable to Confiscation

Section 130- Confiscation of Goods

Section 129 and Section 130 starts with Non-Obstante clause "Notwithstanding anything contained in the provisions of the Act…………………………"

In Chandavarkar Sita Ratna Rao v. Ashalata S. Guram, 1986 (9) TMI 405 - SUPREME COURT, at Paragraph 67, the Supreme Court- Held  a clause beginning with the expression "notwithstanding any thing contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract" is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the nonobstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the nonobstante clause or any contract or document mentioned the enactment following it will have its full operation or that the provisions embraced in the nonobstante clause would not be an impediment for an operation of the enactment. See in this connection the observations of this Court in The South India Corporation (P.) Ltd., v. The Secretary, Board of Revenue, Trivandrum & Anr., 1963 (8) TMI 30 - SUPREME COURT."

In Union of India v. Maj I.C. Lala, 1973 (3) TMI 146 - SUPREME COURT, the Supreme Court held that the nonobstante clause does not mean that the whole of the said provision of law has to be made applicable or the whole of the other law has to be made inapplicable. It is the duty of the Court to avoid the conflict and construe the provisions to that they are harmonious.

In view of the Judicial Pronouncement it could be understood that though non-obstante clause gives the immense power of overriding the other provision however the provisions could not be interpretated in such a manner that the intent of the legislature gets failed.

Detention of the Goods u/s 129

Where the proper officer inspects the goods in movements u/s 68, he may order for the detention of the goods. Provisions of Section 129 can be invokded

1. Goods are in transit. Provision cannot be invoked either before the commencement of the journey of conveyance or after the completion.
2. Goods stored in the godown of the transporter would be treated as the goods in transit.
3. Detention can be made on the contravention of the provisions of the act or the rules.

As per Rule 138 (1) the person in charge of a conveyance shall carry-

(a) the invoice or bill of supply or delivery challan, as the case may be; and

(b) a copy of the e-way bill in physical form or the e-way bill number in electronic form or mapped to a Radio Frequency Identification Device embedded on to the conveyance in such manner as may be notified by the Commissioner:

Hence if the person either fails to carry either the invoice/ bill of supply/ delivery challan or copy of e way bill shall be treated as the contravention of the provisions of the acts or rules.

For the purpose of invoking Section 129 there should be contravention of the rules or provisions and there is no requirement of presence of mens rea.

After representation from the Trade Associations CBIC Vide Circular No-  64/38/2018-GST, dated 14-9-2018 proceedings under Section 129 of the CGST Act may not be initiated, inter alia, in the following situations :

(a)      Spelling mistakes in the name of the consignor or the consignee but the GSTIN, wherever applicable, is correct;

(b)      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;

(c)      Error in the address of the consignee to the extent that the locality and other details of the consignee are correct;

(d)      Error in one or two digits of the document number mentioned in the e-way bill;

(e)      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;

(f)       Error in one or two digits/characters of the vehicle number.

CBIC vide Circular No. 49/23/2018-GST, dated 21-6-2018 clarified that only such goods and/or conveyances should be detained/confiscated in respect of which there is a violation of the provisions of the GST Acts or the rules made thereunder.

Illustration : Where a conveyance carrying twenty-five consignments is intercepted and the person-in-charge of such conveyance produces valid e-way bills and/or other relevant documents in respect of twenty consignments, but is unable to produce the same with respect to the remaining five consignments, detention/confiscation can be made only with respect to the five consignments and the conveyance in respect of which the violation of the Act or the rules made thereunder has been established by the proper officer.

Photo Copy of Lorry Receipt cannot be reason for Detention

In a Writ Petition filed before High Court of Gujarat in case of F.S Enterprise vs State of Gujarat [2019 (11) TMI 711 - GUJARAT HIGH COURT- Documents being the Invoice and E Way Bill were produced as prescribed under Rule 138A of CGST Rules 2017 at the time of interception of goods. Photocopy of Lorry Receipt was produced without computerized serial number and contact number. Impugned order passed contrary to statutory requirements which do not required production of a lorry receipt by person in charge of a conveyance.

Non Filing of GSTR 1 cannot be the reason for Detentions

In a Writ Petition filed before High Court of Kerala at Ernakulam by Relcon Foundations Pvt Ltd reported in 2019 (11) TMI 474 - KERALA HIGH COURT - Held that non filing of GSTR 3B and GSTR 1 cannot be the ground for detention under Section 129. Further non filing could not be ground for confiscation of goods u/s 130.

Mismatch in Vehicle Number

Writ petition filed before High Court of Allahabad by Diamond Metal. The vehicles was detained on the basis of minor discrepancy in the Vehicle Number. The Hon’ble Court has directed the department to release the vehicle upon furnishing of Indemnity Bond of amount equivalent to liability of tax and penalty relying on the C.B.I & C Circular No-  64/38/2018-GST, dated 14-9-2018 stipulating that minor discrepancies not sufficient for proceedings under CGST Act, 2017.

Mismatch in HSN and Goods not Sold at MRP

In a Writ Petition filed before High Court of Kerala by Alfa Group [2019 (11) TMI 943 - KERALA HIGH COURT]- During the course of the transportation of goods by the Petitioner, vehicle was intercepted by the Proper Officer due to fact Invoice found to be low than MRP of goods and HSN Code thereof also wrongly mentioned. Held there is no provision under the GST which mandates that the goods shall not be sold at prices below the MRP. Held further that when the statutory scheme of the GST is such as to facilitate a free movement of goods, after the self-assessment by the assessees concerned, the respondents cannot resort to any arbitrary and statutorily unwarranted detention of goods in the course of transportation. Such action on the part of department officers can erode public confidence in the system of tax administration. Further Commissioner, Kerala State Taxes Department to issue suitable instructions to the fileld formations so that such unwarranted detentions are not resorted in future

In view of the above circular and Judicial Pronouncements it is evident that the intention of the law is not to impose penalty on frivolous grounds.

