Gujarat HC orders for Goods and vehicle to be released on payment of amount and deposit of bank guarantee

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:
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 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 Sawariya Traders v. State of Gujarat [2020], where the petitioners appealed for the release of goods which were confiscated by the tax authorities due to incomplete paperwork.

Facts of the Case:

The writ applicant No 1 was engaged in the business of areca nut and was a registered dealer under the GST.
The writ applicant No 2 was the owner of the vehicle.
The writ applicant No 1 entered into an agreement for sale of areca nuts with one Dwarkesh Enterprise carrying on business at Jamnagar, State of Gujarat.
The consignment of areca nut came to be dispatched in the truck owned by the writ applicant No 2 from Nagpur to Jamnagar.
The truck along with the goods came to be intercepted by the respondent.
At the time of inspection, the GST authority noticed the following:
1. The owner/driver/person in charge of the goods conveyance had not tendered any documents for the goods in movement.
2. The genuineness of the goods in transit (its quality etc) and/or tendered documents requires further verification
3. E-way bill not tendered for the goods in movement
4. Tax bill was not provided
5. E way bill was not provided
6. Tax invoice number was not printed

In such circumstances, the goods as well as the vehicle came to be detained under Section 129(1) of the CGST Act, 2017
Thereafter, an order of confiscation in form MOV-11 came to be passed.
After the final order of confiscation of the goods and the conveyance was passed, the authority concerned decided to put the goods and the vehicle to public auction for the purpose of realising the amount towards tax, penalty and fine.

Proceedings of the High Court (HC)

HC inquired with the writ applicants as to whether his clients were ready and willing to deposit 50% of the amount by way of cheque or demand draft and the balance 50% by way of Bank Guarantee of any Nationalized bank.
HC was very clear that if the writ applicants were ready and willing to deposit the amount as stipulated above then they would consider releasing the goods as well as the conveyance with a further liberty to prefer appeal under Section 107 of the CGST Act, 2017, against the final order of confiscation having regard to the fact that the impugned order of confiscation was served upon the writ applicants in the month of March, 2020.
The writ applicants then made a statement that Rs.18 Lac shall be deposited with the respondent and the balance amount of Rs.18 Lac shall be paid by way of a Bank Guarantee of any Nationalized bank.

As the writ applicants are ready and willing to deposit the amount towards their liability, HC passed the following order:
1. The writ applicants shall deposit 50% of Rs.36 Lac with the respondent and the balance amount of Rs.18 Lac shall be paid by way of a Bank Guarantee of any nationalized bank.
2. If the amount of Rs.36 Lac was paid to the respondent, then the conveyance as well as the goods shall be immediately released in favour of the writ applicants.
3. It was open for the writ applicants to prefer an appropriate appeal before the appellate authority under Section 107 of the Act, if they intended to question the legality and validity of the order of confiscation passed in Form MOV-11.
4. HC also clarified that they had not expressed any opinion on the merits of the case.
5. HC passed this order keeping in mind that the goods were of perishable nature and were lying with the respondent since the month of September, 2019.

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Can income retained by the trustee be brought tax in the assessment of beneficiary?

A trust deed, also known as a deed of trust is a document sometimes used in real estate transactions in the U.S. It is a document that comes into play when one party has taken out a loan from another party to purchase a property. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off.

A trust is a three-party fiduciary relationship in which the first party, the trustor or settlor, transfers (“settles”) a property (often but not necessarily a sum of money) upon the second party (the trustee) for the benefit of the third party, the beneficiary.

Let us refer to the case of Commissioner Of Wealth Tax vs Estate Of Late Vikramsinhji where the main issue under consideration was whether income was taxable in the hands of the beneficiary given the fact that no income was distributed by a trust.

Facts of the Case:

The ex-Ruler of Gondal, Shri Vikramsinhji executed three deeds of settlements (trust deeds) in USA in 1963 and two deeds in UK in 1964, all executed in identical terms for the benefit of the settler and the members of his family.
The settler and post settler’s death, the assessee (the eldest son of Vikramsinhji), were declaring the entire trust’s income as taxable in India for initial years up to AY 1970-71.
Post AY 1970-71, the assessee took the stand that, the income of the trusts need not be subject to tax in the hands of the taxpayer and no income was reported thereafter.
The assessee also took the stand that, declaration of income for previous years was a mistake.

