Perishable Goods in Transit cannot be seized, if applicable GST is paid with valid E-way Bill & Invoice
Section 67 of CGST Act, 2017 explains Power of inspection, search and seizure. Inspection, search and seizure of goods are a more stringent provision under the GST law.
A seizure operation must be authorized by an officer at the level of Joint Commissioner or a Superior Officer. Further, the relevant designated officer can authorize a search and seizure only if they have ‘reason to believe’ that the person being searched has goods liable to confiscation or any documents/books/record/things, which will be useful for or relevant to any proceedings.
In the past, the taxpayers have filed writ petitions before various High Courts seeking relief from the payment of applicable tax, interest and penalty, despite the express stipulations under Section 67 of the CGST Act.
Let us refer to the case of Venkateshvara Logistics Fleet Owners and Transport Contractors Vs Assistant Commissioner (Karnataka High Court) where the issue under consideration was whether the department was entitled to seize a consignment of perishable goods in transit more particularly when it was accompanied by a lawful e-way bill, invoice and when it had paid the applicable IGST?
Facts of the Case
- The petitioner, a transporter registered under GST was engaged by M/s Venkataramana Traders, a registered supplier in Karnataka to transport 300 bags of areca nut to a recipient registered dealer in Delhi, M/s. Gulli Enterprises.
- The consignment was loaded in a truck and when the goods were in transit, the officials of the respondent stopped the vehicle at Sagar, Shimoga District.
- On enquiry, the driver of the vehicle furnished the E-way bill and invoice which related to a different consignment of 220 bags of areca by the supplier to the same subject recipient registered at Delhi by another lorry.
- Thus, the authorities concerned issued an order in Form GST MOV-02 and seized the truck and the goods by an order of detention in Form GST MOV-06.
- A notice under Section 129(3) of the CGST Act in Form GST MOV No.7 was issued requiring the payment of tax and penalty.
- The petitioner claimed that the e-way bill and the invoice relating to the transport by another vehicle were handed over to the driver by mistake.
- Thus, a payment challan and a mandate towards inter-State tax and penalty was generated and paid.
- Since the vehicle was seized and parked in the Sagar APMC yard, Agricultural Produce Marketing Committee collected the cess and penalty payable under the Act from the supplier.
- Upon the payment of tax and penalty, the vehicle and the goods were released as per Form GST MOV-05. Thereafter, intimation in GST Form DRC-03 was furnished for payment to be made by the taxpayer.
- The petitioner contended that with the payment of the tax and penalty, all the proceedings in respect of the notice under Section 129(3) of the CGST Act stood concluded as provided under Section 129(5) of the CGST Act.
- However, later the vehicle and the goods were again seized at Bijapur and the statement of the driver was recorded by the Assistant Commissioner of Central Tax.
- An order for physical verification in Form GST MOV-02 was issued on the ground that “prima facie the documents tendered were found to be defective”.
- The lorry and the goods were stationed at Bijapur. This was followed by a summons under Section 70 of the CGST Act addressed to the driver of the lorry and the authorized representative of the petitioner.
- Later, the statement of the driver and the authorized representative was recorded.
- The petitioner requested the Commissioner of Central Tax and the Additional Commissioner of Central Tax to release the vehicle and the goods since the tax and the penalty was paid pursuant to the notice under Section 129(3) of the CGST Act which concluded the proceedings.
- Since the respondent did not release the goods and the lorry, the petitioner filed a petition for quashing the second order of detention as without the authority of law before the High Court (HC)
Reference to Section 15 of the Carriage by Road Act, 2007 by the HC
Section 15 of the Carriage by Road Act, 2007 pertains to Right of common carrier in case of consignee’s default. According to Section 15:-
- If the consignee fails to take delivery of any consignment of goods within 30 days from the date of notice given by the common carrier, such consignment may be deemed as unclaimed.
- In case of perishable consignment, the period of 30 days shall not apply and the consignment shall be deemed unclaimed after a period of 24 hours of service of notice or any lesser period as may be mutually agreed to by and between the common carrier and the consignor.
