Gujarat HC Clarifies Sections 129 & 130 CGST: Transit Detention, Confiscation & Tax Evasion Guidelines

Gujarat HC Clarifies Sections 129 & 130 CGST: Transit Detention, Confiscation, and Tax Evasion Guidelines

The Gujarat High Court has recently given an important judgment in the case of Panchhi Traders v. State of Gujarat, decided on 11 December 2025. In this case, the Court explained how Sections 129 and 130 of the GST law should be used by GST officers.

The judgment deals with a common problem where GST authorities were starting confiscation proceedings automatically in transit cases, without proper examination. The Court clearly laid down guidelines and limits on the powers of GST officers, so that these strict provisions are used only in genuine cases and not in a routine or mechanical manner.

The Court then explained its position and issued important directions. It clarified that the observations made in this judgment were without examining the merits of the individual notices or confiscation proceedings. Ultimately, the High Court remanded the entire group of petitions back to the concerned authorities and directed that all further proceedings must strictly take into account the observations made by the Court.

This judgment is particularly significant because the Court emphasized that confiscation is a serious and drastic measure, which has a direct and deep impact on a business, its operations, and its financial condition. The Court also made it clear that any authorised officer acting contrary to these observations would be liable for contempt of court.

First Issue-

The principal question arising from the petitioner’s submissions was:

“Whether confiscation proceedings initiated under Section 130 of the CGST Act after detention under Section 129 are required to be treated as seizure under Section 67(6), thereby making provisional release of goods mandatory upon payment of applicable tax, interest and penalty, or on furnishing security?”

The petitioner contended that where confiscation proceedings under Section 130 are initiated subsequent to detention under Section 129, such proceedings must be treated as seizure under Section 67(6) of the CGST Act. It was argued that in such circumstances, provisional release of goods becomes mandatory upon payment of tax, interest and penalty, or upon furnishing appropriate security.

It was further submitted that although Section 67(6) does not expressly refer to vehicles, it employs the term “thing”, which would include a conveyance. Reliance was also placed on Section 2(52) of the CGST Act, which defines “goods” to include all movable property. Since a conveyance used for transportation is movable property, it was argued that the same qualifies as “goods” and may be seized and provisionally released under Section 67(6) if connected with taxable goods or alleged tax evasion.

The Court noted (para 45) that the petitioners’ case was that notwithstanding the deletion of reference to Section 67(6) from Section 129, provisional release of goods could still be granted under Section 67(6), even after initiation of confiscation proceedings. The relevant portion of Section 67(6) provides for provisional release of seized goods upon execution of a bond, furnishing of security, or payment of applicable tax, interest and penalty.

However, the Court held (para 47) that prior to the amendment of Section 129, goods detained or seized during transit were released by resorting to Section 67(6). Post-amendment, this statutory linkage has been consciously omitted by Parliament, and release of goods is now governed exclusively by the mechanism prescribed under Section 129. Consequently, once Section 67(6) stands deleted and separated from Section 129, its invocation for goods detained during transit does not arise.

Further, the Court held (para 51) that upon deletion of sub-section (2) of Section 129 by the Finance Act, 2021, the facility of provisional release under Section 67(6) is no longer available for goods and conveyance seized or detained under Section 129. The Court observed that Section 67(6) refers only to “goods”, whereas Section 129 specifically covers both goods and conveyance. After the amendment, the statutory connection between provisional release and Section 67(6) has been completely snapped, leaving Section 129 as the sole governing provision for release.

Final Outcome:

The Court conclusively held that after the amendment to Section 129 of the CGST Act, Parliament has consciously severed the linkage with Section 67(6) for provisional release of goods and conveyance seized during transit. Accordingly, once goods and conveyance are detained or seized under Section 129, provisional release under Section 67(6) is no longer available, and release can be sought only in the manner prescribed under Section 129.

Second Issue-

Another issue that arose for consideration before the Court was:

Whether, after the delinking of Sections 129 and 130 of the CGST Act by Finance Act-2021, confiscation proceedings under Section 130 can be initiated midway by issuance of MOV-10 or MOV-11 without first completing the procedure prescribed under Section 129? or

Can the proper officer invoke Section 130 of the CGST Act by issuing MOV-10 or MOV-11 without completing proceedings under Section 129?

