Case Law Details
Commercial Steel Company Vs Assistant Commissioner of State Tax (Telangana High Court)
The petitioner, a registered dealer engaged in the business of iron and steel, purchased goods from JSW Steel Limited, Karnataka, under a tax invoice dated 11.12.2019 on which IGST at 18% amounting to ₹63,526 was levied. While the goods were being transported from Karnataka to Hyderabad with all requisite documents, the vehicle was detained at Jeedimetla on 12.12.2019, and a notice under Section 129(3) of the CGST Act, 2017 was issued alleging “wrong destination” and demanding Central Tax, State Tax, and penalty amounting to ₹4,16,447. The petitioner contended that payment was made due to pressure to secure release of the vehicle, that the consignment was covered by proper documents, that the authorities lacked jurisdiction to detain goods in transit during an inter-State sale, and that “wrong destination” was not a valid ground for detention or levy of tax and penalty. The petitioner also contended that penalty required willful and contumacious conduct and sought refund of the amount collected.
Read SC Judgmentin this case: HCs Should Not Entertain GST Writs When Statutory Appeal Exists: SC
The respondents submitted that there was no coercion, that a show-cause notice in Form MOV-07 had been issued with an opportunity to file objections, and that principles of natural justice had been followed. They contended that although the goods were transported from Karnataka, there was a possibility of local sale because the vehicle had crossed Balanagar, the destination mentioned in the invoice, and reached Jeedimetla. According to the respondents, this indicated that the goods might have been intended for sale in the local market to evade CGST and SGST, and the detention was therefore justified.
The High Court held that the detention order itself recorded “wrong destination” as the reason for detention under Section 129(1) of the CGST Act, 2017, and that this was not a ground under the Act to detain the vehicle or levy tax or penalty. The Court observed that a mere possibility of local sale could not justify the impugned action and that no material had been placed on record to show any attempt by the petitioner to deliver the goods elsewhere or sell them in the local market. It further observed that a driver from Karnataka could have lost his way in Hyderabad or entered the city through a Ring Road, and therefore the vehicle’s presence at Jeedimetla did not automatically establish an intention to evade CGST and SGST.
The Court noted that the invoice showed IGST at 18% had already been paid and the goods were moving from Karnataka to Balanagar in Hyderabad. It held that the goods could not be treated as having escaped tax and that there was no warrant to detain the vehicle or demand ₹4,16,447 as tax and penalty. The Court also accepted that the payment made by the petitioner to secure release of the vehicle should be presumed to have been made under economic duress. It held that there were no good and sufficient reasons for detention when the transaction was an inter-State movement of goods and the provisions of the SGST Act were not shown to have been violated. The Court further held that there was no warrant to levy penalty since there was no willfulness in the conduct of the dealer.
Referring to the observations of the Supreme Court in Dabur India Ltd. vs. State of Uttar Pradesh, the Court observed that the Government cannot coerce payment of duties that are disputed and cannot resort to extra-legal methods of recovery. It concluded that the collection of ₹4,16,447 towards tax and penalty under threat of detention for the reason of “wrong destination,” despite the vehicle carrying proper documents evidencing an inter-State sale, was arbitrary and violative of Articles 14, 265 and 300-A of the Constitution of India.
The High Court directed the first respondent to refund ₹4,16,447 with interest at 6% per annum from 13.12.2019 until payment within three weeks from receipt of the order. It also directed the third respondent to consider initiating disciplinary action against the first respondent. The writ petition was allowed with costs of ₹25,000 payable by the first respondent, and pending miscellaneous applications were ordered to stand closed.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
The petitioner herein is a proprietary concern engaged in the business of Iron and Steel and is a registered dealer on the rolls of the Hyderabad Rural STU-I, Centre Jurisdiction, Gajularamaram, Hyderabad (2nd respondent).
2. The petitioner was allotted GST No.36AAMPA4421B2ZC.
3. The petitioner purchased goods from a dealer M/s. JSW Steel Limited, Vidyanagar, Karnataka vide Tax Invoice 19UJ2900401551 dt.11.12.2019 valued at Rs.3,52,920.74.
