GST Refund on Excess Tax Paid During Goods Detention: Madras HC Ruling

Chetna Steel Tubes Tax collected at the stage of detention can be claimed as GST refund if excess tax is paid in regular returns: Madras High CourtPrivate Limited Vs Goods and Service Tax Network (Madras High Court)

The Madras High Court, in the case of Chetna Steel Tubes Private Limited v. Goods and Service Tax Network, dismissed the petitions challenging a 2018 circular regarding tax liability under Section 129 of the CGST Act. The petitioner contended that paying tax at both the detention stage and in regular GST returns amounted to double taxation. The court observed that prior to January 1, 2022, businesses had to bear both tax and penalties when goods were detained. However, post-amendment, only a penalty of 200% of the tax is applicable. The court ruled that while tax is collected at the stage of detention to ensure compliance, any excess amount paid in returns can be claimed as a refund. The ruling clarifies that taxpayers are not subjected to double taxation, as excess GST paid in GSTR-3B can be refunded. The court maintained that the purpose of Section 129 was to enforce tax compliance during transit, and the impugned circular does not create an automatic tax liability beyond what is legally required. Consequently, the petitions were dismissed, affirming the taxpayer’s right to claim refunds for any excess tax paid due to detention.

Facts:

M/s Chetna Steel Tubes (P.) Ltd. (“the Petitioner”) has filed the present writ petitions challenging the Circular No. 41/15/2018 GST dated April 13, 2018 (“the Impugned Circular”).

The Petitioner contended that they cannot be burdened with tax liability twice, once at the stage of detention to get their detained goods released under Section 129 of the CGST Act and other at the stage of payment of tax in the regular returns in Form GSTR-3B. Therefore, there is no question of creation of an automatic tax liability and hence the Petitioner has also challenged the demand notices dated April 28, 2021, and April 29, 2021 (“the Impugned Notices”) in the present petition.

Issue:

Whether tax collected at the stage of detention can be claimed as refund if excess tax is paid in regular returns?

Held:

The Hon’ble Madras High Court in Writ Petition Nos. 19976 & 19977 of 2021, held as under:

• Noted that, as far as the period prior to January 1, 2022, is concerned, it is clear that the Petitioner whose goods are detained under Section 129 of the respective GST enactments has to bear the applicable tax and penalty. Post January 1, 2022, the law has been amended, whereby only the penalty is imposable at 200% of the tax.
• Observed that, the tax is being levied twice by virtue of the impugned circular and is contrary to Section 129 of the respective GST enactments cannot be countenanced. The purpose of Section 129 of the CGST Act was to recover tax on such goods in transit, where removal of such goods fell short of any of the statutory compliance required for removal of goods. Therefore, tax was to be collected to the extent of tax that was payable in the returns at the stage of detention of such detained goods. Tax is to be debited from Petitioner’s electronic credit account maintained under the respective GST Acts.
• Held that, if a supplier’s goods were detained and subjected to tax and penalty under Section 129 of the CGST Act as it stood prior to amendment, such a supplier is entitled to claim refund of the excess tax, if any, paid in the returns filed in Form GSTR-3B. Therefore, the apprehension expressed in the writ petitions misplaced and unwarranted. Hence, these writ petitions were dismissed. Accordingly, these writ petitions were dismissed.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

The petitioner challenges the impugned circular dated 13.04.2018 bearing reference No. 41/15/2018 GST. The petitioner is aggrieved by Para 2(h) of the circular, which reads as follows:

” 2(h) Where the owner of the goods or any person authorized by him comes forward to make the payment of tax an penalty as applicable under clause (a) of sub-section (1) of Section 129 of the CGST Act, or where the owner of the goods does not come forward to make the payment of tax and penalty as applicable under clause (b) of sub­section (1) of the said section, the proper officer shall, after the amount of tax and penalty has been paid in accordance with the provisions of the CGST Act and the CGST Rules, release the goods and conveyance by an order in FORM GST MOV-5. Further, the order in FORM GST MOV-09 shall be uploaded on the common portal and the demand accruing from the proceedings shall be added in the electronic liability register and the payment made shall be credited to such electronic liability register by debiting the electronic cash ledger or the electronic credit ledger of the concerned person in accordance with the provisions of Section 49 of the CGST Act.”

2. The case of the petitioner is that, the petitioner cannot mulct with tax liability twice, once at the stage of detention and other at the stage of payment of tax in the regular returns in GSTR-3B. Therefore, there is no question of creation of an automatic tax liability and hence the petitioner has also challenged the impugned demand notice dated 28.04.2021 and 29.04.2021 in W.P.No.19977 of 2021.

3. Heard the learned counsel for the petitioner and the learned Senior Standing Counsel for the respondents.

4. Section 129 of the GST enactment, as it stood during the period in dispute and post 01.01.2022 reads differently. They are produced below.

