The first petitioner consigned a load of Roja betel nut to the second petitioner, at Kerala. It entrusted the consignment to the ABT Parcel Service for transportation. In the invoice, the first petitioner described the commodity with “HSN 0802”, and paid the tax at 5%. The first petitioner also raised the e-way bill.
On 26.09.2018, the Assistant State Tax Officer (ASTO), intercepted the lorry when it reached Palakkad. The lorry had been carrying other goods, too. The ASTO detained the goods, alleging that the first petitioner’s product fits the description “HSN 2106” and attracts 18% tax-not 5%. In other words, the ASTO detained the goods because the petitioners had allegedly been trying to evade tax by mis-describing the product.
Decision of the High Court
The HC held that if the records he seizes truly reflect the transaction and the assessee’s explanation accords with his past conduct, for example, the returns he has filed earlier, the detention is not the answer. At best the inspecting authority can alert the assessing authority to initiate the proceedings “for assessment of any alleged sale, at which the petitioner will have all his opportunities to put forward his pleas on law and on fact.” The process of detention of the goods cannot be resorted to when the dispute is bona fide, especially, concerning the exigibility of tax and, more particularly, the rate of that tax.
The High Court while deciding as above relied on the case of J.K. Synthetics Limited Vs Commercial Tax Officer – (1994) 4 SCC 276 and Rams vs Sales Tax Officer. The order of detention was held arbitrary and unsustainable, and was accordingly set aside.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
The first petitioner is a manufacturer of “Ground Betel Nuts (Arecanuts)” with the brand name “Roja”. The second petitioner is a registered dealer of that product. The first petitioner is an assessee under the Goods and Services Tax Act (“GST Act”), in Tamil Nadu; so is the second petitioner on the roles of the third respondent.
2. The first petitioner consigned a load of Roja betel nut to the second petitioner, through the Exhibit P9 tax invoice, dated 22.09.2018. It entrusted the consignment to the ABT Parcel Service for transportation. Indeed, in the Exhibit P9 invoice, the first petitioner described the commodity with “HSN 0802”, and paid the tax at 5%. The first petitioner also raised the Exhibit P10 e-way bill.
3. On 26.09.2018, the Assistant State Tax Officer (ASTO), the fourth respondent, intercepted the lorry when it reached Palakkad. The lorry had been carrying other goods, too. The ASTO detained the goods, alleging that the first petitioner’s product fits the description “HSN 2106” and attracts 18% tax–not 5%. In other words, the ASTO detained the goods because the petitioners had allegedly been trying to evade tax by misdescribing the product.
4. Served with the Exhibit P11 detention notice, dated 26.09.2018, the petitioners’ authorised representative met the ASTO and explained about the genuineness of the transport. He tried to impress upon the authority that there was neither misclassification nor evasion of tax. But the ASTO remained unconvinced. Aggrieved, the petitioners filed this Writ petition.
5. The petitioners seek the Court to (a) declare that the petitioners’ “Arecanut Ground” with HSN 0802 attracts GST only at 5%, as in item falling under Serial No. 28 of Schedule I of G.O.(P) No. 62/2017/TAXES, as amended; (b) direct the authority not to detain the petitioners’ commodity en route alleging that the rate of tax is 18% and not 5% as shown in the invoices; (c) direct the ASTO to release the lorry and goods (arecanut) covered by the Exts.P9 and P10, as carried in Lorry No. TN-37-BS-9384, forth with. Submissions:
6. In the above factual backdrop, Sri Mayankutty Mather, the petitioners’ counsel, has submitted that the petitioners’ consignment carried all the valid documents. His singular contention is that the petitioners cannot be accused of evading tax; the worst that can be attributed to them is about the correct rate of tax. The dispute about the rate of tax, according to him, is not a matter for adjudication in a proceeding under Section 68 or 129 of the GST Act.
7. The adjudication of the rate-issue is a matter to be undertaken by the assessing officer alone, but not by the inspecting officials exercising powers under Sections 67, 68, 69 or 129 of the CGST Act/ KGST Act, 2017. To support this proposition, Sri Mather relies on Rams v. Sales Tax Officer1.
