[Ref: M/S Metenere Ltd Vs. Union of India and another (WRIT TAX No. – 360 of 2020 before Hon’ble High Court of Allahabad) order dated 17th December, 2020]. 

Petitioner in the reference case has filed a writ petition challenging the order passed by the Additional Commissioner dated 27.1.2020 as well as the Appellate Order dated 15.1.2020, whereby the appeal filed by the petitioner had been dismissed. As the Tribunal as provided for under the GST Act has not been constituted and in absence thereof the party cannot be left remediless as such writ petition had been filed before the Hon’ble High Court.

Order of Seizure dated 04.04.2018 

In this matter, on 6.1.2018 Anti Evasion Department of GST, Greater Noida visited the factory premises of the petitioner for verification of the records. It is alleged that on 10.1.2018 another team from the same department visited the factory premises and passed an order of detention detaining 12,979 metric tonnes of entire stock of the petitioner. It is alleged that the said stock included the stock manufactured prior to enforcement of GST. The petitioner claimed that it produced all the records, however, the records of GST were not available in the factory premises as the same were kept at head office of the petitioner situated at Ghazipur. It is further stated that subsequently the records were produced on various dates on 16.1.2018, 20.1.2018, 23.1.2018 and 31.1.2018. It is stated that despite production of the records, as sought for, an order dated 4.4.2018 was passed seizing the goods detained on 10.1.2018 by the separate order of seizure dated 4.4.2018.

Show Cause Notice dated 21.05.2018 for confiscation of Goods or Conveyance under Section 130 of CGST Act, 2017

The petitioner claimed that it was served with a show cause notice dated 21.5.2018 (Annexure No.1 to the writ petition) wherein the petitioner was called upon to show cause as to why the goods valued at Rs. 1,07,99,43,351/-, which were seized, should not be confiscated and penalty should not be imposed, the action proposed action is quoted herein below;

“(i) The goods of total value of Rs. 1,07,99,43,351/- {Rupees One Hundred and Seven Crores Ninety Nine Lakh Fourty Three Thousand Three Hundred and Fifty One Only} which were seized by the department, involving Central Goods and Service Tax (CGST) of Rs 9,71,94,902/- (Nine Crores Seventy One Lakh Ninety Four Thousand Nine Hundred and Two Only) and State Goods and Service Tax (SGST) Rs 9,71,94,902- (Nine Crores Seventy One Lakh Ninety Four Thousand Nine Hundred and Two Only) should not be confiscated under Section 130 of CGST Act, 2017 & Section 130 of Uttar Pradesh GST Act, 2017, read with Section 35(6) of the CGST Act’2017 & Section 35(6) of the Uttar Pradesh GST Act, 2017 and Section 74(1) of the CGST Act’2017 & Section 74(1) of the Uttar Pradesh GST Act’2017. 

(ii) Penalty should not imposed upon them under Section 122(1)(xvi) and 122(1)(xvii) of CGST Act, 2017 read with Section 122(1)(xvi) and 122(1)(xviii) of Uttar Pradesh GST Act, 2017. 

(iii) Personal penalty should not imposed upon Shri Raman Gupta, Director of M/s Metenere Limited, Village Bheel Akbarpur, Main GT Road, Dadri, under Section 122 (3) (a) of the CGST Act’2017 read with Section 122 (3) (a) of the Uttar Pradesh GST Act’2017.”

A perusal of the shows cause notice makes it clear that the main allegations that emerged from investigation were recorded as under:-

“(i) The party i.e. M/s Metenere Ltd, were not maintaining the records/accounts related to input tax credit, production, inward and outward supply or goods, output tax payble and paid etc, which are mandatorily to be maintained under Section 35(1) of the CGST Act 2017 at their principle place of business/additional place of business. Thus it appears that party clearly violated Section 35(1) of the CGST Act 2017. 

(ii) There were huge stock of raw materials, work in progress and finished goods as detailed given above, in the factory premises. As the party could not produce any mandatory accounts and other records, the officers had all reasons to belief that the said goods have been stored by the party only to clear them without payment of GST as applicable.”

Later on, the Additional Commissioner had passed an order dated 28.5.2019 regarding confiscation of goods and the penalty. The petitioner preferred an appeal before the Appellate

Authority. The Appellate Authority, once again, after referring to Section 35 of the CGST Act read with Rules 56 and 57 of the CGST Rules, recorded that it was mandatory for the appellant

“to have maintained the records of production” at the principal place of business/additional place which they failed to do so. Thus, he proceeded to uphold the order of the adjudicating authority to the effect that appellant has failed to maintain the records as required to be maintained under Section 35 (1) of the CGST Act read with Rule 56 and 57 of the said Rules.

