Case Laws on Section 129 and 130 of CGST Act, 2017

[1] Whether the Proper Officer, while detaining the goods which are in transit in the exercise of his power under Section 129 of the Act, possesses the power to initiate proceedings to confiscate under Section 130 of the Act and thereafter conduct an inquiry and proceed to order confiscation of the goods?

Rajeev Traders Versus Union of India (Karnataka High Court)

(Writ Petition No.100849 of 2022)

 Facts

The Inspector hereinafter referred to as the (“Proper Officer”) under the CGST, Act, 2017 intercepted seven trucks while they were in transit and transporting Areca nuts. The trucks were operated by the Rajeev Traders hereinafter referred to as (“Assessee”). The Proper Officer issued an order for Physical verification/ inspection of the conveyance goods and documents and issued Form GST MOV-02.  The Proper officer noted in the said order that the person in charge of the conveyance had not tendered any document for the goods in movement and prima facie the documents tendered were found defective. Further, the Proper Officer also noted that the genuineness of the goods in transit, their quantity, etc., and/or the tendered document required further verification. It was stated that the E-way bill had not been tendered for the goods in movement and therefore, the vehicle was to be stationed at Belagavi and allow the physical verification and inspection of the goods in movement.

The Physical verification of the goods and conveyance was conducted in the presence of the person in charge of the goods vehicle and it was stated that the conveyance was carrying Areca nuts and there was a difference in the quality mentioned in the invoice and the quantity found upon the physical verification.

Procedural History

The Proper Officer passed an order of detention under Section 129 of the Central Goods and Service Tax Act, 2017 in Form GST MOV-06.

Deputy Director proceeded to issue a notice for confiscation of goods, conveyance, and levy of penalty under Section 130 of the CGST Act, in Form GST MOV-10.

Reply filed by the Rajeev Traders (Assessee ) to the notice issued By Deputy Director.

The Deputy Director granted the personal hearing to the authorized representative of the petitioner and proceeded to pass an order of confiscation under Section 130 of the CGST Act by issuing Form GST MOV-11.

Being aggrieved by the order of confiscation, the Rajeev Traders, preferred an appeal to the Joint Commissioner, Office of the Commissioner of GST & Central Excise (Appeals) under Sub-Section (11) of Section 107 of the CGST Act. However, Joint Commissioner concurred with the view taken by the Deputy Director and dismissed the Appeal.

As by the procedure, though an appeal is provided to the Appellate Authority under Sub-Section (1) of Section 112 of the CGST Act, since the Appellate Tribunal has not been constituted.

The Rajeev Trader (Petitioner) has preferred a writ petition before the Hon’ble Karnataka High Court.

(Note – Rajeev Trade is an Assessee however if one files a writ before the High Court the term used is Petitioner in that case.)

Issue

Whether the Proper Officer, while detaining the goods which are in transit in the exercise of his power under Section 129 of the Act, possesses the power to initiate proceedings to confiscate under Section 130 of the Act and thereafter conduct an inquiry and proceed to order confiscation of the goods?

Rule

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

• Notwithstanding anything contained in this Act, where any person transport any goods or stores any goods while they are in transit in contravention of the provision 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,—
• on payment of penalty equal to 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 penalty;
• on payment of penalty equal to fifty per cent. of the value of the goods or two hundred per cent of the tax payable on such goods, whichever is higher, and in case of exemptence 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 penality.
• 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.

• The provision of sub-section (6) of section 67 shall, mutatis mutandis, apply for detention and seizure of goods and conveyance.
• The proper officer detaining or seizing goods or conveyances shall issue a notice specifying the tax and penalty and thereafter, pass an order for payment of tax and penalty under clause (a) or clause (b) or clause (c).
• No tax, interest or penalty shall be determined under sub-section (3) without giving the person concerned an opportunity of being heard.
• 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.
• Where the person transporting any goods or the owner of the goods fails to pay the amount of tax and penalty as provided in sub-section (1) within fourteen days of such detention or seizure, further proceedings shall be initiated in accordance with the provision 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 fourteen days may be reduced by the proper officer.

Section 130 – Confiscation Of goods or conveyances and levy of penalty.

• Notwithstanding anything contained in this Act, if any person-
• 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
• Does not account for any goods on which he is liable to pay tax under this Act; or
• Supplies any goods liable to tax under this Act without having applied for registration; or
• Contravention any of the provision of this Act or the rules made thereunder with intent to evade payment of tax; or
• Uses any conveyance as a means of transport for carriage of goods in contravention of the provsions of this Act or the rules made thereunder unless the owner of the conveyance proves  that it was so used without the knowledge or conveyance, then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penality under section 122.
• Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation such fine as the said officer thinks fit;

Provided that such fine leviable shall not exceed the market value of the goods confiscated, less tax chargeable thereon:

Provided further that the aggregate of such fine and penalty leviable shall not be less that the amount of penality leviable under sub-section (1) of section 129:

Provided also that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

• Where any fine in lieu of confiscation of goods or conveyance is imposed under sub-section (2), the owner of such goods or conveyances or the person referred to in sub-section (1), shall in addition, be liable to any tax, penalty and charges payable in respect of such goods or conveyance.
• No order for confiscation of goods or conveyance or for imposition of penalty shall be issued without giving the person an opportunity of being heard.
• Where any goods or conveyances are confiscated under this Act, the title of such goods or conveyances shall thereupon vest in the Government.
• The proper officer adjuding consfication shall take an hold possession of the things confiscated and every officer of Police, on the requisition of such proper officer, shall assist him in taking and holding such possession.
• The proper officer may, after satisfying himself that the confiscated goods or conveyance are not required in any other proceedings under this Act and after giving reasonable time not exceeding three months to pay fine in lieu of confiscation, dispose of such goods or conveyance and deposit the sale proceeds thereof with the Government.