The petitioner argued that prior to the Finance Act, 2021, Section 129(6) acted as a link between Sections 129 and 130. If the penalty under Section 129 was not paid, confiscation under Section 130 could be initiated to auction the goods and conveyance. However, after the amendment, Section 129 has become a complete and self-contained provision, as the amended Section 129(6) itself provides for auction of goods and conveyance in case of non-payment of penalty. Therefore, invocation of Section 130 in cases where action has already been taken under Section 129 was argued to be unnecessary and without legal basis.

Reliance was also placed on Rule 144A of the CGST Rules, 2017, introduced pursuant to the Finance Act, 2021, which provides a separate mechanism for recovery of penalty under Section 129. The amendments to Rules 144, 144A and 147 were relied upon to contend that Sections 129 and 130 now operate independently, and once proceedings under Section 129 are initiated by issuance of MOV-06, the authorities must complete the process under that provision alone.

Therefore, once authorities start action under Section 129 and issue Form GST MOV-06, they must complete the process under Section 129 and cannot switch to Section 130 as an alternative.

The Learned Advocate General submitted that, in view of the Division Bench judgment in Synergy Fertichem Pvt. Ltd. v. State of Gujarat (2019) 12 TMI 1213, the present writ petitions deserve dismissal, as identical issues had already been examined and decided by the Coordinate Bench. It was argued that the Division Bench had undertaken a detailed analysis of Sections 129 and 130 of the CGST Act (prior to amendment) and that the subsequent amendments do not materially alter the legal position laid down therein.

It was further submitted that Section 130 of the CGST Act can be invoked against dealers involved in tax evasion through movement of goods. Where, upon detention or seizure during transit, the proper officer forms an opinion of gross tax evasion, confiscation proceedings may be initiated by issuance of notice in Form GST MOV-10.

The Learned Advocate General emphasized that in Synergy Fertichem Pvt. Ltd. (supra), the Court had categorically held that Section 130 operates independently of Section 129(6), and that the two provisions are mutually exclusive. Consequently, the petitioners’ reliance on the removal of the non-obstante clause and the alleged delinking of Section 130 from Section 129 was contended to be misconceived, as there exists no statutory bar on invoking Section 130 for confiscation of goods initially seized under Section 129.

The Court observed (para 32) that the amendments to Sections 129 and 130 of the CGST Act appear to have been introduced in the backdrop of the judgment of the Coordinate Bench in Synergy Fertichem Private Limited (supra).

Further, in para 33, the Court noted that even prior to the amendment—before deletion of the non-obstante clause in Section 130—the Coordinate Bench had comprehensively examined the provisions of Sections 129 and 130 and the effect of the non-obstante clause therein. The Division Bench had categorically held that Section 130 of the CGST Act, which provides for confiscation of goods or conveyance, is neither dependent upon nor subject to Section 129, and that both provisions operate independently and are mutually exclusive. It was further held that even where goods or conveyance are released upon payment of tax and penalty under Section 129, the authorities are not precluded from subsequently initiating confiscation proceedings under Section 130 if incriminating material is discovered during inquiry.

The Court observed (para 49) that a combined reading of paragraph 2(l) of the Circular dated 13 April 2018 and Form GST MOV-10 makes it clear that a proper officer is empowered to directly issue a notice for confiscation of goods and conveyance only where an opinion is formed that the movement of goods was effected with an intention to evade tax. The formation of such an opinion regarding tax evasion is the essential precondition for invoking Section 130 of the CGST Act. Accordingly, at the stage between detention and seizure, the proper officer is authorized to assess the circumstances and, if tax evasion is evident, proceed with confiscation—a power also traceable to Rule 138B of the CGST Rules.

The Court observed (para 54) that the legislative intent to delink Sections 129 and 130 of the CGST Act is evident from the Statement of Objects and Reasons of the Finance Act. Both provisions prescribe distinct procedures and different penalties, with Section 130 carrying far graver consequences, as confiscated goods or conveyance vest in the Government. While both sections ordinarily operate within their respective spheres, they may overlap where there is a clear element of intention to evade tax.