Proceedings of Settlement Commission

The assessee then, approached the Settlement Commission with an application for settlement relating to income from the UK trusts and the US trusts.
The Settlement Commission held that the US trusts were discretionary, but the UK ones were specific and therefore, its income was liable to tax in the hands of the assessee in India.
Against Settlement commission’s order the taxpayer preferred an appeal to the Supreme Court of India (SC).

Observations of the Supreme Court (SC)

The Supreme Court observed that, both the settlor and the Shri Vikramsinhji were receiving the income from these trusts during the several assessment years.
It would have been unlikely that, they would have so included them unless it were really received.
Hence the SC held that USA trusts were discretionary and since the assessee himself had declared the income with regard to UK trusts, the question was more of academic in nature and did not decide on it.

What happened after the Supreme Court Decision?

For subsequent years, the taxpayer put a note to his Statement of Income stating that the UK and the US trusts were discretionary, and no remittances were made by the trusts to the taxpayer.
The Assessing Officer (AO), however passed an order taxing the income of the trusts in the hands of the taxpayer like the previous years.

Proceedings of Appellate Authorities

On appeal, CIT(A) held that, US trusts were discretionary trust whereas UK trusts were specific trusts.
The Tribunal (ITAT), relying on the previous orders by the Settlement Commission and the SC in its support, held that the disputed UK trusts were specific trusts especially due to clauses 3(2) and 4 of the UK trust deeds.
The ITAT further held that, even assuming the UK trusts were discretionary, such income of the trusts were taxable in the hands of the assessee as per section 166 of the Income-tax Act, 1961 which allows to tax the income of the trust in the hands of the trustee or the beneficiary.

Proceedings of the High Court (HC)

On appeal by the taxpayer against the order of the ITAT to the HC, the HC held that section 166 can be invoked only when the income of the trust is received by the assessee, who is the beneficiary to the trust.
The HC noted that, when no remittance was made by the UK trusts and that the entire income was retained by it and not distributed, such income cannot be taxable in the hands of the taxpayer in India.
Further, the HC noted that Revenue had not produced any documents to establish that the taxpayer had received income from the UK trusts.
Whereas, the taxpayer had produced statements from the trust to the effect that the income had been retained by trust and not distributed to the assessee.
Therefore, HC held that, no income is taxable in the hands of the beneficiary/assessee.
Aggrieved by the order of the High Court the Revenue preferred an appeal to the SC.

Observations of the SC

SC observed that for the assessment years under consideration, HC had noted the following distinguishing features:
1. assessee has not admitted having received the income
2. assessee has not received the said income, and
3. assessee has not shown as taxable income in the returns of all the years under appeal
Having observed these distinguishing features, the HC was also of the view that, on interpretation of the relevant clauses of the deeds of settlement executed in UK, character of the trusts appeared to be discretionary and not specific.
SC was of the view that a discretionary trust was one which gave a beneficiary no right to any part of the income of the trust property, but vested in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they thought fit.
The trustees had to exercise their discretion as and when the income became available.
However, if they failed to distribute in due time, the power was not extinguished so that they could distribute later.
They had no power to bind themselves for the future.
The beneficiary thus, has no more than a hope that the discretion would be exercised in his favour.
Thus, SC upheld the HC’s view that, the trusts were discretionary and not specific.

SC observing the fact that the income was retained and not disbursed to the beneficiaries, held that the view taken by the High Court could not be said to be legally flawed.
Merely because the Settlor and after his death, his son did not exercise their power to appoint the discretion exercisers, the character of the subject trusts did not get altered.
Considering the facts, SC held that, the two UK trusts continued to be ‘discretionary trust’ for the assessment years.
This position regarding the discretionary trust was equally applicable to the controversy in appeals under the Wealth-tax Act.
HC took correct view that the value of the assets cannot be assessed on the estate of the deceased Settlor.

In conclusion, Income retained by the trustee cannot be brought tax in the assessment of beneficiary. Trustee has discretionary powers to distribute trust’s income. If the trustee did not exercise his power to distribute the income among the beneficiaries, it doesn’t mean that his power is extinguished and he can do it later on.

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