Detention & Confiscations of Goods & Conveyances in Transit and Penalties

Summary: Section 129 of the CGST Act governs the detention, seizure, and release of goods and conveyances in transit when there is a violation of GST law. It grants authorities the power to detain or seize goods and vehicles if any tax-related non-compliance is found. Significant amendments were introduced through the Finance Act, 2021, effective from January 1, 2022. The updated provisions increased penalties for non-compliance, requiring higher payments for the release of goods depending on whether the owner comes forward to claim them. The pre-deposit requirement for filing an appeal against detention or seizure orders has also risen from 10% to 25% of the penalty. The process for releasing goods provisionally requires furnishing a bond or security. Detention procedures include issuing a notice within 7 days, followed by a penalty order within the next 7 days. Judicial decisions have emphasized adherence to these timelines, ruling that delays invalidate proceedings. If penalties remain unpaid, the seized goods may be sold. These updates impact businesses by increasing financial burdens in cases of genuine errors.

Sec 129 of the CGST Act provides for the provisions relating to detention or seizure of goods or conveyances” or both in case of certain defaults under the GST law. In common parlance, meanings of the terms – detention and seizure are understood as under:

• Detention means keeping or holding back either by force or otherwise;
• Seizure means to take forcible possession of.

It is pertinent to note that certain amendments has been made in sec 129 of the CGST Act vide the Finance Act, 2021 notified vide notification no. 39/2021-central tax dated 21.12.2021 w. e .f. 01.01.2022.

Detention/seizure of goods and documents thereto:

In terms of sec 129(1) of the CGST Act, if any person transports any goods or stores any goods while they are in transit, in contravention of the provisions of the GST Act or rules made thereunder, all such goods and the 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.

The provision starts with the non-obstante clause. A non-obstante clause is generally appended to a section with a view to give the enacting part of the section, in case of conflict, an overriding effect over the other provisions in the same section or other acts mentioned in the non-obstante clause.

Further, this section is so wide that goods or conveyance used as a means of transport along with all documents relating such goods and conveyance are liable for detention or seizure if there is any violation of the GST law and rules made thereunder. No goods or conveyance detained unless order passed of detention or seizure:

Payment of penalty for release of seized goods:

Later part of sec 129(1) of the CGST Act provides that after detention or seizure, the said goods and conveyance as well as the relevant documents shall be released in the following manner:

Sec 129 (1) as amended vide the Finance Act, 2021, w. e. f. 01.01.2022:

As GST is a self-assessed regime, it can be inferred from sub-sec (1) of sec 129 of the CGST Act, that in case of seizure of goods, the statute has kept in mind the mitigating factor when owner of such goods come forward for release of the goods

It is to be noted that a new proviso has been inserted to sec 107(6) of the CGST Act vide the Finance Act, 2021 dated 28.03.2021 notified vide notification no. 39/2021-central tax dated 21.12.2021 w.e.f. 01.01.2022, which provides that, no appeal shall be filed against an order under sec 129(3) of the CGST Act (i.e., passing of order by the proper officer detaining or seizing goods or conveyance, for payment of penalty), unless a sum equal to 25% of the penalty has been paid by the appellant.

Whereas earlier, there was a requirement to deposit 10% of the disputed tax liability to a maximum of INR 25 crores (totaling to INR 50 crores for both CGST & SGST),, as pre-deposit in case of first appeal, which has been increased to 25% of the penalty amount in case of detention and seizure of conveyance and goods during transit vide the Finance Act, 2021 notified vide notification no. 39/2021-central tax dated 21.12.2021 w. e. f. 01.01.2022.

From co-joint reading of amended sec 129(1) and 107(6), it is certain that the amount of pre-deposit required for filing an appeal in cases of detention and seizure of vehicle has been increased significantly as the penalty has been doubled and the percentage of pre-deposit has been increased from 10% of the disputed tax amount to 25% of the penalty for filing appeal thereof. Such enhancement in pre-deposit sum is unquestionably unusual from all other circumstances in which pre-deposit is only restricted to 10% of disputed tax.

