State Tax Officer Vs Y. Balakrishnan (Kerala High Court)
Conclusion: In present facts of the case, the Hon’ble High Court dismissed the Review Petition and it was observed that the provisions of section 130 of the Act contemplate release of goods on payment of fine in lieu of confiscation at two stages (i) during the process of adjudication, under section 130(2) and, (ii) post-adjudication under section 130(3) of the Act.
Facts: In present facts of the case a Review Petition was filed by the State Tax Officer, leading to seminal questions on the scope and ambit of the powers of release of goods while the confiscation proceedings are going on. The dispute emerges from an inspection conducted by the officers who seized, as per Rule 139(2) of the Central Goods and Services Tax Rules, 2017, beedis (which is undoubtedly perishable in nature, with a limited shelf life), stored by the respondent in this review petition in his different godowns. Orders of prohibition were later issued under Rule 140 of the Rules.
The dealer initially filed Writ wherein, by an interim order dated 26-08-2021, this Court observed that the dealer is free to approach the Tax Officer for release of goods. In the meantime, the Tax Officer issued three separate show-cause notices, all dated 25-08-2021, proposing to confiscate the goods and the conveyances and levied penalty under section 130 of the Act. The dealer immediately filed another writ challenging the show-cause notices. The notices specified, apart from tax and penalty, the quantum to be paid as fine in lieu of confiscation of the goods. The writ petition was filed, alleging that the goods were not liable for confiscation and that perishable goods cannot be detained indefinitely. It was claimed that the goods were liable to be released on a provisional basis, upon execution of a bond or a bank guarantee.
The Hon’ble High Court vide its Order dated 07-09-2021 directed the Tax Officer to release the goods in favour of the dealer, on payment of the amounts contemplated under section 130(2) of the Act. Soon thereafter, the Tax Officer preferred the present review petition, seeking to review the interim order dated 07-09-2021. The Hon’ble High Court in the Review Petition framed three issues after taking submissions of both sides into consideration:
Issues
(i) Whether the provisions of section 130 of the Act contemplate any provisional release of goods, as directed in the interim order of this Court?
(ii) Whether the amount payable for release of the goods under section 130 of the Act is fine alone or is it fine, penalty and tax to be paid together for securing release of the goods? and,
(iii) What is the basis or rate for calculating the fine under section 130 of the Act?
On Issue -1, the Hon’ble High Court observed that in the decision in decision of High Court of Gujarat in Kannan v. State of Gujarat, though it was observed that the competent authority has the power to pass an order of provisional release of goods, subject to certain terms and conditions, this Court is of the view that section 130(2) contemplates a release not provisional or absolute but a release peculiar to the Act during the course of adjudication. Further, the provisions of section 125 of the Customs Act though contains similar wordings as in section 130(2) of the Act, the interpretations adopted therein cannot be adopted in their entirety since specific distinctions are available in the various clauses of section 130 of the Act.
Thus, it was concluded that though section 130(2) is not a case of provisional release, the sub-clause confers power upon the competent officer to release the goods on payment of fine in lieu of confiscation, while the proceedings for confiscation are continuing and before orders of adjudication are passed.
For Issue – 2, it was observed that the words “be liable” in section 130(3) of the Act only conveys a possibility of attracting the obligation and not an imperative obligation, shorn of fair procedure. In view of the above deliberations, this Court is of the view that, when fine in lieu of confiscation is paid by a dealer under section 130(2) of the Act, the liability for payment of tax, penalty and charges will fall upon the dealer, in addition to the fine and they need be paid only after adjudication. To obtain the release of the goods or conveyances, while the adjudication proceedings are continuing, the taxpayer needs to pay only the fine and not the tax, penalty and charges thereon. The tax, penalty and charges can be paid after adjudication.
On Issue 3, it was observed that the first proviso to section 130(2) states that the fine leviable shall not exceed the market value of the goods confiscated. The term ‘market value’ is defined in section 2(73) to mean “the full amount which a recipient of a supply is required to pay in order to obtain the goods or services or both of like kind and quality at about the same time and at the same commercial level where the recipient and the supplier are not related”. Therefore, the definition of the term market value clearly indicates that the term is not referable to the maximum retail price and on the contrary, it is a sale price that is agreed to between a bonafide supplier and a bonafide purchaser, who are not related to each other. Thus, The basis for calculating the fine in lieu of confiscation under section 130 of the Act is only the market value as defined under section 2(73) of the Act and not the maximum retail price.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
An interim order is the cause of this review petition. By the interim order, this Court directed release of goods that were the subject matter of proceedings for confiscation under the Central Goods and Services Tax Act, 2017 (for brevity ‘the Act’). A review petition against the interim order is preferred by the State Tax Officer, leading to seminal questions on the scope and ambit of the powers of release of goods while the confiscation proceedings are going on.
2. The primary question for consideration is whether section 130(2) of the Act contemplates the release of goods by payment of fine in lieu of confiscation, even before orders of confiscation are issued. In addition, an incidental question that arises is on the quantum payable as fine in lieu of confiscation.
3. The genesis of the dispute emerges from an inspection conducted by the officers of the Kerala State GST Department on 03-08-2021, who seized, as per Rule 139(2) of the Central Goods and Services Tax Rules, 2017, (for brevity ‘the Rules’), beedis, stored by the respondent in this review petition in his different godowns. Orders of prohibition were later issued under Rule 140 of the Rules. For easier comprehension, the review petitioners are hereafter referred to as ‘Tax Officer’, while the respondent will be referred to as the ‘dealer’.
4. It is appropriate to mention that beedi is an indigenous smoking product like a cigar or a cigarette, made by rolling a dried leaf filled with flaked tobacco and is undoubtedly perishable in nature, with a limited shelf life.
5. When attempts to obtain release of the seized beedis were unsuccessful, the dealer initially filed W.P.(C) No.17280 of 2021, wherein, by an interim order dated 26-08-2021, this Court observed that the dealer is free to approach the Tax Officer for release of goods. In the meantime, the Tax Officer issued three separate show-cause notices, all dated 25-08-2021, proposing to confiscate the goods and the conveyances and levied penalty under section 130 of the Act.
6. The dealer immediately filed another writ petition as W.P.(C) No.18169 of 2021, challenging the show-cause notices. The notices specified, apart from tax and penalty, the quantum to be paid as fine in lieu of confiscation of the goods. For reference, the following are extracted from the three notices – Ext.P8, Ext.P8(a) and Ext.P8(b), (the part relating to tax and penalty are not extracted) issued to the dealer relating to the fine in lieu of confiscation:
Ext.P8
