Case Law Details
Eco Plus Steels Pvt. Ltd. Vs State Of U.P. And 3 Others (Allahabad High Court)
In the case of Eco Plus Steels Pvt. Ltd. vs State of U.P. and 3 Others, the Allahabad High Court deliberated on the legality of confiscation and penalty under Section 130 of the CGST Act, 2017, and Section 122 of the Act, respectively, based solely on estimation without physical verification.
The crux of the matter lay in whether the mere presence of additional stock warranted confiscation and subsequent penalty. The Court observed an inordinate delay in issuing the show cause notice, indicating a lackadaisical approach by the authorities. Moreover, it emphasized that burden of proof for imposition of penalty and confiscation of goods rests on the Department, which cannot be done solely on estimates. Physical verification through counting and weighing of goods is essential.
The Court cited precedents, including M/s Maa Mahamaya Alloys Pvt. Ltd. vs. State of U.P., highlighting that confiscation based on eye estimation lacks legal basis. The Appellate Authority’s reliance on estimates without proper quantification of stock was deemed unjustifiable.
Consequently, the Allahabad High Court set aside the impugned orders, quashing both the penalty and confiscation. The judgment underscores the necessity of adherence to due process and emphasizes the inadequacy of estimation as grounds for punitive measures. This verdict reinforces the principle of legal rigor in tax enforcement, protecting businesses from arbitrary action based solely on estimations.
FULL TEXT OF THE ORDER OF ITAT ALLAHABAD
1. Heard Mr. Aloke Kumar, counsel appearing on behalf of the petitioner and Mr. Rishi Kumar, Additional Chief Standing Counsel appearing for the respondents.
2. The above two writ petitions have been filed challenging the orders passed in appeal under Section 107 of the Uttar Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the Act’).
3. In the first writ petition bearing Writ Tax No.916 of 2022, the orders under challenge are the order passed by the respondent No.3 (being the Assessing Officer) dated September 25, 2019 and the order dated April 5, 2022 passed by the Appellate Authority under Section 107 of the Act. The above two orders have been passed in relation to confiscation under Section 130 of the Act and levy of penalty under Section 122 of the Act.
4. In the second writ petition bearing Writ Tax No.1600 of 2022, the order dated December 3, 2022 passed by the respondent No.3 (being the Assessing Officer) and the order dated August 3, 2022 passed by the First Appellate Authority under Section 107 of the Act are under challenge. These orders have been passed under Section 74 of the Act for liability arising out of additional stock that was present with the petitioner.
5. In relation to Writ Tax No.916 of 2022, the issue to be answered is whether mere presence of additional stock would result in confiscation and subsequent penalty.
6. Counsel on behalf of the petitioner has relied on two judgments of the coordinate Bench of this Court in the case of M/s Maa Mahamaya Alloys Pvt. Ltd. vs. State of U.P. and others reported in 2023 82 NTN DX 393 and in the case of M/s Metenere Ltd. vs. Union of India (Writ Tax No.360 of 2020, decided on December 17, 2020) in support of his arguments.
7. From a perusal of the judgment in the case of M/s Maa Mahamaya Alloy Pvt. Ltd. (supra), it is clear that the issue was decided against the respondents. One may rely upon the paragraphs provided below for the same:-
“14. Coming to the Issue no.2, Section 130 of the GST Act contemplates and provides for levy of the penalty, in the event, any of the conditions so mentioned in Section 130(1) are made out. Section 130(1) reads as under:
“Section 130. Confiscation of goods or conveyances and levy of penalty-
(1) Notwithstanding anything contained in this Act, if any person –
(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,
then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.”
15. On a plain reading of the allegations levelled against the petitioner with regard to the improper accounting of goods, the only stipulation contained in Clauses (ii) and (iv) of sub-section (1) of Section 130 can at best be invoked by the department, however, in the present case, even assuming for the sake of argument, that the goods were lying in excess of the goods in record, the case against the petitioner would not fall under Clause (ii) of sub-section (1) of Section 130 for the simple reason that the liability to pay the tax arises at the time of point of supply, and not at any point earlier than that. On a plain reading, the scope of Clause (ii) of subsection (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 subsection (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.”
8. Furthermore, the coordinate Bench in M/s Maa Mahamaya Alloy Pvt. Ltd. (supra) held that confiscation of the stock cannot be done only on the basis of eye estimation. The relevant paragraph is delineated below:-
“19. Coming to the Issue no.IV with regard to the determination of value of the goods. Section 15 of the GST Act provides for valuation of the taxable supply. In furtherance of the provisions contained in the Act, Rules have been framed and Rule 27 of the said Rules provides for the manner of valuation of supply of goods or services, however, 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.”
9. In the present case, the Appellate Authority, after examining all materials, came to the following conclusion:-
10. One is unable to understand that after the Appellate Authority had come to the above finding that the stock was not weighed or counted, specifically when the same could have very well been done in the premises of the petitioner, why did the Appellate Authority subsequently reduce the penalty by making a fresh assessment. The calculation of the stock by the Appellate Authority on the basis of an estimate is without any basis in law. When the Appellate Authority had come to the finding that the officers in the survey did not carry out the quantification of the stock in the correct manner, there was no reason for the Appellate Authority to uphold the confiscation and penalty. It is to be further noted that the survey was carried out on October 26, 2018, immediately thereafter objection was raised by the petitioner on October 28, 2018 and the order of confiscation was passed by the Assessing Authority on September 25, 2019, almost after 11 months of the date of survey. From the record, I do not find any reason with regard to the delay in the confiscation and levy of penalty. In fact, the notice for confiscation was issued in August 2019, almost 10 months after the date of survey. This inordinate delay in issuing show cause notice goes to the root of the matter and is a factor to be considered. In my view, the delay leads to an inference that the authorities have acted in a callous manner.
11. This Court is of the view that the entire procedure followed by the authorities indicates not only a lackadaisical approach but also showcases the incompetence and inefficiency of the authorities that had carried out the survey in a shoddy manner and thereafter issued the show cause notice and passed order of confiscation and penalty belatedly.
12. It is trite law that the burden of proof for imposition of penalty and confiscation of goods is on the Department and the same cannot be done on estimates when it is clear that the Department could have carried out a physical verification based on counting and weighing of the goods. In light of the same, the entire finding with regard to excess stock, that is based on estimate, is liable to be rejected outrightly.
13. In light of the above, the impugned orders in Writ Tax No.916 of 2022 with regard to penalty and confiscation are quashed and set aside.
14. Similarly, the entire proceedings that have been initiated under Section 74 of the Act that have culminated in the writ petition bearing Writ Tax No.1600 of 2022, wherein challenge has been raised against the order passed by the Assessing Officer and the order passed in appeal with regard to liability of tax under Section 74 of the Act are to be quashed and set-aside as the same are based on finding that there was excess stock. As the said finding of excess stock is clearly without any basis in law and illegal, the initiation of proceedings under Section 74 of the Act cannot stand on any footing.
15. Accordingly, the impugned orders in Writ Tax No.1600 of 2022 are quashed and set-aside. Consequently reliefs to follow. The amount, if any, deposited by the petitioner with the authorities, the same should be returned to the petitioner within a period of eight weeks from date.
16. Accordingly, both the writ petitions are allowed.
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