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July 31, 2020

There is no provision under GST which mandate that goods shall not be sold below MRP- Kerala HC

by Rubina Dsouza in GST, Legal Court Judgement

There is no provision under GST which mandate that goods shall not be sold below MRP- Kerala HC

Introduction

Detention of goods basically refers to the act of withholding from a lawfully entitled person the possession of land or goods to which they have an immediate right. Section 129 of the CGST Act, 2017 pertains to detention, seizure and release of goods and conveyances in transit.

Further, can an officer detain or seize goods if found below the value quoted in the invoice that accompanied the goods was low when compared to the Maximum Retail Price (MRP) of the goods. We will understand this with a very interesting case law of  Alfa Group (petitioner) vs The Assisstant State Tax Officer (respondent) Kerala HC.

When can goods be detained under GST?

According to Section 129, where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the 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. No such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.

How can the detained goods or documents be released?

After detention or seizure, the said goods and documents and, shall be released:-

  1. 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 Rs 25,000, whichever is less, where the owner of the goods comes forward for payment of such tax and penalty
  2. on payment of the applicable tax and penalty equal to the 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 Rs 25,000, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty
  3. upon furnishing a security equivalent to the amount payable as mentioned above in such form and manner as may be prescribed.

Confiscation of goods or conveyances and levy of penalty

Section 130 of CGST Act, 2017 pertains to confiscation of goods or conveyances and levy of penalty. According to Section 130, if any person:-

  1. supplies or receives any goods in contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
  2. does not account for any goods on which he is liable to pay tax under this Act; or
  3. supplies any goods liable to tax under this Act without having applied for registration; or
  4. contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax; or
  5. uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made thereunder unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance,

Then all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under section 122.

Is there any provision in GST law which mandates that goods shall not be sold below MRP?

Let us refer to the judgment of the Kerala High Court in the case of Alfa Group (petitioner) vs The Assisstant State Tax Officer (respondent) which pertained to writ petition filed challenging the proceedings of the respondent, attaching the bank account of the petitioner maintained for realizing the tax dues.

Facts of the Case

  1. The challenge in the Writ Petition was against the notice by which, goods belonging to the petitioner were detained in a parcel godown, on the ground that the value quoted in the invoice that accompanied the goods was low when compared to the Maximum Retail Price (MRP) of the goods.
  2. There was a further allegation therein that the HSN code of the goods was wrongly entered.
  3. It was the contention of the petitioner that the reasons given in the order of detention did not justify a detention of the goods under Section 129 or under Section 130, and therefore, a direction was ought to be issued to the respondents to immediately release the goods belonging to the petitioner.

Proceedings of the High Court

  1. High Court found that none of the reasons stated in the order justify detention of the goods.
  2. There is no provision under the GST Act which mandates that the goods shall not be sold at prices below the MRP declared thereon.
  3. Further, there was nothing in the order that showed that, on account of the alleged wrong classification of the goods there was any difference in the rate of tax that was adopted by the assessee.
  4. According to the High Court, the statutory scheme of the GST Act is such as to facilitate a free movement of goods, after self-assessment by the assessees concerned, the respondents cannot resort to an arbitrary and statutorily unwarranted detention of goods in the course of transportation.
  5. Such action on the part of department officers could erode public confidence in the system of tax administration in our country and, as a consequence, the country’s economy itself.

The High Court therefore quashed the detention order and directed the respondents to release the goods belonging to the petitioner. High Court also directed the Commissioner, Kerala State Taxes Department, Thiruvananthapuram to issue suitable instructions to the field formations so that such unwarranted detentions are not resorted to in the future.

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