The Court clarified that the retention of the non-obstante clause in Section 129 does not render Section 130 inoperative. The non-obstante clause only mandates that the procedure under Section 129 must be followed and taken to its logical conclusion. However, this does not preclude the authorities from resorting to confiscation under Section 130 where the seized goods or conveyance are found to be involved in deliberate tax evasion. To hold otherwise would amount to ignoring Section 130 altogether, even in cases of blatant tax evasion detected during interception of goods in transit.

When an authorised officer intercepts a vehicle carrying goods and finds non-presentation or presentation of forged documents, ambiguous description of goods, incorrect declaration of the place of loading or destination, or adoption of a suspicious transit route, indicating an intention to evade payment of tax, the officer is empowered to initiate confiscation proceedings. In such cases, after seizure, confiscation of the goods and conveyance may be resorted to in accordance with the Circular dated 13 April 2018 read with Rule 138B of the CGST Rules.

Final Outcome:

The Court held that even after the amendments brought by the Finance Act, 2021, Sections 129 and 130 of the CGST Act operate independently and are mutually exclusive. While proceedings initiated under Section 129 must ordinarily be carried to their logical conclusion, the proper officer is not barred from invoking Section 130 midway if, during detention or seizure, an opinion is formed that the movement of goods involved an intention to evade tax. Thus, confiscation under Section 130 can be resorted to notwithstanding pending proceedings under Section 129, provided the element of tax evasion is clearly established.

Third Issue-

Whether the deletion of the non-obstante clause from Section 130 of the CGST Act affects the power of the authorities to initiate confiscation proceedings?

The petitioner submitted that Section 129 of the CGST Act is a special provision governing detention of goods during transit. Once goods are detained under Section 129, the authorities are required to strictly follow the procedure prescribed therein. Since Section 129 contains a non-obstante clause, it overrides other provisions of the Act, including Section 130.

It was further argued that by the Finance Act, 2021, the non-obstante clause was removed from Section 130 while being retained in Section 129, thereby clearly segregating the scope of the two provisions. Consequently, in the event of any overlap or conflict, Section 129, being a special provision with an overriding effect, would prevail over Section 130, and confiscation under Section 130 could not be initiated once proceedings under Section 129 had commenced.

The Learned Advocate General highlighted that in Synergy Fertichem Pvt. Ltd. (supra), the Coordinate Bench held that Section 130 operates independently of Section 129(6), and both Sections 129 and 130 are mutually exclusive. Therefore, the petitioners’ arguments concerning the removal of the non-obstante clause and the alleged de-linking of Section 130 from Section 129 were held to be irrelevant.

It is a settled legal principle that a non-obstante clause is generally placed at the beginning of a Section to ensure that, in case of any conflict, the provisions of that Section will prevail over the provisions or Act referred to in the non-obstante clause. In other words, despite the existence of the provisions or Act mentioned in the non-obstante clause, the enactment containing the clause will operate in full force, and the referenced provisions will not obstruct its operation.

Thus, a non-obstante clause is a legislative device used by Parliament or the legislature to give an overriding effect to the provisions specified in the enacting part of a section in case of any conflict with other provisions, as noted in Mohd. Abdul Samad (supra). Accordingly, although the non-obstante clause has been retained in Section 129 of the CGST Act and gives it an overriding effect over other provisions, including Section 130, it does not impede the operation of Section 130. On a holistic analysis of the scope and purpose of both sections, it is evident that there is no conflict between them.

The key feature that distinguishes Section 130 from Section 129 of the CGST Act is the requirement of an intention to evade payment of tax. There is no conflict between the two sections in relation to forming an opinion on such intention.

Section 129 operates as a stand-alone provision when no element of tax evasion is involved. As held by this Court in Synergy Fertichem Pvt. Ltd. (supra), there is no bar to invoking Section 130 for confiscation at the threshold if, upon seizure of goods and conveyance, the transaction indicates an intention to evade tax. The Court is not persuaded to adopt a different view merely because the non-obstante clause was deleted from Section 130 while retained in Section 129.