- In the case of an unclaimed consignment, the common carrier may-
- if such consignment is perishable in nature, have the right to sell the consignment; or
- if such consignment is not perishable in nature, cause a notice to be served upon the consignee or upon the consignor if the consignee is not available, requiring him to remove the goods within 15 days from the date of receipt of the notice and in case of failure to comply with the notice, the common carrier shall have the right to sell such consignment without any further notice to the consignee or the consignor, as the case may be.
- The common carrier shall, out of the sale proceeds received, retain a sum equal to the freight, storage and other charges due including expenses incurred for the sale, and the surplus, if any, from such sale proceeds shall be returned to the consignee or the consignor, as the case may be.
- Unless otherwise agreed upon between the common carrier and consignor, the common carrier shall be entitled to detain or dispose the consignment in part or full to recover his dues in the event of the consignee failing to make payment of the freight and other charges payable to the common carrier at the time of taking delivery.
Observations of the HC on the right of the petitioner to file the petition
- The petitioner is a registered transporter and is a bailee (bailee is an individual who temporarily gains possession, but not ownership, of a good or other property) of the goods and the contract of bailment terminates only upon the petitioner delivering the consigned goods at the destination.
- The CGST Act recognizes the role of a registered transporter and its competence to generate the E-way bill from the GST portal in Form GST EWB-01.
- Every time a vehicle is intercepted, it is the transporter who has to furnish the documents that corresponds to the goods in transit.
- As the vehicle belonging to the petitioner was seized and therefore the petitioner was entitled to file the writ petition.
- Further the petitioner pleaded that the supplier was under an obligation to pay the demurrage charges and therefore, the petitioner was entitled to challenge the proceedings and seek release of the goods so that it could recover all its claims from the supplier or the recipient or from the sale of the goods if either the supplier or the recipient failed to pay the bailment charges and other incidental or related expenses incurred.
- In the case on hand, the petitioner’s vehicle was detained. The vehicle had commenced the trip and the 300 bags of areca nut were kept loaded onto the vehicle till date resulting in demurrage charges which the petitioner was entitled to recover from the supplier and in default, the petitioner was entitled to recover the same by sale of the goods consigned.
- Thus, the petitioner was undeniably under an obligation to ensure that the goods consigned reach the destination and thus, had the necessary right to file this petition.
Observations of the HC on whether the detainment under Section 67 was valid when it was done for the 2nd time
- What emerged before the HC was that the vehicle and the goods were intercepted at Sagar for the first time for checking the e-way bills, in exercise of power under Section 68 of the CGST Act.
- The driver of the vehicle was carrying documents of another consignment and thus there was a mismatch. Thus, the vehicle was searched, the statement of the driver was recorded and the vehicle was detained and a notice under Section 129(3) was issued.
- The authorized representative appeared before the authorities at Sagar and handed over the correct e-way bill and the corresponding invoice. Yet, the authorities insisted and the petitioner paid the applicable IGST and the penalty.
- The vehicle was later released. Thus in view of Section 129 (3) of the Act, the proceedings in so far as the consignment was concerned stood concluded.
- Later, on a “reason to believe” that the registered supplier at Nelamangala was not existing at the registered address and that the said supplier had made supplies, some of which were suspicious, the Deputy Commissioner of Central Tax, Shivamogga, addressed a letter to the Assistant Commissioner of Central Tax, Bijapur to intercept and detain the vehicle for further investigation.
- Based on the above, the Assistant Commissioner of Central Tax, Bijapur intercepted the vehicle and detained the vehicle and issued GST MOV-2 on the ground- “prima facie the documents tendered are found to be defective”.
- This meant that the vehicle and the goods were detained for the second time under Section 129 though the earlier proceedings in respect of the same vehicle and the goods.
- It was relevant to note that this subsequent interception and detainment was not in exercise of power under Section 67 as it was not done by a proper officer who should be an officer not below the rank of a Joint Commissioner.
- Further any seizure in exercise of power under Section 67 of the CGST Act should be by an officer who was authorized by the proper officer in GST INS-01 and the seizure of goods should be in Form GST INS-02.
- Since there was neither authorization in Form GST INS-01 or the seizure in Form GST INS-02, it could be held that the subsequent interception and detainment was not in exercise of Section 67 of the CGST Act.
