2023 (3) TMI 1358 - HC - GST

Search and seizure - Valuation of goods - service of SCN (to accountant of the firm) - goods quantified only on the basis of the eye estimation - power of taking recourse to Section 73 or Section 74 of the Act, while proceeding to pass an order under Section 130 of the GST Act - Whether tax can be assessed/ determined in exercise of powers under Section 130 of the GST Act? - HELD THAT - In the light of what has been decided by this Court in the case of M/s Metenere Limited 2020 (12) TMI 790 - ALLAHABAD HIGH COURT , it is clear that the entire exercise resorted to under Section 130 of the GST Act for assessment/ determination of the tax and the penalty is neither stipulated under the Act, nor can be done in the manner in which it has been done, more so, in view of the fact that the department itself had undertaken the exercise of quantifying the tax due, by taking recourse under Section 74 - As the entire tax has been determined and the penalty has been levied only on the basis of a survey by taking recourse under Section 130 of the GST Act and not taking a recourse to Section 74, the order impugned is clearly unsustainable. 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? - HELD THAT - On a plain reading, the scope of Clause (ii) of sub-section (1) of Section 130 is that 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). Analyzing Clause (iv) of sub-section (1) of Section 130, the contravention of any provision of the Act or the Rules 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 that there were 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, I have no hesitation in holding that even the Clause (iv) of sub-section (1) of Section 130 would not be attracted in the present case. Whether the service of notice as claimed by the respondent satisfies the requirement contemplated under Section 169 of the GST Act? - HELD THAT - In terms of Clause (a) of Section 169(1), a service would be completed only when it is tendered to the taxable person or on his Manager or authorized representative. - Serving on the Accountant of the firm is neither contemplated nor provided for under Section 169(1)(a) and thus, the service as claimed by the Counsel for the respondent on the Accountant cannot be held to be a valid service, thus, on that count also, the entire proceedings are liable to be quashed. 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? - HELD THAT - In the present case, the valuation of the goods 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 Section 15 or the Rules framed thereunder, there is no prescriptions for valuation of the goods on the basis of eye estimation as has been done by the department and has been repelled by the appellate authority. The appellate authority has erred in repelling the valuation done on the basis of eye estimation, however, has proceeded to value the goods (although differently) at the appellate stage without resorting to the mandate and manner prescribed in Section 15 read with the Rules, thus, on that count also, the impugned order is not sustainable. The impugned order dated 29.01.2019 is set aside and the writ petition is allowed.

Summary

Issues Involved:
1. Whether tax can be assessed/determined in exercise of powers under Section 130 of the GST 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 GST 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?

Summary:

Issue I: Tax Assessment under Section 130 of the GST Act
The court analyzed whether tax can be assessed under Section 130 of the GST Act. Referring to the judgment in the case of M/s Metenere Limited, the court reiterated that the demand for tax must be quantified and raised as prescribed under Section 73 or Section 74 of the Act. The court concluded that the exercise of assessing tax and penalty under Section 130 was not stipulated by the Act and was unsustainable, particularly since the department had already undertaken the exercise under Section 74.

Issue II: Penalty Levy Based on Excess Goods
The court examined the applicability of Section 130(1) for levying penalties. It was noted that Clause (ii) of Section 130(1) could only be invoked if the liability to pay tax arises at the point of supply. For Clause (iv) to apply, there must be a contravention of the Act or Rules with an intent to evade tax. The court found no such allegations in the show cause notice or orders, thus holding that neither Clause (ii) nor Clause (iv) of Section 130(1) was applicable.

Issue III: Service of Notice under Section 169 of the GST Act
The court evaluated whether service of notice to the petitioner's accountant satisfied the requirements of Section 169. It was determined that service on the accountant was neither contemplated nor provided for under Section 169(1)(a). Therefore, the service of notice was deemed invalid, rendering the proceedings liable to be quashed.

Issue IV: Valuation of Goods Based on Eye Estimation
The court addressed the valuation of goods, emphasizing that Section 15 of the GST Act and the corresponding rules do not prescribe valuation based on eye estimation. The appellate authority had erred by accepting the valuation done on eye estimation and subsequently valuing the goods differently without following the prescribed methods under Section 15 and the rules. Consequently, the impugned order was found unsustainable.

Conclusion:
The writ petition was allowed, and the impugned order dated 29.01.2019 was set aside. The amount deposited by the petitioner was ordered to be refunded, subject to the outcome of the demand quantified under Section 74 of the Act.