GST Detention of Goods and Conveyance Quashed due to Lack of Evidence because no samples were taken or tests conducted to establish the difference in goods

Summary in Key Points:

Issue: Was the detention of the assessee’s goods and conveyance, and the subsequent demand under Section 129(3), justified?
Facts: The assessee’s goods were intercepted in transit from Gwalior to Bihar while passing through Uttar Pradesh. The authorities alleged a discrepancy between the documents (which mentioned “R.B. Oil”) and the actual goods (allegedly mustard oil). A detention order (MOV-06) and a demand order under Section 129(3) were passed. The assessee’s appeal was dismissed. The assessee argued that proper procedures under Section 129(3), including notices in MOV-07 and MOV-09, were not followed.
Decision: The court noted that no samples were taken or tests conducted to establish the difference in goods. The authorities were not considered experts to identify the goods without any basis. There was also no finding regarding the assessee’s intent to evade tax. The impugned order and the appellate order were quashed.

Important Note: This decision emphasizes the importance of evidence and proper procedure in detaining goods and imposing penalties. The authorities’ reliance on mere visual inspection without proper testing was deemed insufficient to establish a discrepancy. The lack of procedural compliance, particularly the absence of required notices, further weakened the case for detention and penalty. This ruling protects taxpayers from arbitrary detention of goods and ensures that actions taken by authorities are based on evidence and follow due process.

HIGH COURT OF ALLAHABAD

Shivaji Udhyog

Additional Commissioner Grade-2 Appeal-II

Piyush Agrawal, J.

WRIT TAX No. 1234 of 2024

JANUARY 9, 2025

Aditya Pandey for the Petitioner.

ORDER

1. Heard Shri Aditya Pandey, learned counsel for the petitioner and Shri Ravi Shankar Pandey, learned ACSC for the State -respondents.

2. The instant writ petition has been filed challenging the impugned order dated 12.03.2024 passed in GST Appeal No. 0117/2023 for the Financial Year 2023-24 under section 129(3) of the U.P. GST Act by the respondent no. 1. The petitioner has further prayed for quashing of the detention order in GST MOV – 06 dated 14.06.2023 as well as the summary of order issued under section 129(3) of the GST Act dated 14.06.2023.

3. Learned counsel for the petitioner submits that the petitioner is a partnership firm and is engaged in the business of manufacture and sale of edible oils. He further submits that in the normal course of its business, the petitioner received order for supply of R.B. Oil from one M/s Shiv Shakti Enterprises, Bihar, which is also a registered firm. On 11.06.2023, the petitioner issued e-tax invoice and generated e-way bill. Thereafter, the goods were dispatched through vehicle No. UP 75 AT 7951 from Gwalior (MP) to Bihar and to reach Bihar, the vehicle in question has to pass through the State of U.P. He further submits that on 12.06.2023, the goods were intercepted at Auraiya by the respondent no. 2 and after recording the statement of the driver and physical verification, the respondent no. 2 passed the impugned detention order dated 14.06.2023 in MOV – 06 and thereafter, order under section 129(3) was passed and demand was raised by the respondents. He further submits that without issuing notice in MOV – 07, notice as required under section 129(3) of the GST Act and order in MOV -09 for demand of penalty for release of goods, the proceedings were initiated. Being aggrieved by the order dated 14.06.2023, the petitioner preferred an appeal before the respondent no. 1, which has been dismissed vide impugned order dated 12.03.2024. Hence, this writ petition.

4. Learned counsel for the petitioner further submits that the petitioner has sold supreme kolhu brand R.B. Oil in packing of 15 liters, 5 liters, 2 liters, 1 liter and ^ liter, for which statutory e-tax invoice and e-way bill were generated and therefore, there was no intention to evade payment of tax and the authorities below failed to prove or establish that there was any intention to evade payment of tax by the petitioner. He further submits that in the case in hand, the authorities have illegally drawn an inference that the goods is not R.B. Oil, but mustard oil. The authorities were duty-bound to draw sample as required under sections 153 & 154 of the GST Act. He further submits that proceedings in pursuance of DRC – 01 and DRC – 07 cannot be initiated without issuing MOV 07 or MOV 09. He further submits that DRC 07 cannot be put to service without issuing order in MOV 09 and therefore, the proceedings are bad.

