Viraj Steel & Energy Private Ltd. Vs Joint Commissioner of State Tax (Appeal) (Orissa High Court)
Orissa High Court Dismisses Viraj Steel Petition, Upholding Tax Authorities’ Power and Stressing Adherence to Statutory Remedies
Cuttack: The Orissa High Court has dismissed a writ petition filed by Viraj Steel & Energy Private Ltd. challenging a show cause notice and the imposition of redemption fine in lieu of confiscation of goods. The court’s decision underscored the principle of exhausting statutory remedies before invoking extraordinary writ jurisdiction and clarified the powers of tax authorities regarding search, seizure, and confiscation under the Goods and Services Tax (GST) Act.
The case revolved around a search and seizure operation conducted by the tax authorities at Viraj Steel’s premises. During the operation, a significant shortage of MS Billets was allegedly detected, which the authorities contended was not accounted for and intended to evade tax. Consequently, a show cause notice was issued, followed by a demand order imposing penalty and fine in lieu of confiscation under Section 130 of the GST Act. Viraj Steel reportedly admitted the stock discrepancies and agreed to pay the calculated amounts. However, they subsequently challenged the demand order before the appellate authority, albeit beyond the statutory time limit, leading to the rejection of their appeal on grounds of limitation. Viraj Steel then approached the High Court under Article 226 of the Constitution, challenging the initial show cause notice and the imposition of redemption fine, particularly arguing against the fine when the goods were not physically available.
The High Court, in its judgment, delved into the fundamental principles governing the exercise of writ jurisdiction, the powers of statutory authorities, and the interpretation of relevant provisions of the GST Act, drawing upon several judicial precedents.
Judicial Precedents and Court’s Reasoning:
The court reiterated the settled legal position that a court or statutory authority can only exercise jurisdiction conferred by law. An order passed without inherent jurisdiction is a nullity and can be challenged even collaterally. However, a crucial distinction was drawn between a complete lack of inherent jurisdiction and an irregular or erroneous exercise of vested powers. The latter, the court emphasised, should ordinarily be corrected by exhausting the appellate forums provided within the statute.
Referring to the Supreme Court’s ruling in Vicco Laboratories, the Orissa High Court acknowledged that while writ courts normally refrain from interfering at the show cause notice stage, an exception exists if the notice is issued without jurisdiction or in abuse of the process of law. Mere assertion of lack of jurisdiction is insufficient; it must be prima facie established. The court in Vicco Laboratories highlighted that factual adjudication is not typically undertaken in writ proceedings challenging a show cause notice.
The judgment also cited Magadh Sugar and Energy Limited, another Supreme Court decision, which reaffirmed that the existence of an effective alternative remedy generally restricts the High Court’s writ jurisdiction under Article 226. Exceptions to this rule include cases involving the enforcement of fundamental rights, violation of natural justice, orders passed completely without jurisdiction, or challenges to the vires of legislation. The Supreme Court in Magadh Sugar stressed the importance of exhausting statutory remedies but noted that intervention under Article 226 might be permissible in instances of jurisdictional overreach or palpable injustice, though not for resolving disputed facts.
Applying these principles, the Orissa High Court in the present case found that the tax authorities were conferred with powers of inspection, search, and seizure under Section 67 of the GST Act upon forming a reason to believe regarding tax evasion or discrepancies in goods. The power to confiscate goods and levy a redemption fine in lieu thereof is also provided for under Section 130 of the Act, particularly when goods are supplied or received in contravention of the Act with intent to evade tax. The court reasoned that since the power to confiscate is traceable to the statutory provisions (Section 130 read with other relevant sections), it is not a case of complete lack of inherent jurisdiction but rather a challenge to the exercise of that power.
The court further examined the definition of “goods” under Section 2(52) of the GST Act, noting its expansive nature, including every kind of movable property. It held that the expression “supplies or receives any goods in contravention to the provision of the Act” should be understood in this broad literal sense.
A significant portion of the judgment was dedicated to the issue of imposing redemption fine when the goods are not physically available for confiscation. The court considered judgments rendered under the Customs Act, applying the doctrine of pari materia. It discussed the Supreme Court’s decision in Weston Components Ltd. v. Commissioner of Customs, New Delhi, which held that redemption fine could be imposed even if the goods were not in the custody of the authorities, provided they were released on the execution of a bond or undertaking. The court noted that this judgment was relied upon by several High Courts and the Supreme Court.
However, the court also referenced other decisions that appeared to take a different stance, such as the Bombay High Court’s view in Finesse Creation INC and the Tribunal’s decision in Chinku Exports, which suggested that redemption fine is only permissible if the goods are available for redemption, unless they were released on a bond or security. The Punjab and Haryana High Court in Raja Impex (P) Ltd., after considering Weston Components Ltd. and Chinku Exports, also concluded that redemption fine in the absence of physical goods is permissible only if the goods were released against a bond or undertaking.
The Orissa High Court, while acknowledging these varying interpretations under the Customs Act, referred to the Gujarat High Court’s decision in Synergy Fertichem Pvt. Ltd. concerning Section 130 of the GST Act. The Synergy Fertichem judgment highlighted that the pre-requisite for offering a redemption fine under Section 130 is that the goods are liable for confiscation. The fine is for redeeming the goods from confiscation, not for absolving improper conduct, for which penalty under Section 122 is applicable. The Madras High Court in M/s. Visteon Automotive Systems (under the Customs Act), cited in Synergy Fertichem, was also noted for the proposition that physical availability of goods is not always necessary for imposing redemption fine, as the power springs from the authorisation of confiscation.
Crucially, the Orissa High Court also took note of its own Division Bench judgment in Shri D. Murali Mohan Patanaik v. Secretary to Government of Odisha, which involved similar facts. In Shri D. Murali Mohan Patanaik, the court had declined to exercise writ jurisdiction after finding that payment of dues was made without protest. The court in the present case observed that Viraj Steel claimed the payment of redemption fine and penalty was under protest, but the available documents did not support this assertion. Instead, the documents indicated an admission of stock shortages and a concession to pay the penalty and fine. The court found the facts in the present case to have parity with Shri D. Murali Mohan Patanaik, where the petitioner’s conduct of making payment without clear protest led to the refusal of writ relief.
The court emphasised the principle of judicial discipline, requiring adherence to the decisions of a coordinate bench. Unless there are compelling reasons for dissent, uniformity in decisions should be maintained.
Conclusion:
Based on the analysis of the statutory provisions and the weight of judicial precedents, the Orissa High Court concluded that the case did not warrant the invocation of its extraordinary powers under Article 226 of the Constitution. The court found that the authorities had the jurisdiction to initiate proceedings under the GST Act, including search, seizure, and confiscation. The challenge essentially pertained to the manner of exercising these powers and the imposition of redemption fine, which, in the court’s view, should have been pursued through the available statutory appellate mechanism. Furthermore, the petitioner’s conduct, including the reported admission of liability and lack of clear evidence of payment under protest, weighed against entertaining the writ petition, drawing parallels with the Shri D. Murali Mohan Patanaik case.
The writ petition was accordingly dismissed, with no order as to costs.
Advocates appeared in this case For Petitioner : Mr. Kartik Kurmy, Advocate
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