The right to appeal is a statutory right, and the provisions related to the same should be worded in such a way that the rights of the taxpayers does not amounts to barrier to cash outflow. As the activity of dispatching goods is a routine business activity, such seizure or detention on the basis of some genuine mistakes will be a barrier in the smooth functioning of business activities, and such a massive increase in the rate of pre-deposit will undoubtedly harm the genuine taxpayers and will also have an impact on cash flow.

> Departmental clarification:

Circular no. 76/50/2018 – central tax dated 31.12.2018 (relevant extract):

Clarification w.r.t. owner of the goods:

This circular clarifies that if the invoice or any other specified document is accompanying the consignment of goods, then either the consignor or the consignee should be deemed to be the owner. But if the invoice or any other specified document is not accompanying the consignment of goods, then in such cases, the proper officer should determine who should be declared as the owner of the goods.

Example: (For the period 01.07.2017 to 31.12.2021):

Mr. Deepak (owner), a registered taxable person is getting its goods (taxable @ 18%) amounting to INR 10, 00, 000/- (exclusive of GST) transported, without cover of an invoice and an e-way bill.

In this case, the said goods and the vehicle carrying such goods shall be liable to detention or seizure. If detained or seized, the goods of Mr. Deepak would be released on payment (a) Where Mr. of the following amounts

(a) Where Mr. Deepak, comes forward for the payment of tax and penalty:

(b) Where Mr. Deepak, does not come forward for the payment of tax and penalty

 Example (W. e. f. 01.01.2022):

Mr. Deepak (owner), a registered taxable person is getting its goods (taxable @ 18%) amounting to INR 10, 00, 000/- (exclusive of GST) transported, without cover of an invoice and an e-way bill.

In this case, the said goods and the vehicle carrying such goods shall be liable to detention or seizure. If detained or seized, the goods of Mr. Deepak would be released on payment of the following amounts:

a) Where Mr. Deepak, comes forward for the payment of penalty:

Bond and security for release of seized goods, conveyance or documents:

Clause (c) of sec 129(1) of the CGST Act talks about provisional release of seized goods or conveyance or documents by furnishing security equivalent to the amount payable under clause (a) and (b) of sec 129(1) ibid discussed supra.

Further, in this regard, earlier, for detention and seizure of goods and conveyances, sec 129(2) of the CGST Act provided that the security for provisional release, shall be furnished on similar lines (mutatis mutandis), as applicable in case of seizure made in case of inspection and search wherein, sec 67(6) of the CGST Act was applicable.

As per sec 67(6) of the CGST Act r. w. rule 140(1) of the CGST Rules, the seized goods may be released on provisional basis upon execution of a bond for the value of the goods in Form GST INS-04 and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable

Further, as per rule 140(2) of the CGST Rules, in case the person to whom the goods were released provisionally, fails to produce the goods at the appointed date and place indicated by the proper officer, the security may be liable to be en-cashed and adjusted against the tax, interest, penalty and fine payable, if any, payable in respect of such goods

Period of issuance of notice and passing of order:

> W.e.f. 01.01.2022:

The proper officer detaining/seizing the goods, have to issue a notice (Form GST MOV- 07) within 7 days specifying the penalty payable and pass an order (Form GST MOV-09) within next 7 days after service of such notice, whereas earlier there was no such time limit provided. [Sec 129(3) of the CGST Act].

> Judicial outlook:

Order passed under sec 129(3) without hearing the assessee to be set aside

Where Competent Authority had seized goods of assessee under transport as well as vehicle and vide order passed under sec 129(3) demanded tax and penalty, since Appellate Authority without hearing assessee upheld impugned order, order of Appellate Authority was to be set aside and matter was to be remanded back to him for decision afresh Allahabad HC in Swastik Traders v. State of U.P. [2019 (29) G.S.T.L. 389 (All.)]

Demand order cannot be passed beyond the period of 7 days from the date of service of notice

Order of detention passed beyond the timelines stipulated under sec 129(3) of the CGST Act, is a serious flaw, which vitiates the proceedings for interception in full and in entirety. A notice of detention of goods must be served by the proper officer within seven days of such detention and an order for payment of penalty must be passed within seven days of service of such notice – Madras HC in Deepam Roadways v. Deputy State Tax Officer [W.P. No. 476 Of 2023 And Or’s. dated 23.01.2023]

• Confiscation to be initiated on failure to make payment:

 > W.e.f. 01.01.2022:

As per sub-sec (6) of sec 129 of the CGST Act, if the person (either the person transporting the goods or owner of the goods) fails to pay the penalty under sec 129(1) ibid, within fifteen days from the date of receipt of the copy of the order passed under sec 129(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 sec 129(3).