8. Sri Mather has asserted that the fourth respondent has indulged in sheer speculation: that the ”arecanut ground” carries HSN 2106 and attracts 18% tax. But it finds no statutory base. In this context, he relies on M/s. Crane Betal Nut Powder Works v. Commissioner of Customs and Central Excise, Tirupati2. He also contends that ASTO’s detaining the consignment is arbitrary, unjust, and without jurisdiction, too.
9. To elaborate, Sri Mather submits that the detention power conferred on the officers, either under Section 68 or Section 129, must be exercised only under the circumstances and grounds set out in those provisions. He also submits that Section 122 of the GST Act defines the offences warranting imposition of penalty. Misclassification of goods in the invoice, according to him, is not an offence falling under either Section 122, 67, or 68 of the Act. 1 1993 (91) Sales Tax Cases 216 2 (2007) 4 SCC 155
10. About the HSN Code, too, Sri Mather has extensively argued. But I reckon the adjudicatory scope of this writ petition confines itself to detention and release of goods. Classification–or rather misclassification–of a commodity is not within the scope of this writ; that issue goes beyond it.
11. In the end, Sri Mather underlines the difficulties the petitioners’ face with frequent detention merely on the allegation of missbranding; he urges this Court to allow the writ petition. Respondents’:
12. On the other hand, Dr. Thushara James, the Government Pleader, has straightaway drawn my attention to Section 129 of the Act. According to her, the ASTO has plenary powers under that Section to intercept any goods and detain them on any ground enumerated in that Section.
13. To match the forensic skills of the petitioners’ counsel, Dr. James has not only made me test the samples of Roja betel nut but also displayed to me different arecanuts, beginning from the whole nut to the ground pieces of various sizes, as well as powder.
14. Dr. James too has spent much time on the distinction among the HSN codes, to hammer home her contention that the petitioners’ product has been misbranded. According to her, the ASTO’s entertaining a doubt about the misclassification and the exigibility of tax at a particular rate cannot be assailed. Referring to the Exts.P8 and P8(a) returns, Dr. James contends that returns are filed under the statutory mandate. Unless those returns are subjected to scrutiny and upheld, they remain, according to her, the assessee’s mere self-declaration. She thus asserts that a return can only mean a true and correct return, accepted by the authorities on scrutiny and verification.
15. To elaborate on the tax regime and the statutory scheme, Dr. James has taken me through various provisions including Sections 31, 95, and 122, besides Rule 46 of the KSGST Rules. She repeatedly stressed that the petitioners have an efficacious alternative remedy and that they ought to have taken recourse to it. For her, the petitioners’ effort before this Court is premature, and any adjudication at this stage will stultify the statutory authority’s efforts at fair adjudication.
16. Heard Sri Mayankutty Mather, the petitioners’ counsel, and Dr. Thushara James, the Government Pleader. Discussion:
17. The facts are not in dispute. The first petitioner manufactures and markets “Roja” betel nut for human consumption, and the second petitioner is one of the dealers; both have been registered under the GST regime. The load of Roja betel nut sent to the second petitioner was intercepted and detained en route.
18. The ASTO, the detaining authority, served on the lorry driver the Exhibit P11 detention notice. In fact, the Exhibit P11 is a bunch of documents. The first one is an order for a physical verification. Among the printed grounds for detention, one is found ticked: Prima facie the documents inspected are defective. But the respondents could not demonstrate before this Court which document is defective. The second ground, a handwritten one, reads: “as per the documents accompanying, the tax rate shown is 5% for Roja supari, which is coming under 18% as per HSN 2106.”
19. The ASTO in all the documents describes the commodity as supari. In fact, the branding and taxing of the product turn on its classification. Is it simple betel nut ground to a particular size with certain additions for easy human consumption? Has the product lost its character as betel nut? On the other hand, is the petitioners’ product supari, which is distinctively a different product, having betel nut as one of its ingredients?