Section 129 – Prior to 01.01.2022

Section 129 – Detention, seizure and release of goods and conveyances in transit

(1) 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 thereunder, 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,??

(a) on payment of the applicable tax and penalty equal to one hundred per cent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;

(b) on payment of the applicable tax and penalty equal to the fifty per cent. 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 five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty;

(c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:

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

(2) The provisions of sub-section (6) of section 67 shall, mutatis mutandis, apply for detention and seizure of goods and conveyances.

(3) 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).

(4) No tax, interest or penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.

(5) On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded.

(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 sub­section (1) within fourteen days of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of section 130:

Provided that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of seven days may be reduced by the proper officer.”

Section 129 – Post 01.01.2022

(1) 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 thereunder, 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,––

1[(a) on payment of the applicable tax and penalty equal to one two hundred per cent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;

(b) on payment of applicable tax and penalty equal to the fifty per cent. 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 five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such penalty;]

(2) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed:

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

(3) The provisions of sub-section (6) of section 67 shall, mutatis mutandis, apply for detention and seizure of goods and conveyances. 2[****]

(4) The proper officer detaining or seizing goods or conveyances shall issue a notice within seven days of such detention or seizure, specifying the tax and penalty payable and thereafter, pass an order within a period of seven days from the date of service of such notice, for payment of penalty under clause (a) or clause (b) of sub-section (1).]

(4) 4[ No tax, interest or penalty] shall be determined under sub­section (3) without giving the person concerned an opportunity of being heard.

(5) On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded.

5[(6) Where the person transporting any goods or the owner of such goods fails to pay the amount of tax and penalty under sub-section (1) within seven days

1“fourteen days” of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of section 130: fifteen days from the date of receipt of the copy of the order passed under sub-section (3), the goods or conveyance so detained or seized shall be liable to be sold or disposed of otherwise, in such manner and within such time as may be prescribed, to recover the penalty payable under sub-section (3)

Provided that the conveyance shall be released on payment by the transporter of penalty under subsection (3) or one lakh rupees, whichever is less

Provided further that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of seven fifteen days may be reduced by the proper officer.

This is the current version of The Central Goods and Services Act 2017 (CGST Act 2017) and includes amendments introduced in

1. Substituted (w. e. f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 117(i) of The Finance Act, 2021 (No. 13 of 2021) dated 28th March, 2021.

“(a) on payment of the applicable tax and penalty equal to one hundred per cent. of the tax payable on such goods and. in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty;

(b) on payment of the applicable tax and penalty equal to the fifty per cent. of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of an amount equal to five per cent. of the value of goods or twenty-five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty;”

2. Omitted (w. e. f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 117(ii) of The Finance Act, 2021 (No. 13 of 2021) dated 28th march, 2021 for

“(2) The provisions of sub-section (6) of section 67 shall, mutatis mutandis, apply for detention and seizure of goods and conveyances.”

3. Substituted (w. e. f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 117 (ii) of the Finance Act, 2021 (No. 13 of 2021) dated 28th March, 2021.

“(3) 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).”

4. Substituted (w. e. f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 117(iv) of The Finance Act, 2021 (No. 13 of 2021) dated 28th March, 2021 for “No tax, interest or penalty.”

5. Substituted (w. e. f. 1st January, 2022 vide Notification No. 39/2021-C.T., dated 21st December, 2021) by s. 117(v) of The Finance Act, 2021 (No. 13 of 2021) dated 28th March, 2021 for

“(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 sub­section (1) within fourteen days of such detention or seizure, further proceedings shall be initiated in accordance with he provisions of section 130:

Provided that where the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the said period of seven days may be reduced by the proper officer.”

5. As far as the period prior to 01.01.2022 is concerned, it is clear that the petitioner whose goods are detained under Section 129 of the respective GST enactments has to bear the applicable tax and penalty. Post 01.01.2022, the law has been amended, whereby only penalty is imposable at 200% of the tax.

6. The apprehension of the petitioner that the tax is being levied twice by virtue of the impugned circular and is contrary to Section 129 of the respective GST enactments cannot be countenanced. The purpose of Section 129 as it stood during the material period was to recover tax on such goods in transit, where removal of such goods fell short of any of the statutory compliance required for removal of goods.

7. Therefore, tax was to be collected to the extent of tax that was payable in the returns at the stage of detention of such detained goods. Tax is to be debited from an assessee’s electronic credit account maintained under the

8. If a supplier’s goods were detained and subjected to tax and penalty under Section 129 of the GST Act as it stood prior to amendment, such supplier is entitled to claim refund of the excess tax, if any, paid in the returns filed in GSTR-3B. Therefore, the apprehension expressed in the writ petitions misplaced and unwarranted. Hence, these writ petitions are liable to be dismissed. Accordingly, these writ petitions are dismissed. No costs. Consequently, connected miscellaneous petitions are closed.

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