Final Outcome:

The Court held that the deletion of the non-obstante clause from Section 130 does not affect the authority’s power to initiate confiscation proceedings. Sections 129 and 130 operate independently and are mutually exclusive, with Section 130 specifically addressing cases involving an intention to evade tax. The retention of the non-obstante clause in Section 129 does not impede the operation of Section 130, and authorities may invoke Section 130 where tax evasion is apparent, even during or after proceedings under Section 129.

Fourth Issue-

Is Circular No. 41/15/2018 dated 13.04.2018 ultravires after the amendment?

The petitioner submitted that no statutory rules or forms expressly provide for proceedings under Section 129 of the CGST Act. Accordingly, the procedural mechanism introduced through Circular No. 41/15/2018 dated 13.04.2018,  is impermissible, as proceedings under Section 130, along with Rules 139 to 141 and Forms INS-01 to INS-05, are already prescribed. Therefore, any form or procedure contrary to these rules and introduced by the circular is ultra vires the statute. Moreover, the circular dated 13.04.2018, having been issued prior to the amendment, is no longer applicable in the post-amendment regime.

The Court held (Para 48) that Circular No. 41/15/2018 dated 13.04.2018,  prescribes the procedure for interception of conveyances, inspection of goods in transit, and their detention, release, and confiscation. The circular is issued under Section 168 of the CGST Act, which empowers the competent authority to issue instructions to lower authorities to ensure uniform implementation of the Act. When the statute permits the government to issue administrative instructions to regulate complex procedures in line with the law, such instructions cannot be set aside unless they are in clear violation of the statute. The Court found that the circular does not infringe any statutory provisions.

Final Outcome:

The Court observed that Circular No. 41/15/2018 dated 13.04.2018, , issued under Section 168 of the CGST Act, provides procedural guidance for interception, detention, and confiscation of goods and conveyances. It does not violate any statutory provisions and cannot be held ultravires merely because proceedings under Section 130 are separately prescribed.

Fifth Issue-

Can the officer intercepting goods under Section 129 of the CGST Act assess tax or decide the intent to evade tax, or invoke Section 130 at the time of interception?

The petitioner submitted that the Proper Officer, at the time of seizure and detention of goods in transit, is not empowered to undertake assessment or conclude that there was an intention to evade tax. Such satisfaction must be reached by a higher authority; therefore, Section 130 cannot be invoked by the officer intercepting the goods. Consequently, goods detained or seized are liable to be released upon fulfillment of the conditions under Section 129 of the CGST Act.

The petitioner submitted that Section 2(91) of the CGST Act defines the term “Proper Officer.” As per Circular No. F. No. 34975/2017-GST dated 09.02.2018, powers under Section 130 are to be exercised only by the jurisdictional officer. Specifically, confiscation powers under Section 130(1) are delegated to the Assistant Commissioner/State Tax Officer, whereas powers relating to detention and seizure of goods in transit under Section 129 of the CGST Act lie with the Proper Officer as defined under Section 2(91) of the Act.

The Court (Para 59) held that Rule 138B of the CGST Rules, 2017, provides for physical verification of documents and conveyance by the Commissioner or an officer empowered by him after interception in cases of tax evasion. Sub-rule (3) allows physical verification by an authorised officer, and the proviso adds that if specific information regarding evasion of tax is received, any other officer may carry out verification with the prior approval of the Commissioner or an officer authorised by him.

Thus, an officer intercepting a vehicle or conveyance on receiving information of tax evasion may carry out physical verification, which can also be performed by any other officer authorised by the Commissioner. However, such verification must be conducted only after obtaining the necessary approval from the Commissioner or an officer authorised by him.

As per Circular No. 3/3/2017 – GST dated: 5th July, 2017, the proper officer to take action under Section 130(6) and (7) is the Deputy or Assistant Commissioner of Central Tax. In contrast, the Order dated 23rd June 2017 issued by the Commissioner of State Tax, Gujarat, Ahmedabad, under powers of sub-section (1) of Section 5 read with Clause (91) of Section 2 of the Gujarat Goods and Services Tax Act, 2017, designates the Assistant Commissioner of State Tax as the jurisdictional proper officer to carry out functions under Sections 130(1) to (7).