20. Granted, Mr. Mather relied on the Supreme Court’s Crane Betal Nut Powder Works. Further granted, the Supreme Court in that has held that “by crushing betel nuts and processing them with spices and oils, a new product could be said to have come into being which attracted duty separately under the Schedule to the Tariff Act.”
21. Then, the Court has held that the process of manufacture employed by the appellant company did not change the nature of the end product: “The betel nut remains a betel nut”. Sri Mather has also produced literature before the Court, besides the brochures of supari producers, to underline what supari is and how it differs from mere betel nut powder or granules.
22. Dr. James is quick to contradict the petitioners’ efforts to demonstrate that the product has never lost its character as betel nut, and that it attracts only the HSN Code mentioned in the invoices. According to her Crane Betal Nut Powder Works involves the interpretation of the Central Excise Tariff Actand the Rules. And that decision, according to her, does not apply here. She also stresses that the product description or classification has suffered changes in the new GST regime, compared to what it was under the KVAT Act.
23. But I am afraid the classification or the alleged misbranding of the product–even the alleged tax variation, not evasion though–cannot be considered here. As I have observed earlier, the writ’s province is restricted. It is, indeed, for the assessing authorities to adjudicate on the issue. So I refrain from examining, much less pronouncing on, the nature of the product.
24. Detention under the KSGST Act has an elaborate remedial mechanism. Now, we focus on the release of the product, and it lies in narrow confines. Suffice it for me to examine this singular issue: Can the State Tax Officer invoke Section 129 of the Act and detain goods on the ground the tax paid on the product is less? Here, the documents are in order and the product description accords with what the first petitioner has already declared, say, in his returns before the assessing authority. Then, can the ASTO still hold up the consignment because the declaration already made does not suit his notion of what the product is?
25. True, a literal reading of Section 129 of the Act presents a different picture and, perhaps, lends support to the State’s view. But purposive interpretation and the practical commercial considerations trump that view.
26. Chapter XVI of the Combined Acts deals with inspection, search, and seizure. Section 129under Chapter XIX provides the mechanism for detention, seizure, and release of goods and conveyances in transit. It begins with a non-obstante clause and goes on to lay down the procedure. If any person transports or stores any goods “contravening this Act” or its rules, all those goods and means of transport and documents relating to those goods and conveyance will be detained or seized. They will, however, be released to the owner of the goods (a) on its paying the applicable tax and penalty equal to one hundred percent of the tax payable on the goods. If the goods belong to an exempted category, a different rate applies, though.
27. The Revenue asserts that there is “contravention”, and that contravention concerns misbranding the product and paying less tax. Under the erstwhile Kerala Value Added Tax Act, the first petitioner and those trading in the same product–betel nut–have had many rounds of litigation. Eventually, as seen from the Exts.P1 to P5 proceedings, this Court and the Revenue accepted that the product is not supari and it attracts lesser tax. The Exts.P6, P6(a), P7, and P7(a) are the first petitioner’s purchase and supply invoices.
28. The Exts.P8 and P8(a) are important; they are the first petitioner’s recent GST returns for June and August, 2018. In those returns, the first petitioner has assigned the same HSN Code, as he did reflect in the Ext.P9 invoice. He paid tax only at 5%. Thus the documents before the assessing authority and those that accompanied the consignment accord with one another.
29. In this context, we may examine J.K. Synthetics Limited v. Commercial Taxes Officer3. On how to interpret Tax Statutes, the Supreme Court has held that charging provisions must be construed strictly, but not the machinery provisions, “which should be construed like any other statute”. It has also held that “the power to levy and collect interest is substantive law though part of machinery provision”.
