The Central Goods and Services Tax (CGST) Act 2017 is a comprehensive framework governing the taxation of goods and services in India. Among its various provisions, Section 129 plays a crucial role in the regulation of goods in transit. This section deals with the detention, seizure, and release of goods and conveyances, ensuring compliance with GST laws. Understanding Section 129 and its application is essential for businesses and tax practitioners to navigate the complexities of GST enforcement and avoid legal pitfalls.
Before deliberating on the subject, it would be trite to reproduce the said Section 129 of the CGST Act, as it stands today, which reads as under:
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 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 tax and penalty;
(b) on payment of penalty equal to the fifty per cent. of the value of the goods 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;
(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.
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(3) The proper officer detaining or seizing goods or conveyances shall issue a notice within seven days of such detention or seizure, specifying the 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) No 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 such goods fails to pay the amount of penalty under sub-section (1) within 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 fifteen days may be reduced by the proper officer.
Section 67 of the CGST Act deals with the Power of Inspection, Search and Seizure under GST Act. The said section reads thus:
(1) Where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that–
(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or
(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act, he may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.
(2) Where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things: Provided that where it is not practicable to seize any such goods, the proper officer, or any officer authorised by him, may serve on the owner or the custodian of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer:
Provided further that the documents or books or things so seized shall be retained by such officer only for so long as may be necessary for their examination and for any inquiry or proceedings under this Act.
(3) The documents, books or things referred to in sub-section (2) or any other documents, books or things produced by a taxable person or any other person, which have not been relied upon for the issue of notice under this Act or the rules made thereunder, shall be returned to such person within a period not exceeding thirty days of the issue of the said notice.
(4) The officer authorised under sub-section (2) shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied.
(5) The person from whose custody any documents are seized under subsection (2) shall be entitled to make copies thereof or take extracts therefrom in the presence of an authorised officer at such place and time as such officer may indicate in this behalf except where making such copies or taking such extracts may, in the opinion of the proper officer, prejudicially affect the investigation.
(6) The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.
(7) Where any goods are seized under sub-section (2) and no notice in respect thereof is given within six months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized: Provided that the period of six months may, on sufficient cause being shown, be extended by the proper officer for a further period not exceeding six months.
(8) The Government may, having regard to the perishable or hazardous nature of any goods, depreciation in the value of the goods with the passage of time, constraints of storage space for the goods or any other relevant considerations, by notification, specify the goods or class of goods which shall, as soon as may be after its seizure under sub-section (2), be disposed of by the proper officer in such manner as may be prescribed.
(9) Where any goods, being goods specified under sub-section (8), have been seized by a proper officer, or any officer authorised by him under sub-section (2), he shall prepare an inventory of such goods in such manner as may be prescribed.
(10) The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word ―Magistrate‖, wherever it occurs, the word ―Commissioner‖ were substituted.
(11) Where the proper officer has reasons to believe that any person has evaded or is attempting to evade the payment of any tax, he may, for reasons to be recorded in writing, seize the accounts, registers or documents of such person produced before him and shall grant a receipt for the same, and shall retain the same for so long as may be necessary in connection with any proceedings under this Act or the rules made thereunder for prosecution.
(12) The Commissioner or an officer authorised by him may cause purchase of any goods or services or both by any person authorised by him from the business premises of any taxable person, to check the issue of tax invoices or bills of supply by such taxable person, and on return of goods so purchased by such officer, such taxable person or any person in charge of the business premises shall refund the amount so paid towards the goods after cancelling any tax invoice or bill of supply issued earlier.
From the plain reading of both the sections 67 and 129 of the GST Act, it is evident that both the said sections operate in different situations and there is no overlapping between the two. Search under Section 67 can be undertaken by an officer not below the rank of Joint Commissioner only when he has reasons to believe that the assessee has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act. On the other hand Section 129 deals with the detention, seizure and release of goods and conveyances in transit. Section 129 can be invoked by any officer and not necessarily by the Joint Commissioner whereas Section 67 cannot be invoked by any officer below the rank of Joint Commissioner of GST. Moreover, the invocation of Section 67 is very stringent and the Jurisdiction arises only when the officer has ” Reasons to Believe “. The Courts have categorically held that ” Reasons to Believe” cannot be equated with “Reasons to Suspect” and therefore the Section 67 cannot be invoked on mere suspicion but there should be something much more credible & well founded. In legal terminology, the expression “reason to believe” postulates belief and the existence of reasons for that belief. The belief must be held in good faith. It cannot be merely a pretence. The expression “reason to believe” does not mean purely subjective satisfaction on the part of the authority in making the search but the reasons for the belief must have a rational connection or a relevant bearing for the formation of the belief, not extraneous or irrelevant for the said purpose.
It is often seen that GST officials seize goods kept in a Godown of the Assessee u/s 129 of the GST Act in spite of the fact that the said Section only relates to detention, seizure and release of goods and conveyances in transit. For seizure of goods kept in godown of the assessee, section 67 can be invoked if the basic postulates are present but in no case a static godown can be subjected to the rigours of section 129.
It would be trite to refer to the Allahabad High Court judgment in the case of Mahavir Polyplast Pvt. Ltd. vs State of U.P. And 2 Others decided on 6 August, 2022. The brief facts are that the assessee is a manufacturer of PVC pipes and also stores its raw materials and manufactured goods at a godown located on the same premises. It is not disputed that the assessee was not found involved in any transaction of transportation of any goods neither raw materials nor finished goods. The business premises of the petitioner was subjected to a search and seizure operation by Special Investigation Branch of the GST Department, Agra. As per the Department, there was shortage of physical stock as compared to that recorded in the stock registers. The assessee moved an application to the S.I.B. authorities denying the allegation of shortage of stock reconciliation as the stock of raw materials and finished goods stored at its other godown, in the same premises was not subjected to search and seizure proceedings. A show cause notice was thereafter issued with the description “Vahan Sankhiya UPGODOWN02”. Surprisingly, another show cause notice to the assessee with respect to “Vahan Sankhiya GODOWON”.
