Goods cannot be detained on mere suspicion of mis-classification: Kerala High Court
The Kerala High Court (HC) held that goods cannot be detained merely on the grounds of suspicion of mis-classification of goods.
A writ petition was filed with the High Court of Kerala challenging the legality of orders of detention passed by the authorities (Respondents) under the Goods & Service Tax Act (GST Act). Justice A.K. Jayasankaran Nambiar clarified that according to the provisions of Section 129 of the GST Act if a proper officer is entrusted with the task of detaining goods, finds that they have been transported in contravention of the rules, he does not have the discretion to condone the procedural lapse or relax its rigor in particular cases. He must interpret the Rule strictly keeping in mind the statutory scheme that aims to curb tax evasion.
The High Court referred to a verdict in Rams v. STO – [1993 (91) STC 216] , wherein it was held that detention of goods at the check post cannot be resorted to in cases where there is a bona fide dispute regarding the very existence of a sale and eligibility to tax.
The facts of the case are, M/s Podara Foods India (Petitioner) is a Company engaged in the manufacture and sale of Power Cables and is a registered dealer under the GST Act. It had a contract with the Kerala State Electricity Board for the supply of power cables and towards affecting the said supply, it imported power cable end termination kits through Chennai Seaport.
The imported items consisting of 33 numbers end termination kits were contained in 22 packages, and these were cleared through Customs by filing the necessary Bills of Entry for home consumption. The packages were then loaded onto two vehicles.
According to the E-Invoice that was generated at the time the inter-state transportation of the goods was accompanied showed a payment of Import of Goods and Services Tax (IGST) on the consignment, as also an e-way bill corresponding to the said E-Invoice. It also contained the details of both vehicles with the specific number of units carried in each.
The petitioner further stated that a packing list was also contained the number of packages that accompanied the transportation. The goods and the vehicles were detained by the respondent authorities on the groundthat only one common invoice for 22 packages were generated regarding the two consignments. While comparing the number of packages that were contained in each vehicle, it was found that the packages were fewer in both the vehicles.
The respondent authorities furtherfound out that the petitioner failed to comply with the procedure prescribed under Rule 55 (5) of the Central Goods and Service Tax Rules (CGST Rules) while transporting goods in semi-knocked down (SKD) or completely knocked down (CKD) condition or in batches or lots. The consignments were not covered by separate delivery challans for each vehicle.
On behalf of the petitioner, it was contended that the respondent authorities have misinterpreted the scope of Rule 55 of the CGST Rules and it was further stated that the provisions of the Rule 55 would not apply to the transportation in question.
It was further contended that the defects regarding separate challans for each vehicle had been subsequently cured. It was pointed out that the details that were required for co-relating the transport documents with the goods were available with the concerned officer. Hence, the breach would be technical in nature and it would not give rise to the detention of the goods.
It was stated that the respondent authorities should have interpreted the rule strictly focusing on the statutory scheme that aims to curb tax evasion.
The Court referred to a recent judgment of the Supreme Court of India (SC), in State of Uttar Pradesh v. Kaypan Fragrance Pvt. Ltd. 2020(74) GSTR 281 (SC) wherein it was observed by the Supreme Court that writ petitions seeking directions to release seized goods ought not to be entertained as the Act provides for a complete mechanism for release and disposal of seized goods.
The High Court stated, "No reasons were found to interfere with the adjudication orders in Form GST MOV-9 impugned in the writ petition. The petitioner is relegated to his alternate remedy of preferring appeals against the said adjudication orders before the appellate authority under the Act. All contentions, legal and factual, are left open to be agitated by the petitioner before the appellate authority."
Relying on the above-mentioned judgment, Justice Nambiar stated, "I also believe that an enunciation of the scope andambit of the statutory provision would help clarify the doubts arising in the minds of proper officers, who are entrusted with the task of overseeing the transportation of taxable goods to check the evasion of tax, as regards the procedure to be followed while going about their assigned duties."
The Court further directed the stay against invoking the bank guarantee furnished by the petitioner and ordered that it shall continue to remain in force for a period of two months from the date of receipt of a copy of this judgment.