Merry Gold Vs Union of India & Ors. (Karnataka High Court)
Summary: The Karnataka High Court, in Merry Gold Vs Union of India & Ors., W.P. No. 9284 of 2023, examined whether the omission of Kundan stones from a delivery challan justified a GST penalty of ₹14,50,560 under Section 129 of the Central Goods and Services Tax Act, 2017. The petitioner was transporting gold jewellery from Mumbai to Bengaluru for sample purposes when the vehicle was intercepted on 30 June 2022. Following verification in Form GST MOV-02, proceedings under Section 129(3) culminated in a penalty order dated 15 July 2022. The petitioner paid the penalty and challenged the order before the appellate authority, which dismissed the appeal on 15 December 2022.
The petitioner contended that its delivery challan complied with the requirements of Rule 55 of the CGST Rules, 2017 and that the only discrepancy was the non-mentioning of Kundan stones forming part of the gold ornaments. It argued that this omission could not justify the substantial penalty, particularly when the jewellery was being transported as samples and not for sale. The authorities maintained that the mismatch between the goods and their description in the delivery challan warranted action under Section 129. They also proceeded on the assumption that the jewellery was intended for sale because the names of prospective purchasers were not mentioned.
Justice S.R. Krishna Kumar held that the delivery challan satisfied all other requirements of Rule 55 and that the mere omission of Kundan stones could not establish a violation warranting the penalty. The Court rejected the authorities’ presumption that the jewellery was being transported for sale, observing that the material on record supported its transportation for sample purposes. The absence of prospective purchasers’ names did not establish that the goods were intended for sale. Accordingly, the original penalty order and the appellate order were both held unsustainable.
The High Court allowed the writ petition, quashed both orders and directed refund of ₹14,50,560 within two months from receipt of its order. However, it expressly reserved liberty to the respondents to initiate separate proceedings concerning the alleged mismatch or non-disclosure of Kundan stones in the delivery challan. Thus, while the penalty imposed on the basis of the disputed delivery challan was set aside, the authorities were not completely barred from examining that specific discrepancy through appropriate proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
In this petition, petitioner has sought to quash the impugned order at Annexure – M dated 15.12.2022 passed by the respondents, whereby the appeal filed by the petitioner against the proceedings dated 15.07.2022 was dismissed by the Appellate Authority.
2. Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record.
3. A perusal of the material on record will indicate that the petitioner was transporting gold jewellary from Mumbai to Bengaluru. When the vehicle was intercepted by respondent No.4 on 30.06.2022, an order for vehicle verification was issued in GST MOV-02, pursuant to which proceedings under Section 129(3) of the Central Goods and Services Tax Act, 2017 (for short, ‘CGST Act’) having been initiated, the same culminated in the order at Annexure – H dated 15.07.2022, in pursuance of the same, petitioner paid penalty of Rs.14,50,560/- and filed an appeal which was also dismissed by the Appellate Authority on 15.12.2022. Aggrieved by the impugned order passed by the respondents, petitioner is before this Court by way of the present petition.
4. In addition to reiterating the various contentions urged in the memorandum of petition and referring to the material on record, learned counsel for the petitioner invited my attention to the Delivery Challan at Annexure – B as well as Rule 55 of the Central Goods and Services Tax Rules, 2017 (for short, ‘CGST Rules) in order to point out that there was no violation committed by the petitioner insofar as the Delivery Challan was concerned. It is also submitted that the minor discrepancy of not mentioning existence of Kundan stones in the Delivery Challan could not have been made the basis to impose the penalty upon the petitioner and it was always open for the respondents to proceed against the petitioner for not disclosing the Kundan stones in the Delivery Challan. It is submitted that the Original Authority as well as Appellate Authority have come to the erroneous conclusion that there is violation of Rule 55 of the CGST Rules, which is contrary to the said provision as well as the Delivery Challan and as such, the same deserves to be set aside and penalty of Rs.14,50,560/- deserves to be refunded back to the petitioner.
5. Per contra, learned AGA would support the impugned order and submits that since there was a mismatch between the goods and discrepancy shown in the Delivery Challan, it was open for the respondents to initiate proceedings under Section 129 of the CGST Act and pass the impugned order, which do not warrant interference in the present petition and that the petition is liable to be dismissed.
6. A perusal of the material on record including the impugned order and the Delivery Challan will indicate that except for non-disclosure of Kundan stones in the Delivery Challan, all other requirements of Rule 55 of the CGST Rules have been complied with by the petitioner as can be seen from the Delivery Challan itself. Despite this, both the Original Authority and the Appellate Authority have wrongly / erroneously invoked Rule 55 of the CGST Rules in order to come to the conclusion that there was mismatch between the Delivery Challan and the actual goods without appreciating that mere non-disclosure / non-mentioning of the Kundan stones in relation to the subject gold ornaments, which were being transported only for sample purpose could not have been made the basis to come to the conclusion that the petitioner would be liable to pay penalty of Rs.14,50,560/-.
7. A perusal of the impugned order will also indicate that both authorities have committed an error in proceeding on the erroneous presumption / assumption that the gold was not being sent for sample purpose but was being transported for the purpose of sale and since the names of the prospective purchaser were not mentioned in the Delivery Challan, petitioner would be liable to pay penalty as directed in the impugned order. However, the said reasoning of the Authorities and findings recorded by it is clearly contrary to the material on record, which establishes that there is no basis to come to the conclusion that gold ornaments were meant for sale in favour of the prospective purchasers and not for sample as indicated in the Delivery Challan. It is also pertinent to note that so long as the Delivery Challan contains all the details as required under Rule 55 of the CGST Rules, mere non-mentioning of the Kundan stones cannot be treated as violation of Rule 55 of the CGST Rule and on this ground also, the impugned order cannot be sustained.
8. Under these circumstances, I am of the considered opinion that the order passed by the Original Authority at Annexure – H dated 15.07.2022 as well as the impugned order passed by the Appellate Authority at Annexure – M dated 15.12.2022 deserve to be quashed and penalty of Rs.14,50,560/- deserves to be refunded back to the petitioner and to grant liberty in favour of the respondents to proceed against the petitioner for alleged mismatch/discrepancy of the Kundan stones, which are not shown in the Delivery Challan.
9. In the result, I pass the following:
ORDER
(i) The petition is hereby allowed.
(ii) The order passed by the Original Authority at Annexure – H dated 15.07.2022 as well as the impugned order passed by the Appellate Authority at Annexure – M dated 15.12.2022 are hereby quashed.
(iii) Respondents are directed to refund the penalty of Rs.14,50,560/- back to the petitioner within a period of two months from the date of receipt of a copy of this order.
(iv) Liberty is reserved in favour of the respondents to initiate proceedings against the petitioner only in relation to alleged mismatch of the Kundan stones, which are not shown in the Delivery Challan.