Confiscations of Goods u/s 130

As per Section 130 of CGST Act, 2017 contravention of the provisions of the acts in the under-mentioned manner would lead to confiscation of goods

(i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(ii) does not account for any goods on which he is liable to pay tax under this Act; or

(iii) supplies any goods liable to tax under this Act without having applied for registration; or

(iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance,

In all the situations mentioned there is intent to evade the payment of tax. Hence provisions of Section 130 can be invoke upon existence of Mens Rea.

Section 130 cannot be Invoked if Tax and Penalty has been Paid [No Mens Rea]

Pursuant to Section 129(5) of the CGST Act, 2017 all the proceedings are deemed to be concluded upon the payment of the tax and penalty as specified in the notice.

Hon'ble Gujarat High Court in case of Synergy Fertichem Pvt Ltd Vs State Of Gujarat [2020 (2) TMI 1159 - GUJARAT HIGH COURT]-- Section 130 of the Act is altogether an independent provision which provides for confiscation in cases where it is found that the intention was to evade payment of tax. Confiscation of goods or vehicle is almost penal in character. In other words, it is an aggravated form of action, and the object of such aggravated form of action is to deter the dealers from evading tax.

The authorities concerned cannot invoke Section 130 of the Act at the threshold, i.e., at the stage of detention and seizure.

If the authorities are of the view that the case is one of invoking Section 130 of the Act at the very threshold, then they need to record their reasons for such belief in writing, and such reasons recorded in writing should, thereafter, be looked into by the superior authority so that the superior authority can take an appropriate decision whether the case is one of straightway invoking Section 130 of the Act. there must be material based on which alone the authority could form its opinion . The show cause notice for the purpose of confiscation must disclose the materials, upon which, the belief is formed

The formation of the opinion by the authority that the goods and the conveyance are liable to be confiscated should reflect intense application of mind. We are saying so because it is not any or every contravention of the provisions of the Act or the Rules which may be sufficient to arrive at the conclusion that the case is one of an intention to evade payment of tax. In short, the action must be held in good faith and should not be a mere pretence

Section 130 can be Invoked where no Payment of Tax u/s 129 upon Detention [No Mens Rea]

Section 129(6) Where the person transporting any goods or the owner of the goods fails to pay the amount of tax and penalty as provided in sub-section (1) within ¹[fourteen days] of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of section 130:

Hon'ble Gujarat High Court in case of Synergy Fertichem Pvt Ltd Vs State Of Gujarat [2020 (2) TMI 1159 - GUJARAT HIGH COURT]- If a situation arises wherein after the determination of the tax and penalty in accordance with the provisions of Sections 129(2) and (3) respectively, if the person, transporting any goods, or the owner of the goods, fail to pay the amount of tax and penalty within 14 days of such detention or seizure, then further proceedings would be initiated in accordance with the provisions of Section 130, i.e, for the purpose of confiscation. However, in such an eventuality, it would not be necessary for the department to establish any intention to evade payment of tax. Sub-clause (6) of Section 129 provides an eventuality, by which, it would be open for the authority to put the goods and the conveyance to auction and deposit the sale proceed thereof with the Government

Section 130 can be Invoked even if Tax and Penalty has been Paid [Mens Rea]

As the provisions of the act starts with the non-obstante clause, hence the applications of the provisions can be made independently. Even in case where the tax and penalty has been paid upon detentions u/s 129 has been done, Section 130 can be invoked simultaneously if

(i) supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(ii) does not account for any goods on which he is liable to pay tax under this Act; or

(iii) supplies any goods liable to tax under this Act without having applied for registration; or

(iv) contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or

(v) uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance.

Hon'ble Gujarat High Court in case of Synergy Fertichem Pvt Ltd Vs State Of Gujarat [2020 (2) TMI 1159 - GUJARAT HIGH COURT]- Even after determining the amount of tax and penalty under Section 129 of the Act and release of the goods and vehicle, the authorities may be justified in issuing notice under Section 130 of the Act for the purpose of initiating confiscation proceedings. In other words, at the stage of Section 129 of the Act, there may not be sufficient evidence for the purpose of coming to the conclusion that the case is one where the owner of the goods or the driver of the vehicle had the intention to evade payment of tax. This would be provided, the case is falling in any of the five eventualities prescribed in Section 130(1) of the Act. When it comes to confiscation over and above the tax and penalty, fine can be imposed.

Section 130- Independent Application

1. Confiscation proceeding is a quasi judicial proceeding and not a criminal proceeding
2. Reasons to be recorded in Writing  for initiation of Confiscation
3. Such reasons should be with the Application of Mind.
4. Mere contravention of the provisions of the acts is not sufficient to invoke Section 130. There must be intention to evade the payment of tax
5. When the law requires intention to evade payment of duty, then it is not mere failure to pay duty. It must be something more. This something more should not be construed as obligatory on the part of the Revenue to establish or prove the necessary mens rea for the purpose of confiscation and penalty.
6. Clauses (ii) and (iii) are concerned, the very fact that the person does not account for the goods on which he is liable to pay tax under the Act; or supplies any goods which are liable to tax under the Act without having applied for registration, would be sufficient for ordering confiscation of the goods.
7. The show cause notice for the purpose of confiscation must disclose the materials, upon which, the belief is formed. The formation of the opinion by the authority that the goods and the conveyance are liable to be confiscated should reflect intense application of mind.
8. Order passed should be a Speaking Order

The above Article is based on Purely Authors Understanding and for Educational Purpose Only