2020 (12) TMI 790 - HC - GST

Seizure and detention of goods - failure to maintain the records as required to be maintained under Section 35 (1) of the CGST Act read with Rules 56 and 57 of the CGST Rules - Confiscation - penalty - HELD THAT - Section 9 of the CGST is the charging section which provides for levy of tax on supplies of goods or services. Section 12 of the CGST Act provides for time on which the tax are to be paid and elaborates the time of supply of goods and Section 12 (2) clearly provides that the time of supply of goods is the date of issue of invoices or the date of receiving of the payment in respect to such supplies - Section 35 (1) clearly provides that all the registered person are required to keep and maintain at the principal place of business a true and correct account of things specified in Clause (a) to (f). The Second proviso to Section 35 (1) ,Rule 56 and Rule 57 make it further necessary to keep the said documents as specified in Clause (a) to (f) in the electronic form. In the present case, the proper officer was empowered to determine the liability of payment of tax in terms of the powers conferred under Section 35 (6) after resorting to the procedure as established under Section 74 of the Act - Although in terms of the provisions of Section 35 (6), the unaccounted goods are deemed to be supplied however, determination and quantification of the tax on the said deemed supply has to be done in accordance with Section 73 or Section 74of the Act - A perusal of Section 73 and 74 makes it clear that a show cause notice is bound to be served prior to determination of the tax leviable on the deemed supply whereas in the present case no such notice is available on record and it is common ground that apart from the said proceedings, no other proceedings have been initiated and concluded under Section 73 or 74 of the Act. Confiscation of goods - Section 130 of the Act - HELD THAT - In the present case, even if it is admitted, for the sake of arguments, that the documents were not maintained at the registered office or the other place of business, there is no finding to the effect that any supply was made with an intent to evade payment of tax as is required under Section(i) of Section 130 (1) - there is nothing on record to establish that the petitioner did not account for any goods on which he is liable to pay tax under the Act (as required to attract Section 130 (1)(ii). It has not been established that there was any contravention of any provision or any Rules with an intent to evade payment of tax - none of the ingredients which are required for confiscation existed in the present case and thus, the confiscation itself was wholly arbitrary and illegal. Search and Seizure - Section 67 of the CGST Act, 2017 - HELD THAT - A perusal of the said section makes it clear that proper officer should have reasons to believe that there is any suppression of any transaction relating to supply of goods by the taxable person or as claimed or has claimed input tax credit in respect of entitlement or has indulged in contravention of the provisions of this Act or the Rules made there under to evade tax under this Act, or such person is keeping his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act - In the present case, as the petitioner has not challenged the seizure order, I am not going to the said question in the absence of any pleadings or the arguments advanced or document produced in respect of the same. Levy of Penalty under Section 122 - HELD THAT - The facts of the present case makes it clear that even if the allegations of the department, as adjudicated and confirmed in an appeal are accepted to be true, the offence committed by the petitioner would fall under the offence specified in Column B above for following reasons; firstly, the only allegations are that the petitioner has not maintained the Book of Accounts as are required under the Act and the Rules and secondly the penalty has been imposed holding the Petioners conduct in violation of Section 122 (1) (xvi) and (xvii) of CGST Act read with Section 122(1) (xvi) (xvii) of UP GST Act and thirdly, no exercise for quantification of the tax evaded has been done in pursuance to the powers conferred under Section 35 (6) read with Section 73 or 74 of the Act, as such, I have no hesitation in holding that in the given facts and circumstances of the case for the violations alleged and established against the Petitioner, the maximum penalty that could be imposed upon the petitioner is ₹ 10,000/-. The impugned orders dated 15.1.2020 and 27.1.2020 (Annexure No. 5) is set aside insofar as it relates to confiscation of goods and imposition of penalty in excess of ₹ 10,000/-, as the confiscation has been set aside, there is no question of payment of redemption fine - the total penalty imposed upon the petitioner is quantified at ₹ 10,000/- - Appeal allowed in part.

Summary

Issues Involved:
1. Failure to maintain records as required under Section 35(1) of the CGST Act and Rules 56 and 57 of the CGST Rules.
2. Justification of the order of confiscation.
3. Imposition of penalty under Section 122 of the CGST Act.

Issue-wise Detailed Analysis:

1. Failure to Maintain Records:
The petitioner was accused of not maintaining mandatory records/accounts related to input tax credit, production, inward and outward supply of goods, and output tax payable and paid, as required under Section 35(1) of the CGST Act. The show cause notice highlighted that the petitioner failed to produce these records during inspections on various dates, leading to the conclusion that the petitioner violated Section 35(1). The petitioner argued that the records were maintained at the principal place of business in Delhi, as specified in their registration certificate, and were also available in electronic form but could not be accessed due to internet issues. However, the adjudicating authority found that the petitioner did not maintain the required records at the factory premises or produce them during hearings, thereby justifying the conclusion of non-compliance with Section 35(1).

2. Justification of the Order of Confiscation:
The order of confiscation was based on the alleged non-maintenance of records, which led to the belief that the petitioner intended to evade GST. The adjudicating authority ordered the confiscation of goods valued at ?1,07,99,43,351/- and imposed a redemption fine of ?12 crores, along with penalties. However, the court found that the confiscation was unjustified as none of the conditions under Section 130(1) of the CGST Act, which include intent to evade tax, non-accounting of goods, unregistered supply, contravention of provisions with intent to evade tax, and misuse of conveyance, were met. The court noted that the mere non-maintenance of records did not automatically imply an intent to evade tax, and no evidence was provided to support such an allegation.

3. Imposition of Penalty under Section 122:
The penalty imposed was based on the alleged violation of Section 122(1)(xvi) and (xvii) of the CGST Act, which pertains to failure to maintain or retain books of account and other documents. The court analyzed the nature of the offences under Section 122 and concluded that the petitioner's actions fell under offences that did not involve tax evasion (Column B offences). Consequently, the maximum penalty that could be imposed for these violations was ?10,000/-, as there was no quantification of tax evaded or any allegation of tax evasion. The court set aside the excessive penalties and reduced the total penalty to ?10,000/-.

Relief Granted:
The court allowed the writ petition in part, setting aside the orders of confiscation and the imposition of penalties in excess of ?10,000/-. The total penalty imposed on the petitioner was quantified at ?10,000/-. The court clarified that the penalty imposed on the Managing Director was not addressed as no writ petition was filed by him. The writ petition was allowed on the terms recorded, providing significant relief to the petitioner by overturning the excessive penalties and unjustified confiscation orders.