Penalty order passed on detention of goods and vehicle after 7 days from service of notice is not sustainable: Patna HC
Summary: In the case of M/s Kedia Enterprises v. State of Bihar, the Patna High Court ruled that the penalty order for the detention of goods and vehicles must comply with Section 129(3) of the Central Goods and Services Tax (CGST) Act. The vehicle of M/s Kedia Enterprises was detained on March 30, 2024, with a notice issued on April 4, 2024, and the order was passed on April 18, 2024, exceeding the seven-day limit set by the Act. The Petitioner argued that since the notice was issued in a timely manner, the order should have been passed within seven days, especially as the reply was filed on April 12, 2024, after a public holiday. The Court noted that the authorities delayed passing the order beyond the permissible time, which violated the Act’s provisions. Consequently, the High Court deemed the penalty order unsustainable and ordered the refund of the amount paid by the Petitioner. This ruling emphasizes the necessity for authorities to adhere strictly to procedural timelines established by the CGST Act, ensuring that detention orders and subsequent penalties are issued within the mandated period.
The Hon’ble Patna High Court in the case of M/s Kedia Enterprises v. State of Bihar [Civil Writ Jurisdiction Case No. 11021 of 2024 dated September 25, 2024] ruled that an Order of detention in FORM GST MOV- 06 and the Notice in FORM GST MOV-07 must be in accordance with Section 129(3) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).
Facts:
M/s Kedia Enterprises (“the Petitioner”) vehicle carrying goods was detained on March 30, 2024, against which the notice was issued against the Petitioner dated April 04, 2024, on which the Authority (“the Respondent”) passed the Order dated April 18, 2024 (“the Impugned Order”).
The Petitioner contented that, as per the Section 129(3) of the CGST Act the Impugned Order has not been passed within the 7 days of service of notice.
The Petitioner was given time up to April 11, 2024 to file a reply but it was a public holiday on the date provided and hence the Petitioner filed the reply on April 12, 2024 while the Impugned Order had to be passed on April 18, 2024 while it had to be passed at least on 12.04.2024 since the 11th was a public holiday.
The Circular issued under Section 68 of the CGST Act in that it is specifically directed as, that an Order of detention in FORM GST MOV-06 and a notice in FORM GST MOV-07 must be in accordance with Section 129(3) of the CGST Act. The Petitioner did file the reply on the last date, in which the Respondent ought to have passed an Order on the date itself, after considering the reply. The Respondent had delayed the matter, due to which mandate of Section 129(3) of the CGST Act is not followed.
Hence, aggrieved by the Impugned Order, the Petitioner had filed the writ petition before the Hon’ble Patna High Court.
Issue:
Whether penalty order passed on the detention of goods and vehicle after 7 days from service of notice is sustainable?
Held:
The Hon’ble High Court of Patna in Civil Writ Jurisdiction Case No.11021 of 2024 held as under:
- Observed that, the Circular issued under Section 68 of the CGST Act read with Rule 138 of the Central Goods and Service Tax Rules, 2017 (“the CGST Rules”) in that it is specifically directed as, that an Order of detention in FORM GST MOV-06 and a notice in FORM GST MOV-07 must be in accordance with Section 129(3) of the CGST Act. Here, despite the notice having been issued within time, the Petitioner was granted the entire limitation period for filing a reply. The Petitioner did file the reply on the last date, where consequently, the Respondent ought to have passed an Order on the date itself, after considering the reply. The Respondent had delayed the matter, due to which mandate of Section 129(3) of the CGST Act is not followed.
- Opined that, as per the Section 129(5) of the CGST Act, if there is no proceeding concluded as on the date of payment, which is April 24, 2024, since the Impugned Order was passed on April 18, 2024. Hence, the payment was made only to get release of the vehicle, which was against the Impugned Order and not under the Section 129(1)(a) of the CGST Act.
- Held that, the Impugned Order cannot be sustained and was set aside. The Court directed the Respondent to refund the amount which was paid by the Petitioner.
Our Comments:
Section 129 of the CGST Act governs that “Detention, seizure and release of goods and conveyances in transit”. Section 129(1) of the CGST Act states that where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of the CGST Act or the CGST 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 on the following:
- On payment of the applicable tax and penalty equal to 100% of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to 2% 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;.
- On payment of the applicable tax and penalty equal to 50% of the value of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of an amount equal to 5% of the value of goods or INR 25,000/- , whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty.
Upon furnishing a security equivalent to the amount payable under Section 129(1)(a) of the CGST Act or Section 129(1)(b) of the CGST Act in such form and manner as may be prescribed.
However, no such goods or conveyance shall be detained without serving an order of detention or seizure on the person transporting the goods.
Further, Section 129(3) of the CGST Act, that was substituted by the Finance Act, 2021 w.e.f. January 01, 2022, states that the proper officer detaining or seizing the goods or conveyances shall issue a notice specifying the tax and penalty payable and thereafter pass an Order for payment of tax and penalty under Section 129(1)(a) of the CGST Act, Section 129(1)(b) of the CGST Act and Section 129(1)(c) of the CGST Act.
In a Pari Materia case of Pawan Carrying Corporation v. State of Bihar, Assistant Commissioner of State Tax, Siwan Circle [Civil Writ Jurisdiction Case No. 3499 of 2024 dated February 29, 2024], the Hon’ble Patna High Court held that, the proper officer must issue the notice right within the seven days of detention or seizure of goods and conveyance. There is no reason to wait for an application by the driver of the vehicle for the verification of the goods when the vehicle is intercepted. Lastly, the order should be passed within the seven days of the service of notice of such detention or seizure of goods or conveyance.
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