30. In J.K. Synthetics Limited the issue was whether the appellant should pay interest on the additional sales tax. The Revenue, as it has done here, contended that when the law enjoins on the Assessee to files a ‘return’, it can only mean a true and correct return, that is, a return which reflects the tax due on final assessment. The Supreme Court in that context has held that the information to be furnished in the return “must be ‘correct and complete’, that is, true and complete to the best of knowledge and belief, without the dealer being guilty of wilful omission.” The dealer, according to J. K. Synthetics Limited, must deposit the full tax due, based on the information furnished. And that information must be correct and complete to the best of the dealer’s knowledge and belief. If the dealer has furnished full particulars regarding his business, without wilfully omitting or withholding any particular information affecting the assessment of tax, and if he honestly believes to be ‘correct and complete’, the dealer is said to have acted ‘bona fide’ in depositing the tax due and filing the return. Of course, the tax so deposited is to be deemed to be provisional and subject to necessary adjustments under the final assessment.
31. To support its ratio, J.K. Synthetics Limited accepts the minority of view in Associated Cement Co. Ltd.. v. CTO4. And it has finally held that if the assessee pays the tax, which according to him is due based on the information supplied in his return, there would be no default on his part to meet his statutory obligation. Therefore, it would be difficult to hold that the ‘tax payable’ by him ‘is not paid’ and that he is liable for consequences.
32. The correctness of the Exts.P8 and P8(a) accepted, as held in J. K. Synthetics Limited, we will examine what amounts to statutory violation or contravention under Section 129of the Act. Apt is the case decided by this Court: Rams v. Sales Tax Officer. The petitioner in Rams contracted with the Government of India to print and supply a large number of telephone directories. For this purpose, he procured paper from the Tamil Nadu government agency. When the paper was under transport, at Kochi a sales tax officer detained the lorry, under Section 29A(2) of the Kerala General Sales Tax Act, 1963.
33. The detention was because the petitioner, an unregistered dealer, had allegedly attempted to evade the sales tax. The petitioner’s producing all the documents had no impact. Instead, the detaining officer insisted on the petitioner’s furnishing bank guarantee for certain sum as a condition for release of the goods, pending enquiry.
34. The order in enquiry affirmed that the Enquiry Officer was “satisfied” that there was attempt at evasion of tax. So the penalty followed. In this context, a learned Single Judge of this Court has observed that when there is scope for a genuine dispute regarding any liability for tax, the question of detaining the goods at the check-post or imposing penalty under Section 29 Adoes not arise. There is a ground for a genuine dispute whether there was any taxable sale at all. Rams, then, further observes:
“In such cases it is not for the check-post authority to act on mere suspicion and to find that there is any attempt at evasion of payment of tax, which alone vests him with the jurisdiction to act under S. 29A. At best, he can only alert the assessing authority in Ernakulam to initiate proceedings for assessment of any alleged sale, at which the petitioner will have all his opportunities to put forward his picas on law and on fact. The process of detention of the goods at the check post, cannot be resorted to in such cases when there is a bona fide dispute regarding the very existence of a sale and exigibility for tax. S. 29 A is not intended to subserve such an object.
35. I may examine the impugned Ext.P11 notice, or in other words the act of detention, in the light of the dicta in J.K. Synthetics Limited and Rams. In the former, the Supreme Court has emphatically held that if the dealer furnishes all particulars about his business, assesses the tax as he honestly believes to be correct, and pays it; his conduct cannot be faulted as mala fide or as an effort to evade tax. Here, the Exts.P8 and P8(a) are the returns for two recent months. The first petitioner declared the HSN Code he has felt his product would attract and paid the tax accordingly. The returns are very much on record before the assessing officer. Therefore, to that extent the first petitioner’s conduct cannot be faulted, nor can he be accused of evading the tax.