Thus, any action taken under FORM MV-10 or MV-11 for confiscation of goods or imposition of penalty by an officer other than the jurisdictional officer specified above would be without authority and therefore illegal.

Final Outcome:

The Court held that the officer intercepting goods under Section 129 cannot assess tax or invoke Section 130, and goods must be released under Section 129 conditions. Physical verification may be carried out only by the Commissioner or an authorised officer with prior approval, and any confiscation or penalty under FORM MV-10 or MV-11 by a non-jurisdictional officer is without authority and illegal.

Sixth Issue-

Is it mandatory to conduct search and seizure under Section 67 of the CGST Act to establish an intent to evade tax u/s 130?

The petitioner submitted that Section 130 of the CGST Act begins with the phrase “where any person supplies or receives goods in contravention of any of the provisions of this Act with intent to evade tax.” Therefore, the foundation of Section 130 is an established intent to evade tax, which cannot be presumed from a mere e-way bill defect. Such intent can only be determined through search and seizure conducted under Section 67 of the CGST Act, which is the statutory mechanism empowering the department to investigate tax evasion.

On the other hand, the Revenue contended that once a blatant evasion of tax is detected at the stage of seizure and detention of goods under Section 129 of the Act, the authorities are empowered to proceed with confiscation of the goods or conveyance. It is not necessary to resort to Section 67, which falls under Chapter XIV relating to search and seizure conducted by a Proper Officer not below the rank of Joint Commissioner at the premises of a trader engaged in transporting goods in contravention of the Act or Rules.

The Court held (para 46) that Sections 129 and 130 of the CGST Act envisage distinct stages of action: detention, seizure, and confiscation. Detention involves temporary withholding of goods and conveyance at the point of interception pending verification of documents or suspicion of GST violations. Seizure follows, where the Proper Officer takes possession of goods and conveyance upon confirmation of irregularities or illegalities. Confiscation is the final stage, undertaken only when violations are established and penalties remain unpaid.

The Court (Para 50)  held that Section 67(1) of the CGST Act clarifies that the powers of inspection, search, and seizure are limited to the places of business of the taxable person, persons engaged in transporting goods, the owner or operator of a warehouse or godown, or any other related premises. Sub-section (2) of Section 67 of the CGST Act authorizes a Proper Officer, not below the rank of Joint Commissioner, to “seize” goods that are “liable for confiscation,” along with relevant documents, books, or other items. The language of sub-section (2) does not empower the Proper Officer to confiscate the goods, but only to seize those goods which, in his opinion, are liable for confiscation.

By applying the doctrine of noscitur a sociis (“a word is known by the company it keeps”), the word “things” in this clause cannot be interpreted to include “conveyance.” The term “things” must be read in the context of the words it accompanies, namely documents or books, and may refer to other articles found during inspection.

The Court (Para 53) held that a review of Section 130 of the CGST Act is necessary. Section 130, titled “confiscation of goods or conveyances and levy of penalty,” deals with confiscation, whereas Section 129 provides for seizure and detention of goods and conveyances during transit.  A reading of Section 130 in conjunction with Section 67 of the CGST Act shows that goods seized during inspection or search of premises/warehouses under Section 67, which are liable to confiscation, can be confiscated under Section 130. If a person supplies, receives, or stores such goods with the intention to evade tax, the goods may be confiscated, and the person shall be liable to penalty under Section 122 of the CGST Act, in addition to a fine.

The seizure and confiscation of goods under Sections 67 and 130 of the CGST Act are linked to the “intention to evade tax.” After such seizure, if the goods are not confiscated, they may be provisionally released under Section 67(6). Confiscation of goods or conveyance, and their release or disposal, is governed by Section 130 of the Act, not Section 129.

The Court held (Para 53) that seizure of a “conveyance” can be carried out during transit under Section 129 of the CGST Act and confiscation under Section 130. The term “conveyance” is absent in Section 67 and appears only in Sections 129 and 130. “Conveyance” is specifically defined in Section 2(34), while “goods” is defined in Section 2(52) to include every kind of movable property except money and securities, including actionable claims, growing crops, grass, and items attached to or forming part of land agreed to be severed before supply or under a contract of supply. Thus, “conveyance” is excluded from the definition of “goods” and is treated separately under Sections 129 and 130 of the CGST Act. However, a conveyance used by any person to transport goods with the intent to evade tax is liable to confiscation, as the conveyance forms an integral and intrinsic part of the goods being transported with such intent.

