Court quashes GST penalty for transit goods lacking TDF, citing no tax evasion intent

Case Name:

M/s. Ramdev Trading Company & Another Vs State of U.P. & 3 Others

Key Takeaways:

Mere absence of a TDF doesn't automatically imply tax evasion intent.

For transit goods, authorities should focus on verifying origin and destination rather than penalizing technical breaches.

Penalty under GST laws requires clear allegation and evidence of tax evasion intent.

Issue:

Can goods in transit be seized and penalized solely for lacking a Transit Declaration Form when there's no clear evidence of tax evasion?

Facts:

The petitioner, a registered dealer in Rajasthan, sold goods (sweet supari and refined palm oil) to a buyer in Assam.

The goods were being transported through UP when intercepted by GST authorities near Gorakhpur.

The goods lacked a Transit Declaration Form (TDF) required by UP GST rules.

Authorities also claimed a discrepancy in the description of palm oil goods.

The goods and vehicle were seized, and a penalty of Rs.9,54,325/- was imposed.

Arguments:

Petitioner's arguments:

The goods were in transit through UP, not for sale within the state.

Absence of TDF was due to driver's inadvertent mistake.

No intention to evade tax as goods were clearly moving from Rajasthan to Assam.

Revenue's arguments:

Absence of TDF is a clear violation of GST rules.

Discrepancy in goods description (palm oil vs. ghee) raised suspicions.

Penalty is automatic upon violation of rules, regardless of intent.

Key Legal Precedents:

M/s Murliwala Agrotech Ltd. Vs. Commissioner of Trade Tax, U.P. Lucknow (2005 NTN (28) 198): Court held that goods being transported through UP cannot be seized at entry check-post, even if different from declared goods.

S.G. Express Vs. Commissioner of Trade Tax, U.P. ([2011] 37 VST 35(All)): Followed Murliwala judgment, emphasizing that seizure and penalty are unjustified if goods are not unloaded within UP or properly accounted for.

Judgement:

The court ruled in favor of the petitioner, quashing both the seizure and penalty orders. Key points:

No allegation of tax evasion was made at the time of detention or in the show-cause notice.

Absence of TDF was a technical breach, not indicative of tax evasion.

Goods were clearly in transit from Rajasthan to Assam, nearing UP's exit point.

Any discrepancy in goods description could have been addressed by proper endorsement, not seizure.

The court ordered immediate release of goods and vehicle without any security.

FAQs:

Q1: Does this judgment mean TDF is no longer required for goods in transit?

A1: No, TDF is still required. The judgment emphasizes that its absence alone doesn't justify seizure or penalty without evidence of tax evasion.

Q2: What should GST authorities do if they suspect goods misdescription in transit?

A2: They should make an appropriate endorsement on the tax invoice and communicate with relevant authorities, rather than seizing goods.

Q3: Does this judgment apply to all cases of goods in transit?

A3: While it sets a precedent, the court clarified that each case should be judged on its merits, especially regarding goods misdescription.

Q4: What's the key lesson for businesses transporting goods through multiple states?

A4: Ensure all required documents, including TDF, are in order. However, if there's an inadvertent mistake, authorities should consider the overall context of the transaction.

Heard Shri Shubham Agrawal, learned counsel for the petitioner and Shri C.B. Tripathi , learned Standing Counsel for the department.

This writ petition has been filed by the consignor of

the goods to challenge the order dated 03.11.2017

passed by the respondent no.4, Assistant Commissioner,

U.P. Goods & Services Tax, Mobile Squad-II, Gorakhpur,

under Section 129(1) of the U.P. GST Act(hereinafter

referred to as the 'Act) and the order dated 08.11.2017

passed under Section 129(3) of the Act imposing penalty

of Rs.9,54,325/-.

The petitioner claims to be a registered dealer at

Rajasthan who sold 130 bags of sweet supari valuing at

Rs.66,17,500 to M/s S.G. Enterprises at Assam against

Tax Invoice No.52. In that invoice the petitioner has

disclosed to have charged IGST @ 18 per cent. By

another Tax Invoice No.51, the petitioner claims to have

sold 190 cartons of refined palm oil valued at Rs.2,37,500

to the same purchaser M/s S.G. Enterprises at Assam, in

which IGST @ 5 per cent is disclosed to have been charged.

