Seller cannot be penalised for mentioning the quantity of goods in pieces instead of weight

Ganpati Battery Traders Vs State of U.P. (Allahabad High Court)

Seller cannot be penalised for mentioning the quantity of goods in pieces instead of weight

The Hon’ble Allahabad High Court in the matter of M/s. Ganpati Battery Traders v. State of U.P. [Writ Tax No. 1138 of 2021 dated December 6, 2022] has held that mere selling of batteries by piece instead by weight does not make the seller liable to be penalised under the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

Facts:

M/s. Ganpati Battery Traders (“the Petitioner”) is involved in the business of sale and purchase of old batteries. The Petitioner sold large and small damaged batteries (“the Goods”) to M/s Shanti Prakash Power Private Limited in Gwalior through tax invoice, which was intercepted enroute by Mobile Squad, Unnao. The truck was detained for verification under Section 20 of the Integrated Goods and Service Tax Act, 2017 (“the IGST Act”) read with Section 68(3) of the CGST Act.

The Petitioner was served with a notice under Section 20 of the IGST Act read with Section 129(3) of the CGST Act, followed by the order imposing a penalty of INR 9,70,542/- by the Assistant Commissioner (“the Respondent”) on the basis that the goods were sold based on number of pieces and not by weight. Accordingly, the Petitioner deposited the entire penalty and the goods were released. Further, the Petitioner filed an appeal against the order of the Assistant Commissioner, which was rejected upholding the order of the Respondent.

Being aggrieved, this petition has been filed.

The Petitioner contended that it had purchased the goods by piece and further sold it by piece and that there was no concealment on its part as all the correct details were furnished by the Petitioner in the invoice differentiating the goods.

The Department contended that the Petitioner was trying to evade taxes by selling the goods by piece instead by weight. It was further contended that Rule 46 of the Central Goods and Service Tax Rules, 2017 (“the CGST Rules”) would be applicable in the case.

Issue:

Whether the Department was right in imposing penalty on the Petitioner?

Held:

The Hon’ble Allahabad High Court in Writ Tax No. 1138 of 2021 held as under:

• Noted that, the Respondent while imposing penalty has not mentioned any reason as to why the Petitioner’s explanation cannot be accepted and the trade practice required the selling of goods by weight and not by piece.
• Observed that, the Appellate Authority has failed to record any finding as to how it has arrived to the conclusion that the trade practice required the goods to be sold is according to the weight and not per piece, when the Petitioner was purchasing and selling the goods on the basis of per piece and was maintaining the Books of Account.
• Further observed that, the Petitioner has complied with Rule 46 of the CGST Rules by providing correct description of the goods sold. Further, The Respondent had wrongly detained the truck along with the goods of the Petitioner and imposed a penalty
• Held that, the Department was wrong in detaining the goods and imposing a penalty of INR 9,70,542/-.
• Directed the Respondent to refund the amount of penalty charged from the Petitioner within a month.

Relevant Provisions

Rule 46 of the CGST Rules:

“Tax invoice.-

Subject to rule 54, a tax invoice referred to in section 31 shall be issued by the registered person containing the following particulars, namely,-

(a) name, address and Goods and Services Tax Identification Number of the supplier;

(b) a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;

(c) date of its issue;

(d) name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;

(e) name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is un-registered and where the value of the taxable supply is fifty thousand rupees or more;

(f) name and address of the recipient and the address of delivery, along with the name of the State and its code, if such recipient is un-registered and where the value of the taxable supply is less than fifty thousand rupees and the recipient requests that such details be recorded in the tax invoice;

Provided that where any taxable service is supplied by or through an electronic commerce operator or by a supplier of online information and database access or retrieval services to a recipient who is un-registered, irrespective of the value of such supply, a tax invoice issued by the registered person shall contain the name and address of the recipient along with its PIN code and the name of the State and the said address shall be deemed to be the address on record of the recipient.