The Court observed (para 54) that the legislative intent to delink Sections 129 and 130 of the CGST Act is evident from the Statement of Objects and Reasons of the Finance Act. Both provisions prescribe distinct procedures and different penalties, with Section 130 carrying far graver consequences, as confiscated goods or conveyance vest in the Government. While both sections ordinarily operate within their respective spheres, they may overlap where there is a clear element of intention to evade tax.

When an authorised officer intercepts a vehicle carrying goods and finds non-presentation or presentation of forged documents, ambiguous description of goods, incorrect declaration of the place of loading or destination, or adoption of a suspicious transit route, indicating an intention to evade payment of tax, the officer is empowered to initiate confiscation proceedings. In such cases, after seizure, confiscation of the goods and conveyance may be resorted to in accordance with the Circular dated 13 April 2018 read with Rule 138B of the CGST Rules.

The Court (para 60) held that when Rule 138B of the CGST Rules, 2017 is read in conjunction with the Circular dated 13th April 2018, it becomes clear that, at the stage of interception of goods in transit, it is not mandatory to establish tax evasion through a search at the dealer’s premises. If blatant tax evasion is found during transit, the goods and conveyance are liable to confiscation. The Court further observed that each case must be examined on its own facts, and no blanket restriction can be imposed on the authorities from examining the intent to evade tax.

The Court (Para 61) held that at the stage of interception of goods during transit under Section 68 and their seizure or detention under Section 129 of the CGST Act, if the Proper Officer finds no intention to evade tax, the officer must strictly follow the procedure prescribed under Section 129 and cannot invoke Section 130. The Court further observed that it is erroneous to hold that confiscation of goods or conveyance in transit requires recourse to Section 67 and establishment of actual tax evasion through search and seizure. The Court held that at the time of seizure and detention of goods under Section 129 of the CGST Act, the Proper Officer must form an opinion regarding the intention to evade payment of tax, which may be inferred from the attendant circumstances.

Final Outcome:

The Court held that it is not mandatory to conduct search and seizure under Section 67 of the CGST Act to establish intent to evade tax for invoking Section 130 in cases of goods in transit. Where, at the stage of interception under Sections 68 and 129, the Proper Officer finds clear and blatant indicators of intent to evade tax from attendant circumstances, confiscation proceedings under Section 130 may be initiated. However, if no such intent is discernible, the authorities must strictly confine themselves to the procedure under Section 129. Confiscation being a drastic measure, it cannot rest on mere suspicion and must be supported by concrete material.

Seventh Issue-

Another issue raised by the petitioner was that a notice in FORM MOV-10 invoking Section 130 of the CGST Act cannot be issued merely on suspicion or on the basis of discrepancies reflected in the GST portal, particularly when such discrepancies may have originated from a supplier’s supplier.

The Court has observed and fixed THE LIMITATION FOR EXAMINING EVASION OF TAX FOR GOODS AND CONVEYANCE SEIZED DURING TRANSIT.

The Court (Para 61) held that at the stage of interception of goods during transit under Section 68 and their seizure or detention under Section 129 of the CGST Act, if the Proper Officer finds no intention to evade tax, the officer must strictly follow the procedure prescribed under Section 129 and cannot invoke Section 130. The Court further observed that it is erroneous to hold that confiscation of goods or conveyance in transit requires recourse to Section 67 and establishment of actual tax evasion through search and seizure. The Court held that at the time of seizure and detention of goods under Section 129 of the CGST Act, the Proper Officer must form an opinion regarding the intention to evade payment of tax, which may be inferred from the attendant circumstances.

However, as confiscation is a measure of last resort carrying serious consequences, it cannot be based on mere suspicion, conjecture, or ipse dixit, and must be supported by concrete material. The Proper Officer is required to examine the genuineness of documents such as invoices, e-way bills, consignment notes, and registration particulars produced at the time of interception, and an alleged intent to evade tax of a person not directly or proximately connected with the transaction cannot form the basis for confiscation of goods.