Directions to the respondents regarding the sections under which further proceedings would take place
- The Commissioner of Central Tax, Mysuru, addressed a letter to the Additional Commissioner to seize the vehicle along with the consignments owned by M/s. Venkataramana Traders under Section 67 of the CGST Act.
- The Assistant Commissioner of Central Tax, Bijapur was directed to seize the vehicle and the goods.
- Later the Commissioner of Central Tax, Mysuru, instructed its subordinates that the supplier was responsible for outward movement of goods worth and directed physical inspection of the premises and furnish a report so as to enable further investigation in the matter.
- Later, in an effort to unearth the authenticity of the supplies made by the supplier to various entities in Chennai, Ahmedabad, Delhi, letters were written to check the registered addresses of the recipients.
- It was found that the registered supplier was not doing business at the registered address and likewise the recipients were not found doing any business at the registered address.
- The department therefore sent out letters to freeze the bank account of the proprietor of the supplier and obtained information from the Income tax about the returns filed by him.
- It was therefore clear that the department had initiated an action under Section 67 of the CGST Act to identify the fraudulent issue of invoice by the supplier to avail input tax credit.
- The respondent was not able to indicate the status of the enquiry under Section 67 of the CGST Act namely whether it had determined the input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts and or whether it had conducted a scrutiny of the returns filed by the supplier, and as to whether it had conducted an audit etc.
- However, the question was whether the department was entitled to seize a consignment of perishable goods in transit more particularly when it was accompanied by a lawful e-way bill, invoice and when it has paid the applicable IGST.
- Under Section 83 of the CGST Act, during the pendency of any proceedings under Section 67 or 74, the Commissioner in order to secure the interest of the revenue can provisionally attach any property.
- However, such provisional attachment shall cease to have effect after the expiry of 1 year from the date of the Order.
- Rule 140 of the CGST Rules provide that the seized goods may be released on a provisional basis upon the execution of a bond for the value of the goods in Form INS-04 and furnishing of a security in the form of a bank guarantee equivalent to the amount of applicable tax, interest and penalty payable.
- Under Rule 141 of the CGST Rules, any perishable goods seized shall be released forthwith by an Order in Form GST INS-05 if the taxable person pays an amount equivalent to the market price of such goods or things or the amount of tax, interest and penalty that is or may become payable whichever is lower.
- Thus, having regard to the scheme of the CGST Act and the rules, whenever perishable goods are seized, it is the duty of the seizing authorities to obtain a bond and or security or require the payment of the market price of the goods or the amount of tax, interest and penalty whichever is lower.
- This was the reason that whenever such perishable goods are stopped and detained under Section 129 of the CGST Act, the period for payment of tax and penalty in respect of perishable goods can be reduced to 7 days.
- The Act provided that any person trading in goods or services exceeding value of Rs.20,00,000 should be registered under the Act and such application when filed would be verified and only after it is found that the documents are in order that such person is registered.
- The proper officer may after grant of registration physically verify the place of business of a registered person.
- Such registration could be canceled if the person did not conduct any business from the declared place of business.
- If the supplier has made outward movement of goods worth Rs.73,00,00,000, then the recipients must have availed ITC and this could not have gone unnoticed by the department.
- This could be attributed to the careless attitude of the department and the case of the supplier in the instant case should be an eye opener for the State authorities under the Act to ascertain whether the registered establishments are doing business at the registered places and also to take pro active steps for the installation of Radio Frequency Identification devices as this would help the easy tracking of the movement of goods and for verification of e-way bills and the payment of tax etc.
- Thus, the revenue has to put its house in order and strive to achieve the lofty targets set by the CGST Act by effectively using the tools of audit, inspection, seizure, prosecution, recovery etc.
It was therefore held that in a proceeding under Section 67 of the CGST Act against the supplier, the respondent was not justified in seizing the perishable goods in transit, more so when the goods had suffered tax and penalty. Hence, this writ petition was allowed and the respondent was directed to release the lorry and the goods carried by it which is covered by the E-Way bill.
However, liberty was reserved for the proper authority under the CGST Act to continue the proceedings initiated under Section 67 and determine the amount of tax payable on the previous supplies made under Section 74 or initiate any penal action under Section 132 of the CGST Act against the supplier or the registered recipients for the alleged fraudulent availing of input tax credit or the wrongful generation of invoices.