4. Against the said tax invoice under the Integrated Goods and Service Tax Act (I.G.S.T.), tax at18% was levied coming to Rs.63,526/-.
The plea of the petitioner
5. According to petitioner, when the consignment was coming from Vidyanagar, Karnataka with all requisite documents through a vehicle bearing No.KA 35 C 0141, it was detained at Jeedimetla at 05:30 p.m. on 12.12.2019, and a notice under Section 129 (3) of the C.G.S.T. Act, 2017 (for short, ‘the Act’) was issued alleging ‘wrong destination’ and directing payment of 9% of the Central Tax and 9% of State Tax and penalty equal to tax estimating the purchase value of Rs.11,14,579/- as against the actual tax invoice value of Rs.4,16,447/-.
6. It is contended by the petitioner that since at that time the proprietor of the petitioner could not contest it on account of there being a marriage in his house on 12.12.2019 at Hyderabad, and since the driver of the vehicle was pressurizing for release of the vehicle, he was forced to pay the amount mentioned in the notice dt.12.12.2019 issued by the 1strespondent.
7. The petitioner further contended that the said collection of tax and penalty by the respondents is through coercion and threat in spite of the fact that the consignment was covered by all the requisite documents. It is alleged that when the goods were in transit in an inter-State sale, the respondents cannot detain the same and demand and collect the tax in the manner they have done which is arbitrary and without jurisdiction.
8. It is also contended that the 1st respondent had no authorization as contemplated under Section 67 of the Act read with Section 68 thereof and the collection of taxes under both the Central and State Acts towards G.S.T. is arbitrary and highhanded; that at best the 1st respondent can collect from the dealer a security equivalent to the amount payable under Clauses (a) or (b) in the manner prescribed in Section 129(1) of the Act; and that the reason ‘wrong destination’ given by the respondents is not a good and sufficient reason for levying and collecting tax and penalty from the petitioner and the detention of the goods and the vehicle as well as collection of tax and penalty, is contrary to the provisions of G.S.T. Act, 2017.
9. It is also contended that penalty cannot be levied unless there is willfulness and contumacious conduct of the dealer, and therefore, the petitioner should be granted a refund of the amount of Rs.4,16,447/-levied and collected under both the Central Tax Act and the State Tax Act, 2017.
The stand of the 1st respondent
10. Counter-affidavit was filed by 1st respondent contending that there was no pressure on the dealer to pay the tax and penalty; moreover a show-cause notice in Form MOV-07 was given and opportunity to file objections was also given; and there was, therefore, compliance with principles of natural justice.
11. Quoting the terms of the invoice, it was contended how the total value of the goods in the vehicle transporting them from Karnataka to Hyderabad was arrived at; that even if the goods are coming from Karnataka there is a possibility that the goods were to be sold to third-party as a local sale or not intended to be delivered at the correct place indicated in the documents being carried in the conveyance / vehicle.
12. It is further contended that if the goods were to be delivered at Balanagar according to the invoice, the vehicle cannot be at Jeedimetla since Balanagar comes first and Jeedimetla later, and no reasonable person would cross over Balanagar and then turn over to go back to the place of destination. It is also stated that there is a road from Jeedimetla to Balanagar which can be used to turn back to Balanagar. But, if the said road is blocked due to strikes or repairs or if there are rallies only that can be done, and there is no reason assigned to take the longer route avoiding the normal route.
13. It was further contended that no objection was raised regarding the notice to pay tax and penalty, and the amount was also paid without any protest.
14. It is alleged that under the guise of inter-State sale or supply, the petitioner tried to sell the goods in the local market evading levies both under the CGST and SGST. It is stated that the 1st respondent had authorisedly issued the impugned notice on12.2019 to detain the goods.