The Court (Paras 62 & 63) noted that the Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs issued Circular No. CBEC/20/16/03/2017-GST dated 14th September 2018, clarifying Circular Nos. 41/15/2018-GST dated 13.04.2018 and 49/23/2018-GST dated 21.06.2018. It was held that in cases of first-degree minor discrepancies in documents—such as differences in value between the e-way bill and delivery challan or minor errors in vehicle numbers—the Proper Officer cannot seize the goods or conveyance.

If the violation is of a second degree, involving contravention of the provisions of the Act or Rules without any element of intent to evade tax, the person or dealer must be permitted to avail the remedy of paying penalty as prescribed under Section 129 of the CGST Act. Upon payment of the amount specified in sub-section (1), all proceedings pursuant to the notice under sub-section (3) stand concluded. If the amount is not paid, the goods become liable to sale or disposal in accordance with sub-section (6).

In view of the foregoing clarification, confiscation of goods and conveyance during transit can be resorted to only in cases of blatant violations having a direct nexus with the intention to evade payment of tax.

The Court (para 64) held that to invoke the drastic measure of confiscation of goods and conveyance during transit, the contravention must be of the highest degree, such as absence of documents, use of fake or forged documents, forged e-way bills, absence of dealer details, fake registration, or a complete mismatch of goods, clearly establishing an intention to evade tax. The Court further clarified that the Proper Officer cannot undertake assessment or valuation of goods at the time of interception, nor resort to seizure and confiscation based on portal entries or alleged tax evasion by third parties.

Final Outcome:

The Court held that a notice in FORM MOV-10 invoking Section 130 cannot be issued merely on suspicion or on the basis of portal-based discrepancies, especially when such discrepancies may originate from upstream suppliers. Confiscation during transit is permissible only where there is clear, cogent material indicating a deliberate intent to evade tax, and not for minor or technical violations. In the absence of such intent, authorities must strictly confine their action to Section 129 of the CGST Act. The power of confiscation, being drastic in nature, is reserved for cases of grave and blatant contraventions having a direct nexus with tax evasion.

Eight Issue-

Whether the Proper Officer may initiate proceedings under Sections 73 or 74 of the CGST Act in cases of unpaid tax due to error or fraud, instead of converting detention proceedings under Section 129 into confiscation proceedings under Section 130 of the CGST Act?

Reliance is placed by the petitioner on the judgment of the Karnataka High Court in Rajiv Traders v. Union of India (2022) 142 Taxmann.com 420 (Karnataka), wherein it was held that while the Proper Officer may initiate proceedings under Sections 73 or 74 of the CGST Act in cases of unpaid tax due to error or fraud, detention proceedings under Section 129 cannot be converted into confiscation proceedings under Section 130. It was further held that confiscation cannot be effected without compliance with Article 300A of the Constitution of India. Reliance was also placed on the judgment of the Hon’ble Supreme Court in State of West Bengal v. Sujit Kumar Rana (2004) 4 SCC 129.

The Learned Advocate General emphasized that the petitioners’ reliance on Sections 73 and 74 of the CGST Act is wholly unnecessary for interpreting Sections 129 and 130, as all these provisions are separate and self-contained, a position clearly settled in the cited judgment.

The court observed that in view of the Division Bench judgment in Synergy Fertichem Pvt. Ltd. v. State of Gujarat (Supra) it was concluded that

“(x) The provisions of sections 73 and 74 respectively of the Act deal with the ‘demands and recovery’ to be made by the assessing officer based upon the assessment, whereas the provisions of Section 129 of the Act deal with the ‘detention/ seizure’. While assessing the returns, if the assessing officer finds that the amount of tax has not been paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilized for any reason, either with mala fide intention or without the same, as the case may be, the provisions of Section 73/74 of the Act would be invoked. However, the provisions of Section 129 of the Act deal with situation where the evasion of tax/contravention of the Act/Rules is detected during transit itself, requiring the adoption of summary like proceedings. Therefore, the said provisions operate in different spheres.”