Provided that the conveyance shall be released on payment by the transporter of penalty under sec 129(3) or one lakh rupees, whichever is less [first proviso to sub-sec (6) of sec 129 of the CGST Act].

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 fifteen days may be reduced by the proper officer [second proviso to sub-sec (6) of sec 129 of the CGST Act).

Delinking sec 129 from sec 130 of the CGST Act: Amendment in sec 129(6) of the CGST Act w.e.f. 01.01.2022 vide the Finance Act, 2021 dated 28.03.2021, delinks the proceedings under sec 129 of the CGST Act relating to ‘detention, seizure and release of goods and conveyances in transit’, from the proceedings under sec 130 of the CGST Act relating to ‘confiscation of goods or conveyances and levy of penalty’.

Cases wherein detention of goods may not be initiated: Circular no. 64/38/2018-GST dated 14.09.2018 (relevant extract):

In a case where consignment of goods is accompanied with an invoice or any other specified document and also an e-way bill, proceedings under sec 129 of the CGST Act may not be initiated in following situations:

i. Spelling mistakes in the name of the consignor or the consignee but the GSTIN, wherever applicable, is correct

ii. Error in the pin-code but the address of the consignor and the consignee mentioned Is correct, subject to the condition that the error in the PIN code should not have the Effect of increasing the validity period of the e-way bill

iii. Error in the address of the consignee to the extent that the locality and other details of the consignee are correct

iv. Error in one or two digits of the document number mentioned in the e-way bill

v. Error in 4 or 6 digit level of HSN where the first 2 digits of HSN are correct and the rate of tax mentioned is correct

vi. Error in one or two digits/characters of the vehicle number

Further, it is clarified that for such cases, penalty to the tune of INR 500/- each under sec 125 of the CGST Act and SGST Act (INR 1,000/- under the IGST Act) should be imposed in Form GST DRC-07 for every consignment. A record of all such consignments where proceedings under sec 129 of the CGST Act, have not been invoked in view of these situations shall be sent by the proper officer to his controlling officer on a weekly basis.

> Judicial outlook:

Goods to be released on execution of bond

Issue of misclassification and undervaluation to be handled by respective assessing officers and not by detaining officer. Inter alia, held to release of the goods on the execution of simple bond without sureties Kerala HC in Sameer Mat Industries v. State of Kerala [2018 (10) G.S.T.L. 136 (Ker.)]

Detention cannot be made on non-filing of return

On -filing of GSTR-3B returns from June, 2018 and GSTR-1 from March, 2019 cannot be a ground for detention under sec 129 of CGST Act. Goods directed to be released forthwith- Kerala HC in

Relcon Foundations (P) Ltd. v. Assistant State Tax Officer, KGST Dept., Kasaragod [2019 (31) G.S.T.L. 397 (Ker.)]

Under valuation of a goods in the invoice cannot be a ground for detention of the goods and vehicle

Under valuation of a goods in the invoice cannot be a ground for detention of the goods and vehicle for a proceeding to be drawn under sec 129 of the CGST Act read with rule 138 of the CGST Rules. Held that, proceedings of detention and seizure of the goods and the vehicle by the revenue department is without any authority of law. Set aside the order passed under sec 129 and the order of demand of tax and penalty both being unsustainable and directed the revenue department to release the goods based on the invoice bill as well as the e-way bill – Chhattisgarh HC in K.P. Sugandh Ltd. v. State of Chhattisgarh & Or’s. [WPT No. 36 of 2020 WPT No. 49 of 2020 dated 16.03.2020]

> CONFISCATION OF GOODS OR CONVEYANCES AND LEVY OF PENALTY

Sec 130 of the CGST Act, provides for specific situations or causes leading to confiscation of goods/conveyances. The nature of authorization to confiscate and providing an opportunity to show cause and release of confiscated goods/conveyances are detailed in this section.

