Can Discrepancies in valuation of goods be the ground for detention of goods under transport?

Introduction

Section 129 of CGST Act, 2017 explains Detention, seizure and release of goods and conveyances in transit.

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, 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

These goods or documents shall be released:
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
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
upon furnishing a security equivalent to the amount payable under points (a) & (b) as above
No such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.
The provisions of section 67(6) shall apply for detention and seizure of goods and conveyances.
The proper officer detaining or seizing goods or conveyances shall issue a notice specifying the tax and penalty payable and thereafter, pass an order for payment of tax and penalty
No tax, interest or penalty shall be determined without giving the person concerned an opportunity of being heard.
Where the person transporting any goods or the owner of the goods fails to pay the amount of tax and penalty as provided within 7 days of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of section 130
If the detained or seized goods are perishable or hazardous in nature or are likely to depreciate in value with passage of time, the period of 7 days may be reduced by the proper officer.

Both the goods and the conveyance will be confiscated if any person –

Supplies/receives goods in contravention of the provisions of GST to evade tax
Cannot account for the presence of seized goods
Supplies goods without registering (even though he is liable to register)
Violates rules to evade tax
Uses any conveyance/vehicle to transport goods in contravention to the GST provisions

The vehicle might not be confiscated if the owner of the vehicle can prove that it was used without his knowledge.

Penalty will also be applicable in each of the above cases. Before confiscating the goods, the tax officer shall give an option of paying a fine instead of confiscation.

Let us refer to the case of K.P. Sugandh Ltd vs State Of Chhattisgarh, where the issue under consideration was whether discrepancies in valuation of goods could be the ground for detention of goods under transport or not.

Facts of the Case:

The petitioners were manufacturers of ‘Pan Masala and Tobacco Products’.
The petitioners dispatched goods both Pan Masala and Tobacco Products to its customer vide Truck belonging to the transporter Shyam Transport Company.
The customer to which the goods were being dispatched was M/s. Ravi Agency at Raipur.
While the goods were being transported, the petitioners had issued a tax invoice as well as e- way bill generated and handed the same to the In-charge of the conveyance i.e., the driver.
When the said vehicle left for Raipur, the vehicle was intercepted by the officials of the respondents/ Department and asked for the details of the consignment.

The driver of the vehicle produced before the authorities the relevant invoice bill and also produced the e-way bill as was required under the Act to the authorities concerned.
Despite of this, the respondent authorities seized the vehicle and the goods on the grounds that there were discrepancies in the valuation of the goods and thereafter detained the vehicle and the goods.
Subsequently, a notice under Section 129(3) of the CGST Act, 2017 was issued to the driver.
Immediately, thereafter the petitioners moved an application for release of the vehicle.
Without considering any of the contentions raised by the petitioners, the respondents passed the impugned order whereby they assessed the tax payable on the goods as also the penalty applicable on the said assessment made for the purpose of releasing of the goods and the vehicle.
Petitioners challenged this order by filing a writ petition in the High Court

Observations of the Court

Thus, from the aforesaid factual admitted position, it was clear that the person In-charge of the conveyance was in fact carrying the requisite documents, which he was supposed to carry in the course of transportation of the goods.
As regards the discrepancy found in the course of inspection, the only observation made by the authorities concerned was that the valuation did not seem to have been properly conducted.
Merely because the manufacturer sold his products to its customer or dealer at a price lower than the MRP, as such could not be a ground on which the product or the vehicle could be seized or detained.
If at all if this, according to the respondents, was contrary to the law, the authorities were supposed to draw an appropriate proceeding under the law.

The Inspecting Authorities for the alleged discrepancy could have only intimated the Assessing Authority for initiating appropriate proceedings.
What was more relevant to take note of was the fact that the details in the invoice bill as well as in the e-way bill matched the products found in the vehicle at the time of inspection except for the price of sale.
So far as the ground of an alternative remedy available to the petitioner as pleaded by the State Government was concerned, HC was of the opinion that since the case of the petitioners at the outset itself was that the entire proceedings for detention of the vehicle and the seizure of the goods being in total contravention to the GST law, relegating the petitioners to avail the alternative remedy of appeal under Section 107 would not be proper, legal and justified.
HC also found that the proceedings of detention and seizure of the goods and the vehicle by the respondents was without any authority of law.

HC was of the opinion that under valuation of a good in the invoice could not be a ground for detention of the goods and vehicle for a proceeding to be drawn under Section 129 of the CGST Act, 2017 read with Rule 138 of the CGST Rules, 2017. Therefore, the order passed under Section 129 and the order of demand of tax and penalty both being unsustainable was quashed. The respondents were directed to release the goods belonging to the petitioners based on the invoice bill as well as the e-way bill.

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