In this regard, the Court held (Para 33) that the Coordinate Bench had examined the submissions concerning Sections 73 and 74 of the CGST Act and specifically concluded that reference to Sections 73 and 74 is not warranted for interpreting Sections 129 and 130, as all these provisions operate independently of each other.

Final Outcome:

The Court held that Sections 73 and 74 of the CGST Act, dealing with assessment and recovery of tax, are entirely independent of Sections 129 and 130, which govern detention, seizure, and confiscation of goods in transit. Reference to Sections 73 and 74 is unnecessary for interpreting Sections 129 and 130, as each provision operates within its distinct sphere, and detention under Section 129 cannot be converted into confiscation under Section 130 without following the statutory framework.

Ninth Issue-

The Court, as held in Synergy Fertichem Pvt. Ltd. (supra), has clarified that there is no bar to invoking Section 130 of the CGST Act for confiscation at the threshold if, upon seizure of goods and conveyance, the transaction indicates an intention to evade tax. The Division Bench emphatically held that Section 130, which provides for confiscation of goods or conveyance, is independent of Section 129 of the CGST Act; the two provisions are mutually exclusive.

In its final conclusion, the Court in Synergy Fertichem Pvt. Ltd. (supra) observed:

 “(v) Even if the goods or the conveyance is released upon payment of the tax and penalty under Section 129 of the 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 Section 130 of the Act.”

Accordingly, the Court (para 33) held that even if the goods or conveyance are released upon payment of tax and penalty under Section 129 of the CGST Act, authorities may later initiate confiscation proceedings under Section 130 of the Act if they find anything incriminating against the owner during the course of the inquiry.

Further, the Court (Para 65) held, following the Coordinate Bench in Synergy Fertichem Pvt. Ltd. (supra), that even if goods or conveyance are released upon payment of tax and penalty under Section 129, authorities may later initiate confiscation proceedings under Section 130 if something incriminating against the owner of the goods is discovered during the course of inquiry. Thus, goods released after seizure can still be confiscated if serious incriminating evidence is subsequently found.

Final Outcome:

The Court held that Section 130 of the CGST Act can be invoked independently for confiscation if, upon seizure, there is an indication of intent to evade tax. Even if goods or conveyance are released upon payment of tax and penalty under Section 129, authorities may later initiate confiscation proceedings under Section 130 if incriminating evidence against the owner is discovered during the course of inquiry.

Tenth Issue-

The Court has observed and fixed TIME LINE FOR FRAMING AN OPINION OF EVASION OF TAX FOR GOODS IN TRANSIT

The Court (Para 65) held that under Rule 138C of the CGST Rules, 2017, the Proper Officer must prepare a summary report of every inspection of goods within 24 hours in Part A of FORM GST-EWB-4, and the final report in Part B must be recorded within three days. This period may be extended by an additional three days by the Commissioner or an authorized officer, if warranted, through FORM MOV-03. Thus, the final report in FORM MOV-04 cannot exceed six days. If blatant tax evasion is found, the goods and conveyance may be seized, and FORM MOV-10 can be issued.

Hence, for goods intercepted in transit, the formation of an opinion regarding the “intention to evade payment of tax” must be completed within the stipulated period for confiscation. If no such opinion is formed within this timeframe, the goods and conveyance must be released in accordance with the provisions of Section 129 of the CGST Act.

However, as held by the Coordinate Bench in Synergy Fertichem Pvt. Ltd. (supra), even if goods or conveyance are released upon payment of tax and penalty under Section 129, authorities may subsequently initiate confiscation proceedings under Section 130 if something incriminating against the owner is discovered during the inquiry. Thus, if no opinion of “intention to evade tax” is formed within the prescribed timeframe, the conveyance may be released, but the goods can still be confiscated later if serious incriminating evidence is found.

Final Outcome:

The Court held that for goods intercepted in transit, the Proper Officer must form an opinion regarding the “intention to evade tax” within the timeline prescribed under Rule 138C, failing which the goods and conveyance must be released under Section 129. The final report in FORM MOV-04 cannot exceed six days. However, even after release upon payment of tax and penalty, authorities may later initiate confiscation under Section 130 if serious incriminating evidence against the owner is discovered, as affirmed in Synergy Fertichem Pvt. Ltd

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