The term “confiscation” has not been defined in the GST Act or Rules thereunder, reliance has been placed on following law dictionaries to understand its meaning:

Option to pay fine in lieu of confiscation of goods:

As per sec 130(2) of the CGST Act, whenever confiscation of any goods or conveyance is authorized by the GST law, 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. However, the amount of fine leviable shall not exceed the market value of goods as confiscated, reduced by the amount of tax chargeable thereon [first proviso to sec 130(2)]. At the same time, aggregate of such fine and penalty leviable shall not be less than the amount of penalty equal to 100% of the tax payable on such goods [second proviso to sec 130(2)].

Further, where any such conveyance is used for carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of confiscation of the conveyance, a fine equal to the amount of tax payable on the goods being transported on his conveyance [third proviso to sec 130(2)].

No order of confiscation of goods and/or imposition of penalty without giving show cause opportunity     of being heard:

As per sec 130(4) of the CGST Act, 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.

Goods/conveyance belong to the government after confiscation:

Sec 130(5) of the CGST Act provides that where any goods or conveyance are confiscated under GST Act, then the title of such goods or conveyance shall thereupon vest in the government.

> Judicial outlook:

General principles for detention and confiscation – Synergy between seizure and confiscation under GST:

Sec 129 and 130 of the CGST Act both start with a non-obstante clause, yet, the harmonious reading gof the two sections, keeping in mind the object and purpose behind the enactment thereof, would indicate that they are independent of each other. Sec 130 of the CGST Act, which provides for confiscation of the goods or conveyance is not, in any manner, dependent or subject to Sec 129 of the CGST Act. Both the sections are mutually exclusive.

The phrase “with an intent to evade the payment of tax” in sec 130 of the CGST Act assumes importance. When the law requires an intention to evade payment of tax, then it is not mere failure to pay tax. It must be something more. The assessee must deliberately avoid the payment of tax which is payable in accordance with law. However, the element of mens rea cannot be read into sec 130 of the CGST Act.

Even if the goods or the conveyance is released upon payment of the tax and penalty under sec 129 of the CGST Act, later, if the authorities find something incriminating against the owner of the goods in the course of the inquiry, if any, then it would be permissible to them to initiate the confiscation proceedings under sec 130 of the CGST Act.

CONFISCATION OR PENALTY NOT TO INTERFERE WITH OTHER PUNISHMENTS

Sec 131 of the CGST Act is an administrative provision which empowers the government to initiate other proceedings, as relevant, in addition to confiscation of goods or imposition or penalty under the GST Act.

Sec 131 of the CGST Act provides that the confiscation made or penalty imposed under the provisions of GST law or rules made thereunder, shall not prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of GST Act or under any other law for the time being in force.

Such other proceedings can be that of prosecution, arrest, cancellation of registration etc. as applicable and provided for the relevant non-compliances. Thus, confiscation made, or penalty imposed cannot relieve the person from other punishments, as may be applicable. It needs to be appreciated that, generally, there are confusions regarding levy of tax on a particular transaction, when new taxation regime emerges. Accordingly, if the assessee does not discharge its tax liability due to confusion regarding levy of tax, the same should not be considered as fraud, suppression or willful mis-statement by the assessee.

As the case of pro-revenue approach is trending in advance rulings and other adjudication, it needs to be ensured that the same does not extend to levying penalties under chapter XIX of the CGST Act. The proceedings, examination of goods and documents are required to be conducted in a judicious manner to serve the real purpose of making GST, a good and simple tax.

Sec 129 of the CGST Act validates detention and seizure of goods/conveyance and consequently levying penalty as high as 200% of tax payable even for any contravention of provisions of the GST Act and Rules made thereunder, irrespective of there being any intent to evade taxes or not.

It is suggested that sec 129 of the CGST Act may be amended to restrict levying of penalties only in cases where there is intent to evade taxes Further, suitable provision must be incorporated which allows releasing of goods without levying penalty once the proof of payment of appropriate tax is shown with a mere technical or clerical or procedural breach is shown or proven by the taxable persons.