15. It was also stated that the 1st respondent had valid authorization to detain the vehicle with the goods.
The Consideration by the Court
16. We have noted the contentions of both sides.
17. Admittedly, it was mentioned in the order of detention of the vehicle and the consignment carried thereon from Karnataka to Hyderabad issued under Section 129(1) of the CGST Act, 2017 that the reason for such detention is ‘wrong destination’. Under the Act, this is not a ground to detain the vehicle carrying the goods or levy tax or penalty.
18. Though it is stated that tax and penalty were levied and collected because it was presumed that at Jeedimetla, there was possibility of a local sale, a mere possibility cannot clothe the 1st respondent to take the impugned action. There is no material placed on record by the 1st respondent to show that any attempt was made by the petitioner to deliver the goods at a different place and sell in the local market evading CGST and SGST, because it was found at Jeedimetla. It is not as if the detention was affected by the 1st respondent after noticing any such attempt to sell the goods in the local market by the petitioner.
19. When the vehicle is being driven from Karnataka by a local driver of Karnataka it is perfectly possible for the driver to lose his way on account of being unfamiliar with the roads in the city of Hyderabad and bypassing Balanagar and going to Jeedimetla. Or else he may have entered the City by a Ring Road from the direction of Jeedimetla to go towards Balangar, his destination.
20. So the fact that the vehicle was found at Jeedimetla does not automatically lead to any presumption that there was an intention on the part of the petitioner to sell the goods at the local market evading the CGST and SGST.
21. The invoice in the custody of the driver of the vehicle indicated that IGST @ 18% was already collected and the goods were coming from Karnataka to Balanagar in Hyderabad. When the IGST was already paid, the goods cannot be treated as having escaped tax and fresh tax and penalty cannot be imposed on petitioner.
22. We therefore hold that there was no warrant to detain the vehicle along with goods, demand payment of Rs.4,16,447/- as tax and penalty under the CGST and SGST Act, 2017.
23. Since petitioner could not contest it owing to the wedding ceremony in his family at that point of time in order to be able to secure the release of the vehicle carrying the goods at the instance of the driver of the vehicle, such payment has to be presumed as one made due to economic duress and the petitioner cannot be blamed for paying the same without protest, when he had no choice but to pay it.
24. In our considered opinion, there were no good and sufficient reasons for detention by the 1st respondent of the vehicle and the goods which it was carrying when the transaction causing movement of the goods was inter-State in nature and the provisions of the SGST were not shown to have been violated. Also, there is no warrant to levy any penalty since it cannot be said that there is any willfulness in the conduct of the dealer.
25. It is settled law that no tax shall be levied or collected except by authority of Law as per Article 226 of the Constitution of India.
26. In Dabur India Ltd. vs. State of Uttar Pradesh (1990) 4 S.C.C. Pg.113, the Supreme Court observed that a litigant cannot be coerced by the Government to make payment of duties which the litigant is contending not to be leviable. The Supreme Court held that though the State is entitled to enforce payment and to take all legal steps, it cannot be permitted to play dirty games with the citizens to coerce them in making payments when the citizens were not obliged to make them. It also observed that if any money is due to the Government it should not take extralegal steps to recover
27. Therefore, in our considered opinion, the impugned action of the respondents in collecting the amount of4,16,447/- from the petitioner towards tax and penalty under the CGST and SGST Act, 2017 under threat of detention of the vehicle carrying the said goods for an absurd reason (‘wrong destination’) when the vehicle in question carried all the proper documents evidencing that it was an inter-State sale transaction is clearly arbitrary, violative of Articles 14, 265 and 300-A of the Constitution of India.
28. The 1st respondent is directed to refund the same with interest at the rate of 6% per annum from 13.12.2019 till the date of payment within a period of three (03) weeks from the date of receipt of copy of the order.
29. The 3rd respondent shall also consider initiating disciplinary action against 1st respondent for the above conduct of 1st
30. Accordingly, the Writ Petition is allowed as above with costs of Rs.25,000/- to be paid by 1st
31. As a sequel, miscellaneous applications pending if any in this Writ Petition, shall stand closed.
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