5. He further submits that both the dealers, i.e., the seller and purchaser, are registered dealers and the genuineness of the documents accompanied the goods and the vehicle have not been doubted by the respondents – authorities at any stage. He further submits that the respondent no. 2 without having any jurisdiction has proceeded against the petitioner as the respondent no. 2 had no prior adverse information against the petitioner. He further submits that since the goods were passing through the State of U.P., no loss of revenue is involved for the State of U.P.

6. He further submits that no laboratory test was conducted by the respondent no. 2 before reaching the conclusion that the goods in the packets are different from the description mentioned in the documents accompanying the goods. He further submits that as per circular dated 13.04.2018, notice on MOV – 07 has to be issued and thereafter, order on MOV – 09 has to be passed. In the instant case, no notice in form MOV -07 was issued before passing order on MOV – 09 and therefore, the entire proceedings are totally illegal and without jurisdiction. He further submits that DRC 07 is a summary of the order and not an order and as per Rule 142(6) of the Rules, the summary of the order is the recovery notice only.

7. Per contra, learned ACSC supports the impugned order and submits that all the proceedings have been done as per section 129 of the GST Act. He further submits that the GST Rules have been amended vide Uttar Pradesh Goods & Services Tax (TwentyEighth Amendment) Rules, 2019, by which Rules 41 & 42 were amended; thereby, notice has to be drawn in DRC 01 and order in DRC 07 and therefore, the authorities have not committed any illegality in passing the impugned orders. He further submits that in the case in hand, the goods other than those declared were found to be transported and therefore, appropriate proceedings have been initiated against the petitioner.

8. After hearing learned counsel for the parties, the Court has perused the record.

9. The goods in question were in transit from Gwalior to Bihar as it was passing through the State of U.P. The same were intercepted at Auraiya on the ground of different goods being transported other than mentioned in the accompanying documents. The documents are stated to be for R.B. Oil and the allegation has been made that on physical verification, mustard oil was found. Surprisingly, no samples were drawn or any test report was obtained for taking a different view. The authorities cannot be said to be expert for treating the goods differently as declared without any basis. The seizing authority, if was of the opinion that the goods in question were not R.B. Oil as declared in the accompanying documents, it ought to have drawn sample and got an expert report. Without expert report, the authority ought not to have seized the goods.

10. For invoking the proceedings under section 129(3) of the GST Act, there must be an intention to evade payment of tax, which is a mandatory requirement, but while issuing notice or passing the orders of detention, seizure or demand of penalty and tax, no such intention of the petitioner was recorded and therefore, the entire proceedings against the petitioner are vitiated.

11. Once the authorities have not observed that there was an intention to evade payment of tax, the proceedings initiated under section 129(3) of the GST Act ought not to have been initiated against the petitioner. On this ground alone, the entire proceedings are vitiated.

12. The record shows that the authorities have not recorded any finding with regard to intention to evade payment of tax. If there is no such observation or finding that there was an intention to evade payment of tax, the proceedings initiated against the petitioner are vitiated.

13. The record further shows that the seizing authorities have not drawn any sample or got an expert report holding that the goods in question seized were mustard oil and no R.B. Oil as disclosed in the accompanying documents, i.e., e-tax invoice and e-way bill. In absence of any such report from the expert, the view taken by the authorities below differently cannot be sustained in the eyes of law.

14. Further, the authorities below have miserably failed to record a finding against the petitioner that there was an intention to evade payment of tax. Once the authorities have failed to discharge their primary duty as prescribed under the Act, the impugned orders cannot be sustained.

15. In view of the aforesaid facts & circumstances of the case, the impugned order dated 12.03.2024 passed in GST Appeal No. 0117/2023 by the respondent no. 1 as well as the detention order in GST MOV – 06 dated 14.06.2023 and the summary of order issued under section 129(3) of the GST Act dated 14.06.2023 are hereby quashed.

16. The writ petition succeeds and is allowed.