(g) Harmonised System of Nomenclature code for goods or services;

(h) description of goods or services;

(i) quantity in case of goods and unit or Unique Quantity Code thereof;

(j) total value of supply of goods or services or both;

(k) taxable value of the supply of goods or services or both taking into account discount or abatement, if any;

(l) rate of tax (central tax, State tax, integrated tax, Union territory tax or cess);

(m) amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess);

(n) place of supply along with the name of the State, in the case of a supply in the course of inter-State trade or commerce;

(o) address of delivery where the same is different from the place of supply;

(p) whether the tax is payable on reverse charge basis; and

(q) signature or digital signature of the supplier or his authorised representative:

(r) Quick Reference code, having embedded Invoice Reference Number (IRN) in it, in case invoice has been issued in the manner prescribed under sub-rule (4) of rule 48.

(s) a declaration as below, that invoice is not required to be issued in the manner specified under sub-rule (4) of rule 48, in all cases where an invoice is issued, other than in the manner so specified under the said sub-rule (4) of rule 48, by the taxpayer having aggregate turnover in any preceding financial year from 2017-18 onwards more than the aggregate turnover as notified under the said sub-rule (4) of rule 48-

“I/We hereby declare that though our aggregate turnover in any preceding financial year from 2017-18 onwards is more than the aggregate turnover notified under sub-rule (4) of rule 48, we are not required to prepare an invoice in terms of the provisions of the said sub-rule.”:

Provided that the Board may, on the recommendations of the Council, by notification, specify-

(i) the number of digits of Harmonised System of Nomenclature code for goods or services that a class of registered persons shall be required to mention; or

(ii) a class of supply of goods or services for which specified number of digits of Harmonised System of Nomenclature code shall be required to be mentioned by all registered taxpayers; and

(iii) the class of registered persons that would not be required to mention the Harmonised System of Nomenclature code for goods or services:

Provided further that where an invoice is required to be issued under clause (f) of sub-section (3) of section 31, a registered person may issue a consolidated invoice at the end of a month for supplies covered under sub-section (4) of section 9, the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the suppliers:

Provided also that in the case of the export of goods or services, the invoice shall carry an endorsement “Supply Meant For Export/Supply To SEZ Unit Or SEZ Developer For Authorised Operations On Payment Of Integrated Tax” Or “Supply Meant For Export/Supply To SEZ Unit Or Sez Developer For Authorised Operations Under Bond Or Letter Of Undertaking Without Payment Of Integrated Tax”, as the case may be, and shall, in lieu of the details specified in clause (e), contain the following details, namely,-

(i) name and address of the recipient;

(ii) address of delivery; and

(iii) name of the country of destination:

Provided also that a registered person , other than the supplier engaged in making supply of services by way of admission to exhibition of cinematograph films in multiplex screens, may not issue a tax invoice in accordance with the provisions of clause (b) of sub-section (3) of section 31 subject to the following conditions, namely,-

(a) the recipient is not a registered person; and

(b) the recipient does not require such invoice, and

shall issue a consolidated tax invoice for such supplies at the close of each day in respect of all such supplies.

Provided also that the signature or digital signature of the supplier or his authorised representative shall not be required in the case of issuance of an electronic invoice in accordance with the provisions of the Information Technology Act, 2000 (21 of 2000).

Provided also that the Government may, by notification, on the recommendations of the Council, and subject to such conditions and restrictions as mentioned therein, specify that the tax invoice shall have Quick Response (QR) code.”

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

Heard Sri Anil Prakash Mathur, learned counsel for the petitioner and Sri Rishi Kumar, learned Standing Counsel for the State.

This writ petition has been filed challenging the order dated 30.4.2022 passed by the Additional Commissioner, Grade-2 (Appeal) Second, Commercial Tax Department, Kanpur.