36. Then, I may examine the dictum of Rams, a judgment rendered by this Court. In somewhat an analogous situation as we face here, Rams held that the inspecting authority may entertain a suspicion that there is an attempt to evade tax. But if the records he seizes truly reflect the transaction and the assessee’s explanation accords with his past conduct, for example, the returns he has filed earlier, the detention is not the answer. In the words of Rams, at best the inspecting authority can alert the assessing authority to initiate the proceedings “for assessment of any alleged sale, at which the petitioner will have all his opportunities to put forward his pleas on law and on fact.” Indeed, emphatic is the enunciation of law in Rams that the process of detention of the goods cannot be resorted to when the dispute is bona fide, especially, concerning the exigibility of tax and, more particularly, the rate of that tax. Conclusion:
37. I reckon that the case before me falls within the adjudicatory ambit of both J.K. Synthetics Limited and Rams. I, accordingly, hold that the Ext.P11 is arbitrary and unsustainable, and is accordingly set aside. As a result, the Assistant State Tax Officer will release the goods forthwith.
38. I, however, clarify that this Court has not given any judicial imprimatur to the petitioners’ classification of goods or the HSN Code they have applied. The Revenue is at liberty to initiate appropriate proceedings if they deem it fit on the issue of alleged misclassification and the rate of tax.
No order on costs.
DAMA SESHADRI NAIDU JUDGE jjj APPENDIX PETITIONER’S/S EXHIBITS:
EXHIBIT P1 TRUE COPY OF THE PROCEEDINGS OF THE COMMISSIONER, COMMERCIAL TAXES IN C.3.25772/07 DATED 14/01/208.
EXHIBIT P2 TRUE COPY OF THE JUDGMENT OF THIS HON’BLE COURT IN WP(C)NO.25214/07 AND CONNECTED CASES DATED 10/06/2008.
EXHIBIT P3 TRUE COPY OF THE CLARIFICATION ORDER ISSUED BY THE COMPETENT AUTHORITY FOR CLARIFICATION DATED 30/11/2012.
EXHIBIT P4 TRUE COPY OF THE JUDGMENT OF THIS HON’BLE COURT IN OT APPEAL NO.2/2013 AND CONNECTED CASES DATED 03/09/2013.
EXHIBIT P5 TRUE COPY OF THE CLARIFICATION ORDER PASSED BY THE COMPETENT AUTHORITY FOR CLARIFICATION DATED 03/03/2015.
EXHIBIT P6 TRUE COPY OF THE 1ST PETITIONER’S PURCHASE INVOICE OF ARECANUT DATED 10/07/2018.
EXHIBIT P6 A TRUE COPY OF THE 1ST PETITIONER’S PURCHASE INVOICE OF ARECANUT DATED 10/07/2018.
EXHIBIT P7 TRUE COPY OF THE SUPPLY INVOICE DRAWN BY THE 1ST PETITIONER IN THE NAME OF ITS DEALER-
KAMAKSHI AGENCIES, ALUVA DATED 25/09/2018. EXHIBIT P7 A TRUE COPY OF THE SUPPLY INVOICE OF THE 2MND PETITIONER TO ITS DEALER DATED 27/09/2018. EXHIBIT P8 TRUE COPY OF THE LATEST GST RETURN OF THE 1ST PETITIONER FOR THE RETURN PERIOD AUGUST 2018 DATED 07/09/2018.
EXHIBIT P8 A TRUE COPY OF THE LATEST GST RETURN OF THE 2ND PETITIONER FOR THE RETURN PERIOD JUNE, 2018 DATED NIL.
EXHIBIT P9 TRUE COPY OF THE INVOICE NO.537 RAISED BY THE 1ST PETITIONER IN THE NAME OF THE 2ND PETITIONER DATED 22/09/2018.
EXHIBIT P10 TRUE COPY OF THE E-WAY BILL RAISED BY THE 1ST PETITIONER DATED 22/09/2018.
EXHIBIT P11 TRUE COPY OF THE DETENTION NOTICE ISSUED BY THE 4TH RESPONDENT DATED 26/09/2018.
EXHIBIT P12 TRUE COPY OF THE CIRCULAR NO.17/2018 ISSUED BY THE COMMISSIONER, STATE GOODS AND SERVICE TAX DEPARTMENT DATED 29/06/2018.
EXHIBIT P13 TRUE COPY OF THE REPRESENTATION FILED BY THE PETITIONERS BEFORE THE 4TH RESPONDENT