Confiscation Order dated 27.01.2020 under section 130 of CGST Act, 2017 

The Adjudicating Authority, after recording that the party has failed to maintain the records as required under Section 35(1) of the CGST Act, 2017 held that the goods were liable to be confiscated and proceeded to pass order to the following effect:

“(1) I order for confiscation of raw materials, Work in progress materials and finished goods [earlier seized on 04.04.2018 vide Form GST INS-02 (Order for Seizure) dated 04.04.2018] totally valued at Rs.1,07,99,43,351/- and involving Central GST of Rs. 9,71,94,902/- & State GST of Rs. 9,71,94,902/- under Section 130 of the Central GST Act, 2017 & Section 130 of the Uttar Pradesh GST Act, 2017 read with Section 35(6) of the CGST Act, 2017 & Section 35(6) of the Uttar Pradesh GST Act, 2017 and Section 74(1) of the CGST Act, 2017 & Section 74(1) of the Uttar Pradesh GST Act, 2017 on the grounds as discussed hereinabove. 

However, I give an option to the party to redeem the confiscated goods on payment of redemption fine amounting to Rs.12,00,00,000/-(Rupees Twelve Crore Only) within three months from the receipt of this order in terms of the provisions of Section 130(2) of above Acts subject to provisions of Section 130(3) of above Acts. 

(2) I impose penalty of Rs.19,43,89,804/- on the party under the provisions of Section 122(1)(xvi) & (xvii) of the CGST Act, 2017 read with Section 122(1)(xvi) & (xvii) of the Uttar Pradesh GST Act, 2017 on the grounds mentioned hereinabove equivalent to Tax (CGST+SGST) involved in seized goods. 

(3) I impose personal penalty amounting to Rs. 50,000/- (Rs. Fifty Thousand Only) on Sri Raman Gupta, Managing Director of the company under Section 122(3) of the CGST Act, 2017 read with Section 122(3) of the Uttar Pradesh, GST Act, 2017 (Rs. 25,000/- each under CGST Act, 2017 and UPGST Act, 2017) on the grounds mentioned hereinabove. 

The adjudged dues shall be paid by the party forthwith.” 

It is stated that Section 35(1) of the CGST Act, 2017 clearly provides that all the registered person are required to keep and maintain at the principal place of business a true and correct account of things specified in Clause (a) to (f). The Second proviso to Section 35 (1), Rule 56 and Rule 57 make it further necessary to keep the said documents as specified in Clause (a) to (f) in the electronic form.

Further, Section 35(6) of the said Act provides that in the event the person fails to keep their accounts for the goods or the services in accordance with the provisions of Sub-section (1) of Section 35, the proper officer is empowered to determine the amount of tax payable on the goods or the service which are unaccounted for as if such goods or services had been supplied by such person and the provisions of Section 73 or 74 of the said Act shall mutatis mutandis apply for determination of the said tax.

Section 35 (6) of the CGST ACT, 2017

“Subject to the provisions of clause (h) of sub-section (5) of section 17, where the registered person fails to account for the goods or services or both in accordance with the provisions of sub-section (1), the proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of such tax.”

A perusal of the said section 35(6) makes it clear that proper officer is empowered to determine the taxes payable and while determining the said tax payable he is bound to determine the same in accordance with the provisions of Sections 73 & 74 of the said Act. In the present case, the proper officer was empowered to determine the liability of payment of tax in terms of the powers conferred under Section 35(6) after resorting to the procedure as established under Section 74 of the Act.

Although in terms of the provisions of Section 35(6), the unaccounted goods are deemed to be supplied’ however, determination and quantification of the tax on the said ‘deemed supply’ has to be done in accordance with Section 73 or Section 74 of the said Act.

A perusal of Section 73 and 74 of the said Act makes it clear that a show cause notice is bound to be served prior to determination of the tax leviable on the deemed supply’ whereas in the present case no such notice is available on record and it is common ground that apart from the said proceedings, no other proceedings have been initiated and concluded under Section 73 or 74 of the said Act.

Now, coming to the provisions of Section 130 of the said Act which empowers the confiscation of the goods and levy of penalty. Clause (i) to Clause (v) of Section 130 (1) of the CGST Act, 2017 are the events which can trigger the initiation and conclusion of the confiscation proceedings. In the present case, even if it is admitted, for the sake of arguments, that the documents were not maintained at the registered office or the other place of business, there is no finding to the effect that any supply was made with an intent “to evade payment of tax” as is required under Section (i) of Section 130 (1);

Further, there is nothing on record to establish that the petitioner did not account for any goods on which he is liable to pay tax under the Act [as required to attract Section 130 (1)(ii)]; There is nothing on record to the effect that any supplies were made without having applied for registration [as required to attract Section 130 (1)(iii)]; It has not been established that there was any contravention of any provision or any Rules with an “intent to evade payment of tax” [as required to attract Section 130(1)(iv)]. There is no averment of using any conveyance [as required to attract Section 130(1)(v)].

Thus, none of the ingredients which are required for confiscation existed in the present case and thus, the confiscation itself was wholly arbitrary and illegal.

*****

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only. 

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