The aforesaid goods appear to have been consigned

for transportation on truck bearing registration no.

RJ07GB4874. The petitioner claims that these goods

loaded on the aforesaid truck were passing through the

State of U.P. being a transit state; that they entered U.P.

on 1st of November 2017 and had reached 'Gorakhpur'

and that the goods and truck were intercepted by the

respondent no.4 at a place barely 15 kms. from the

border with the State of Bihar.

Upon the goods being detained, and the documents

being verified, it was noticed that the goods were being

transported without Transit Declaration Form(hereinafter

referred to as the 'TDF') required to be accompanied with

such goods in accordance with the notification dated

21.07.2017 under Rule 138 of the U.P. GST, Rule

2017(hereinafter referred to as the 'Rules').

It also appears that the detaining authority was not

satisfied as to the identity of the goods being same as

that mentioned in the tax invoice with respect to the Palm

Oil. According to the detaining authority, the goods were

'Ujala Shudh Deshi Ghee'.

The petitioner on it's part stated that due to

inadvertent mistake on part of the truck driver, transit

declaration form had not been downloaded and therefore,

it was not found accompanying the goods. However, it is

the case of the petitioner that undisputedly the goods

have originated from State of Rajasthan and were being

transported to Assam through the State of U.P. At the

time of detention they were near their exit point in the

State of U.P., for onward journey to Assam. There is also

no dispute as to the identity of the other consignment of

'sweet supari'.

Then on 03.11.2017, the seizure orders appears to

have been passed, which records two reasons. First,

seizure has been effected on account of TDF being

absent and second, because on physical verification the

goods mentioned in the invoice no. 51 as 'Refined Palm

Oil' were found to be different being' Ujala Shudh Deshi

Ghee'.

Thereafter, it appears that a show-cause notice

issued to the petitioner on the same day i.e. 03.11.2017

proposing to impose penalty under Section 129 (3) of the

Act. In that show-cause notice also there are only two

allegations i.e. of the TDF being absent and on physical

verification different goods being found in place of

'Refined Palm Oil'.

The petitioner then filed it's reply to the show-cause

notice through the driver of the Truck and explained that

the consignment of the disputed goods in question was of

Refined Palm Oil and that both consignment of goods

were being transported from Rajasthan to Assam and that

no part of the consignment was meant for sale or

consumption inside the State of U.P.

However, the respondent no.4 passed a penalty

order on 08.11.2017 wherein the reason given for

imposition of penalty are the absence of TDF as also the

different identity of the goods namely 'Ujala Shudh Deshi

Ghee' having been found in place of Refined Palm Oil. It

has also been mentioned for the first time that the

assessee had intention to evade payment of tax with the

object of selling the goods inside the State of U.P.

At the outset, Shri C.B. Tripathi, learned counsel for

the revenue has raised a preliminary objection as to the

maintainability of the writ petition in view of alternative

remedy being available to the petitioner against the

penalty order.

Responding to the above, Shri Shubham Agrawal

learned counsel for the petitioner submits that the seizure

and penalty orders are wholly without jurisdiction and

therefore, the bar of alternative remedy may not apply.

Also, he submits that no appellate authority has yet been

constituted under the Act. Therefore, the remedy of

appeal is not available to the petitioner. In this regard, Sri

C.B. Tripathi states that a new Rule 109A has been

notified recently on 24.11.2017.

Considering the fact that the appellate authority had

not been notified when goods were seized on 03.11.2017

or which penalty was imposed on 08.11.2017 and further,

considering the fact that upon this writ petition being

entertained, instructions had been sought and a short

counter affidavit filed by the State, this writ petition is

being disposed of in view of peculiar facts of this case, at

this stage, with the consent of parties. In view of the

above, the bar of the alternative remedy of the appeal is,

therefore, not being enforced in the facts of the present

case.

On merits, he submits that for a seizure to be made

and a penalty to be enforced against the assessee, the

requirements of Section 129(1) of the Act have to be

fulfilled.

Relying on the aforesaid provision it is submitted that

the penalty under Section 129(3) of the Act is referable to

a violation contemplated under Section 129(1) of the Act.