Analysis

The Court has examined the Central Goods and Service Tax, 2017 in detail and has observed the various features of the Act about the purpose to issue the Show Cause Notice, various Sections, why Notifications are Issued, etc… However, I will not provide the analysis in the same and stick to the discussion in Sections 129 and Section 130.

The Court has observed in various paras and the same is reproduced verbatim: –

The Court has observed that the power to confiscate is the ultimate penal measure provided under the Act and is, therefore, to be exercised with great care and caution and as a last measure. This power to confiscate, given the statutory framework, is a distinct and independent power conferred under the Act which can be exercised only in cases where the power to detain and seize has not been invoked. Once the power to inspect, seizure or detain the goods and conveyances is invoked either under Section 67 of the Act or under Section 129 of the Act, the power to confiscate under Section 130 would not be available. This is evident from Section 129 (6) which states that proceedings under Section 130 can be invoked only if the applicable tax and penalty are not paid despite an order being passed in that regard.

Further, the Court observed that the that if the owner of the goods or a person other than the owner comes forward to abide by the stipulations contained in Section 129, he is bound to release the goods and conveyances. If the owner of the goods or a person other than the owner comes forward to abide by the stipulations contained in Section 129, he is bound to release the goods and the conveyances. Thus, the positive obligation to release the detained goods cannot be bypassed or overridden by permitting the proper officer to invoke confiscation proceedings under Section 130 of the Act. It is also to be kept in mind that on goods and conveyances being detained under Section 129, there is a right vested in the owner of the goods and the owner of the conveyances to get the goods and the conveyances released subject to the fulfilment of the conditions prescribed in Section 129 and this vested right cannot be nullified by invoking confiscation proceedings under Section 130 of the Act.

Second by Virtue of Section 129(6) the power available to initiate confiscation proceedings would be available to the proper officer only if the owner of the goods or the conveyances fail to pay the applicable tax and penalty within 14 days. In the light of this provision, it would simply not be open for the proper officer to invoke the distinct power under Section 130 after he has invoked the power to detain the goods and conveyances under Section 129.

Thirdly, the proper officer cannot be given the discretion to choose the manner in which he would penalize the wrongdoer when the statutory framework has been designed in such a way that even a wrongdoer is treated leniently, if he chooses to acknowledge his wrongdoing by paying the applicable tax and the penalty even in the event he is found transporting the goods in contravention of the provisions of the Act. If the proper officer is given the option of imposing the extreme measures of confiscation for transporting the goods in contravention of the provisions of the Act, the true intent of the law which is only to collect the tax with penalty would be defeated and the proper officer would basically ensure that the entire goods vest in the Government apart from the imposition of the liability to pay the applicable tax and penalty.

The power to detain under Section 129 cannot be converted to a proceedings under Section 130 of the Act since both these provisions operate independently of each other and in completely different context. The power to detain is only to stop the transit of goods and thereby prevent its movement till the tax and penalty is paid. However, the power to confiscate is the process of divesting the owner of the goods of all title to the goods for a contravention of the provisions of the Act and the Rules. The intent behind conferring power to detain the goods under Section 129 is fundamentally to ensure that the applicable tax and penalty is recovered whereas the intent behind consfiscation under Section 130 is to divest the owner of the goods itself and also impose liability of payment of the applicable tax and penalty.

The Court is of the view that Section 129 and Section 130 of the Central Goods and Service Tax Act, 2017 are provisions that operate independently of each other. The Court further observed that in Section 129 (6) the power available to initiate confiscation proceedings would be available to the proper officer only if the owner of the goods or the conveyances fails to pay the applicable tax and penalty within 14 days. Wherein the owner of the goods or a person other than the owner comes forward to abide by the stipulation contained in Section 129, he is bound to release the goods and conveyance. Thus, the positive obligation to release the goods cannot be bypassed or overridden by permitting the proper officer to invoke confiscation proceedings under section 130 of the Act.

Conclusion

In my view, the court has laid down the distinction as to when the power of confiscation can be invoked by the officer under the provisions of the Central Goods and Service Tax, Act 2017. The court has rightly pointed out that in case the owner of the goods or a person other than the owner comes forward to abide by the conditions contained in Section 129, he is bound to release the goods and conveyance. Also, in the present case wherein the owner came forward to provide the penalty for the error, but the officer invoked Section 130 of the CGST, Act 2017 to confiscate the goods was not the right approach. The officer should have followed the letter of the law stipulated under Section 129 of the CGST, Act and shall have released the goods instead of invoking the provision of Section 130 of the CGST, Act 2017.

The author of this write-up can be reached at dachambersconnect@outlook.com for any discussion or clarification. Please feel free to drop me a mail.

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[1] Deepanshu Arora holds a degree in B. Com from the University of Delhi and Law