Pursuant to the above notices, seizure orders have been passed and Tax and penalty were demanded.
The Court quashed the demand towards Tax & Penalty and held thus:
“9. Insofar as seizure of goods and demand of tax under Section-129 of the Act is concerned, it is unbelievable that two (not one), authority of the Mobile Squad of Commercial Tax Department chose to act with negligence. The provision of Section 129(3) of the Act could not be invoked to subject a godown premises to search and seizure operation unmindful of the Act that no action was taken or contemplated under Section 67 of the Act, as that would have mandated existence of “reasons to believe”, to subject that premise to search and seize goods or documents found therein. Also, both authorities of the Commercial Tax Department namely, Sri Vijay Kumar-VIII, Assistant Commissioner (Mobile Squad)-5, Agra and Sri Prashant Kumar Singh-I, Assistant Commissioner (Mobile Squad)-2 Agra chose to exercise powers vested in them to search a vehicle carrying goods during transportation to proceed against goods lying in a godown.
10. They not only closed their eyes to the power and jurisdiction that never existed but they deliberately described the vehicle being checked as “UPGODOWN02” and “GODOWON” (as has been noted above). That description was given by them, deliberately. Therefore, they cannot deny that they were aware that the subject search was not directed at any vehicle but at an immovable property namely a godown premise.
11. The Court does not wish to go deeper into the intention of the officers concerned in issuing such notices and drawing up such proceedings for which they had no jurisdiction as that would entail calling of personal affidavits of the officers at the cost of precious time of the Court. However, the officers are accountable for their acts. Therefore, let this order be communicated to the Commissioner Commercial Tax UP to look into the matter, call for explanation and take appropriate action commensurate to the misconduct, if any, that may be found committed by the erring officers and to take consequential and corrective action to avoid such occurrences, in future.
12. Insofar as the present petitioner is concerned, the entire proceedings drawn up against it under Section 129(3) of the Act, are found to be without jurisdiction.
13. Accordingly, the orders dated 26.11.2019 and 22.11.2019 are quashed. Any amount that may have been deposited by the petitioner may be refunded together with interest at the rate 8%, subject to adjudication proceedings.”
In a recent Writ No. 1165 RIT of 2022 in the case of M/S. Poddar Trading Company vs. Commissioner, Commercial Tax U.P. And Another Order decided on 11.3.2024 a similar matter cropped up before the Allahabad High Court. Following the precedent in the case of Mahavir Polyplast Pvt. Ltd.v. State of U.P. and 2 others reported in (2022 U.P.T.C.[Vol.112]-1514) the Court reiterated thus:
“3. The factual matrix of the case is very clear that subsequent to search and seizure carried out under Section 67 of the Act, penalty proceedings have been launched against the petitioner under Section 129(3) of the Act.
4. Mrs. Pooja Talwar, learned counsel appearing on behalf of the petitioner has relied upon a judgement of the coordinate Bench of this Court in the matter of Mahavir Polyplast Pvt. Ltd.v. State of U.P. and 2 others reported in (2022 U.P.T.C.[Vol.112]-1514) to buttress her arguments that the penalty proceedings cannot be initiated when search and seizure is carried out at the godown of the petitioner. The relevant paragraphs are delineated below :-
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5. There does not seem to be any controversy with regard to the facts as penned in the writ petition with regard to the imposition of the penalty under Section 129 (3) of the Act, in spite of there being search and seizure carried out under Section 67 of the Act.
6. In light of the same, the entire proceedings that have been initiated have no feet to stand, and accordingly, the impugned orders dated June 15, 2018 and May 1, 2019 are quashed and set aside.”
The Allahabad High Court very recently on 9.5.2024 in Writ Tax No. – 1222 of 2019 in the case of M/S Fateh Chand Bhagwan Das vs. Additional Commissioner Grade-2 (Appeal) -2 Commercial Tax And Another reiterated the dictum in Mahavir Polyplast (supra) and Poddar Trading Company (supra) and observed thus:
“3. In the present case, the proceedings under Section 129(3) of the Act have been initiated subsequent to search of the business premises of the petitioner.
4. It has been categorically held by a coordinate Bench of this Court in Mahavir Polyplast Pvt. Ltd. Vs. State of U.P. and 2 others reported in (2022 U.P.T.C. [VOL.112] – 1514) and judgment of this Court in Poddar Trading Company vs. Commissioner, Commercial Tax, U.P. reported in (2024) 17 Centax 48 (All.) that search and seizure of the godown cannot result in penalty proceedings under Section 129 of the Act.
5. In light of the above, present proceedings are not justified, and accordingly, the impugned orders dated June 18, 2018 and June 14, 2019 are quashed and set aside.”
From the aforesaid, it is no longer Res Integra that GST Department can only seize goods in transit but cannot seize goods kept in a Godown of the Assessee u/s 129 of the GST Act nor can impose penalty u/s 129(1) of the GST Act in such cases.
Conclusion: Section 129 of the CGST Act is a vital provision for regulating the movement of goods and ensuring compliance with GST laws. However, its application is strictly limited to goods in transit, and any deviation from this can lead to legal invalidation, as affirmed by various high court rulings. Businesses must ensure adherence to the appropriate provisions to avoid unnecessary penalties and litigation. Understanding the clear demarcation between Sections 67 and 129 is essential for proper compliance and safeguarding against unjust enforcement actions.
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