For the purpose of Section 129(1) of the Act, it is not only

necessary for the revenue to establish that there is a

technical violation of the Act and/or the Rules framed

thereunder but that such a violation has a revenue impact

inasmuch as the revenue is burdened to specifically

allege and establish that the alleged violation of the Act

and/or the Rules, as may be alleged, has been caused by

the assessee with intention to evade payment of tax.

It is thus submitted that in the instant case the first

real allegation that arises is the absence of TDF.

However, in view of the fact that full details of the

transactions and place of its origin and also its destination

were found mentioned in the tax invoice and other

documents found accompanying the goods, in the first

instance there was prima facie evidence in support of the

claim raised by the petitioner that the goods were passing

through the State of U.P and were not meant to be

unloaded, consumed or sold inside the U.P.

Learned counsel for the petitioner further submits

that the goods have been seized at 'Gorakhpur', which

undeniably is the border district of the State of U.P. with

State of Bihar. The revenue also does not contend or

allege that the goods had been loaded from inside the

State of U.P. Thus, by necessary implication, the revenue

admits that the goods have originated from outside the

State of U.P., in this case Rajasthan, as disclosed by the

petitioner. He therefore, submits that mere absence of the

TDF could not have led to an automatic inference to arise

in the mind of the respondent no.4 that any amount of tax

or goods have been evaded. According to him, it was for

the revenue to establish evasion of tax by making specific

allegation in that regard at the time of seizure and

necessarily in the show-cause notice issued in penalty

proceedings and thereafter to lead evidence in support of

such allegations.

In absence of such allegation and evidence, penalty

did not become imposable merely because the TDF was

not found accompanying the goods. Though all other

documents were found accompanying to support the

contention of the assessee that the goods were merely

passing through the State of U.P.

Then, as to the difference in the identity of the goods

namely Refined Palm Oil as alleged by the revenue,

learned counsel for the petitioner submits that in the first

place there is no difference as alleged inasmuch as on

the packing a different description has been mentioned

but the real identity of the goods is as described in the tax

invoice i.e. Refined Palm Oil.

Then, it is submitted that difference in the quantity or

quality or description of the goods that are admittedly

passing through the State of U.P. is of no consequence to

the State revenue authorities inasmuch as such a

difference has no revenue impact. Once it is admitted or

established on record that the goods were only passing

through State of U.P., the role of the U.P. authorities was

minimal and confined to ensure that the goods that had

entered in the State of U.P. passed through it without

being sold or consumed or unloaded in the State of U.P.

In such a case by very nature of the transaction no tax

could be imposed by the State of U.P. for any goods

passing through it though there may be some error,

mistake or wrong even if description of such goods. It

would be of very little consequence as the proper officer

may, if satisfied as to the difference/discrepancy in the

description of the goods may make an appropriate

endorsement to that effect on the Tax Invoice

accompanying the goods and communicate the same to

the relevant authorities of the concerned State/s.

Reliance has been placed on a judgment of a

learned Single Judge passed in M/s Murliwala Agrotech

Ltd. Vs. Commissioner of Trade Tax, U.P. Lucknow

reported in 2005 NTN (28) 198, wherein dealing with

similar situation it has been observed as follows:-

"The objection of the check post officer that in the

builty or in the invoice it was not mentioned that the

goods would be transferred in another vehicle and no

explanation in this regard has been given is irrelevant.

What had been happened prior to the arrival of the

vehicle at the entry check post is wholly irrelevant.