The petitioner is engaged in the business of sale and purchase of old batteries. On 18.2.2022, 793 pieces of large damaged battery and 7538 pieces of small damaged battery were sold to M/s Shanti Prakash Power Private Limited at Gwalior through tax invoice. The goods were being sent through Truck No.UP79-T-5059, and were enroute to its destination, when it was intercepted by Mobile Squad near Unnao on 23.2.2022. The truck was detained for verification under Section 20 of the Integrated Goods and Service Tax Act, 2017 read with Section 68(3) of the Central Goods and Service Tax Act, 2017. The physical verification and inspection was conducted on 26.2.2022. On 26.2.2022, a notice was served upon the driver of the truck under Section 20 of the IGST Act, 2017 read with Section 129(3) of CGST Act, 2017, granting five days time to file reply. A reply was submitted by the petitioner. The Assistant Commissioner (Mobile Squad), Unnao vide order dated 1.3.2002 imposed a penalty of Rs.9,70,542/- and directed for deposit of the amount in terms of Section 129(1)(a) or 129(1)(b) of GST Act, 2017. The petitioner deposited the entire amount of penalty, and the truck along with goods were released on 1.3.2022. Against the order of the Assistant Commissioner, an appeal was preferred by the petitioner before the Additional Commissioner, Grade-2 (Appeal) Second, Commercial Tax Department, Kanpur. The said appeal was rejected vide order dated 30.4.2022, served on 6.6.2022.

Sri Mathur, learned counsel for the petitioner submitted that the Appellate Authority was not correct to uphold the detention order and the order of penalty passed by the Assistant Commissioner on the ground that the goods sold were on the basis of number of pieces and not according to the weight. He contended that it was old and damaged batteries which the petitioner had purchased only by pieces and not by weight, and was further sold according to battery per piece. He further submitted that the batteries were completely redundant and cannot be re-sold after repair. According to him, there was no concealment on the part of the petitioner/assessee as correct description was given in the truck invoice differentiating the goods between large damaged battery and small damaged battery.

Sri Rishi Kumar, learned Standing Counsel while defending the order of Adjudicating Authority as well as the First Appellate Authority submitted that the petitioner was trying to evade payment of tax and the battery was sold in terms of per piece and not according to the weight. He contended that Rule 46 of the Central Goods and Service Tax Rules, 2017 would be applicable in the present case.

Having heard respective counsels for the parties and from the perusal of material on record, I find that the petitioner/assessee is dealing in the business of sale and purchase of old batteries, and tax invoice dt 18.2.2022 gives a complete detail of the batteries which were sold to M/s Shanti Prakash Power Private Limited at Gwalior. The description of the batteries given in the tax invoice is under two headings, i.e., large damaged battery and small damaged battery. In the reply furnished by the petitioner in paragraph 3, it has been stated that the battery is purchased and sold on the basis of per piece and not on the basis of weight. The Adjudicating Authority while passing the order dated 1.3.2022 has not recorded any finding as to how the explanation accorded by the petitioner cannot be accepted and the trade practice of purchase and sale of battery is according to weight and not per piece.

Similarly, the First Appellate Authority has failed to record any finding as to how it has arrived to the conclusion that the trade practice required the battery to be sold is according to the weight and not per piece, when the specific case of the petitioner was that he was purchasing and selling the battery on the basis of per piece and was maintaining the Books of Account, which has not been denied by the Taxing Authority.

Moreover, the description in the tax invoice, and consignment note also clearly mentions damaged batteries, large and small, which were being transported to Gwalior. Further, this Court finds that Rule 46 of CGST Rules, 2017, which has been relied heavily by the State, also does not provide for the stand taken by the State, and it only provides the description which the seller is to give while the goods are sold, which, in the present case, has been done by the petitioner.

Considering the facts and circumstances of the case, I find that the Assistant Commissioner had wrongly detained the truck along with the goods of the petitioner and imposed a penalty of Rs.9,70,542/- and the adjudication order dated 1.3.2022 and the appellate order dated 30.4.2022 have no legs to stand as no reasoning has been accorded by either of the authorities in consonance with the law so as to hold that the old and damaged batteries are to be sold according to the weight and not per piece. Both the orders dated 1.3.2022 and 30.4.2022 are hereby set aside.

The writ petition stands allowed.

The authorities are directed to refund the amount of penalty charged from the petitioner within a period of one month from today.

****

(Author can be reached at info@a2ztaxcorp.com)