Applicability of Section 129 of CGST Act, 2017 on Goods in Transit in A Third State

Situation:-

M of Meghalaya has purchased goods from B of West Bengal and while goods were moving towards Meghalaya through the corridor of Assam, the truck loaded with the goods is detained for non-generation of e-way bill. The question, which arises is that whether section 129 will be applicable and if yes, then whether tax and penalty can be levied on the basis of the aforesaid facts?

Discussion:-

Section 68 of the CGST Act read with rules specifies that tax invoice/ challan/ bill of supply/ delivery challan as per law should be accompanied with the consignment of goods and that e-way bill as per rule 128 should also be generated. Section 122 (1) of the CGST Act, inter-alia contains that a taxable person who transports any taxable goods without the cover of specified documents shall be liable to a penalty of Rs. 20,000/- (10000 CGST + 10000 SGST) or tax sought to be evaded, whichever is higher.

Section 129 of CGST Act, which begins with a non obstante clause empowers the officers to detain and seize the goods, documents and the conveyance, if the goods are transported or stored during the transit in contravention of the provisions of this Act or the rules made thereunder.  The officers are authorised to release the taxable goods etc. if the owner pays the applicable tax and penalty equal to the amount of tax payable, in case the owner does not come forward the amount of penalty will be equivalent (50% CGST + 50% SGST) to the value of taxable goods. In case of exempted case, the maximum quantum of penalty is Rs. 50,000/- (CGST 25000 + SGST 25000).

It will be interesting to discuss that whether two different penalties under section 122 and 129 can be levied for the same offence, i.e. transporting of taxable goods in contravention of GST Laws. It will also be interesting to discuss that whether section 129 is a procedural section to give effect the aforesaid provision of section 122(1). In the meanwhile, it has already been judicially pronounced that section 129 cannot be read ignoring the provisions of section 130 [Pl refer- M/s Indus Towers Limited vs. The Assistant State Tax Officer 018 (1) TMI 1313- Kerala High Court, Age Industries (P.) Ltd. Versus Assistant State tax Officer 2018 (1) TMI 1116 – Kerala High Court].

In the case of Indus Towers (supra), Hon’ble Court held that a combined reading of Sections 129 and 130, especially the provision contained in sub-section (6) of Section 129 indicates that the detention of the goods is contemplated under the statutes only when it is suspected that the goods are liable to confiscation…. Section 130 dealing with the confiscation of goods indicates beyond doubt that the confiscation of goods is contemplated under the statutes only when a taxable supply is made otherwise than in accordance with the provisions contained in the statutes and the Rules made thereunder with the intent to evade payment of tax. If that be so, mere infraction of the procedural Rules like Rules 55 and 138 of the State GST Rules cannot result in detention of goods, though they may result in imposition of penalty. In other words, detention of goods merely for violation of the procedural Rules in transactions which do not amount to taxable supply, is without jurisdiction.

A very interesting question emerges from the aforesaid judgment that whether transportation of exempted goods can be a subject matter of detention and penalty u/s. 129? Let us assume a situation wherein some in-transit exempted goods have been detained and the officer has finally passed an order u/s. 129(3) to pay the penalty and the supplier/recipient does not deposit the demanded sum of penalty. Is there any other alternative with the officer, but to proceed as per section 129(6) and initiate proceedings under section 130 for confiscation of goods? I feel that section 130, does not permit for confiscation of goods unless and otherwise there is a case of attempt to evade taxes. It is not possible for me to discuss all these issues in a single write-up.

For the sake of brevity, we should strict to the question raised at the beginning and should investigate that whether in the aforesaid case, Assam is entitled to collected tax and penalty or to detain and confiscate the goods.

The phrase “applicable tax”, used in section 129, needs proper appreciation in order to find out the answer of the above question. The Constitution has empowered the States and the Central to collect tax on supply of goods and services. Thus the subject matter of tax in the GST laws is supply. The charging section of the CGST, SGST & IGST laws also contains the same. So, in my view, the term “applicable tax” has been used to mean the tax which is leviable on such consignment of goods. Being the goods has been supplied by some taxable persons of West Bengal to the taxable person of Meghalaya, no tax is applicable on such consignment.

I have reasons to advocate such a specific meaning of the term “applicable tax”. If the term “applicable tax” is given a broader meaning and is understood as the amount of tax if such goods are treated as taxable supply, certainly it will lead to legal crisis. In that case we will have to agree that section 129 has been so enacted on the assumption that goods carried in a vehicle from one State to another must be presumed to have been transported after sale within the State. In such a scenario, I afraid that this provision may have to face challenges of constitutional validity in the light of the ratio settled by the  constitution bench of the Apex Court in K.P. Abdulla and Bros’s case (1971) 27 STC1.

Coming again to the instant situation, we find that the nature of the transaction in the instant example clearly states that the goods are moved in course of an inter-state supply as per sections 7 and 10 of IGST Act, 2017. Accordingly, the supplier from West Bengal is liable to pay IGST at West Bengal on said supply and fifty percent of the said IGST will go to the coffer of the Sate of Meghalaya and balance fifty percent will go to the Central Government. It is also clear from the example that none of the supplier and the recipient is from Assam.

GST laws do not contain any provision that in case of non-generation of e-way bill or for non-accompanying of specified documents, it will be deemed that a separate supply has been made warranting levy of tax. The taxable event under GST Law is supply. For levy of tax, there must be a taxable supply, on which tax has not been deposited or admitted and unless and otherwise such a supply is established, in my humble view tax cannot be levied. Needless to say that as per article 265 of the Constitution of India no tax can be levied or collected except by authority of law. Being the amount of “tax payable on such goods” is nil, in my humble view there is no scope of any penalty u/s. 129.

In order to understand the applicability of section 129 in some other types of transactions also, it should be appreciated that as per article 286 of the Constitution of India no law of a state shall impose, or authorise the imposition of, a tax on the supply of goods or services or both, where such supply takes place ‘out-side the State’. The same article has entrusted the parliament to formulate principles for determining when a supply shall be treated as a supply taken place ‘out-side the State’. As per my knowledge, unlike in 1956, this time the said principles has not yet been formulated.

Views of the esteemed readers are solicited.

The author is a practicing chartered accountant at Guwahati and can be reached at: fca.opg@gmail.com

Disclaimer: The views expressed are purely the personal views of the author. So the readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The author is not responsible in anyway.