The objection of the check post officer that a different

goods were found than the goods mentioned in the

challan is also baseless. Perusal of the challan shows

that the goods mentioned is cereal Based Blanded

Food (Sattu). Show cause notice says that on

verification it was found that in the packing,

constituents of the goods mentioned are wheat, sugar,

rice, soyabeen, vitamin and mineral. Therefore, in my

opinion, there was no difference in the goods

mentioned in the invoice and the goods mentioned in

the packing. The items mentioned in packing are the

constituent of the Cereal Based Blanded Food for

which invoice was issued. The word "Sattu" is

mentioned in bracket. It is seen that one particular

item is called by different name and are also

understood differently at different places. It may be

that Cereal Based Blanded Food, is called as sattu at

Rajasthan but in the State of U.P. may be understood

differently. Since in the invoice the name "Cereal

Based Blanded Food" is mentioned and the same was

also found with reference to its constituent namely

wheat, soyabeen, sugar, vitamin and mineral, it can

not be said that a different item was found than the

item mentioned in the invoice. No difference in the

quantity was found. Even assuming if according to the

check post officer, there was any difference in the

name mentioned in the invoice and the name of goods

mentioned in Transit Pass, which has been applied,

the check post officer should mention the correct

name of the goods for the proper verification but this

can not be a ground to raise any doubt that goods

may not cross State of U.P. All the documents

namely, challan, builty, and Form-32, which is a

declaration form for import under the Uttaranchal

Trade Tax Act shows that movement of goods started

from Rajasthan and was going to Uttaranchal and was

not intended for import inside the State of U.P. The

provision of section 28-A of the Act is not applicable.

The inference of an intent to evade tax is based on

suspicion and merely on surmises and conjectures

and on irrelevant consideration. Therefore, the check

post officer has erred in refusing to issue transit pass

and seizing the goods and the Tribunal has erred in

confirming the seizure of the goods."

Reliance has also been placed on another judgment

of a learned Single Judge passed in S.G. Express Vs.

Commissioner of Trade Tax, U.P. reported in [2011]

37 VST 35(All) wherein following the judgment of M/s

Murliwala Agrotech Limited (supra), the learned Single

Judge held as follows:-

"In M/s Murliwala Agrotech Ltd. Vs. Commissioner of

Trade Tax, U.P. Lucknow 2005 NTN (28) 198 it has

been held by this Court that the goods being

transported through U.P. cannot actually be seized at

the entry check-post, not even on the ground that the

goods were different from the goods declared in

documents produced for obtaining transit form.

In view of the above, the validity of the seizure itself

becomes doubtful and as such the imposition of

penalty on the ground of seizure can not also be

justified. It may be noted that it is not the case of the

department that the goods as per the transit pass

were unloaded within the State of U.P. or found to be

different or not tallying with those mentioned in the

form or that they were not properly accounted."

While the aforesaid two judgments arise under

different enactments being U.P. Trade Tax Act, 1948 and

the U.P. VAT Act, 2008, however, learned counsel for the

petitioner submits that a similar interpretation is required

to be made under Section 129 of the Act in the context of

the situation arising in the present case.

Opposing the aforesaid argument, learned counsel

for the revenue Shri C.B. Tripathi submits that under

Section 129(1) of the Act, the goods are exposed to

seizure and penalty the moment there is a violation of the

Act or the Rules. In so far as it is not disputed that the

transaction involved transit of goods through the State of

U.P. the goods should have been accompanied with TDF,

over and above the Tax Invoice and other documents of

transportation of goods. The contravention was thus

complete and no further fact or intention was required to

be established by the revenue to either seize the goods or

impose the penalty.

In this regard, Shri C.B. Tripahti, learned counsel for

the revenue submits that the TDF was never produced by

the petitioner up to the stage of imposition of penalty, as it

first appears to have downloaded on 15.11.2017 i.e. one

week after the penalty order.

As to the merits of the penalty order which also

bearing the preliminary objection raised by Shri C.B.

Tripathi, learned Standing Counsel as to the existence of

alternative remedy, he submits that the penalty order has

been passed on a third reason as well being the

assessee had intention to evade tax inasmuch as the

penalty order specifically alleges that the assessee had

conducted the transaction in the manner so as to unload

the goods inside the State of U.P. in the garb of transit

through the State of U.P.

Having considered the arguments so made by the

learned counsel for the parties, we find that at the stage

of seizure the detaining authority had not applied his

mind, nor formed any opinion as to intention to evade tax.

The only allegation made in the seizure order is to the

effect that the TDF is absent and that the goods have

been mis-described. There is no allegation whatsoever as

to the intention of the petitioner to evade tax.

Even in the penalty notice issued to the petitioner on

03.11.2017, there is no allegation made of their being any

intention on part of the petitioner to evade tax. Thus, the

petitioner was never put to notice/show-cause why

penalty may not be imposed on account of his intention to

evade tax. The only allegation up to the stage of issuance

of the penalty show-cause notice, therefore, appears to

be that the petitioner had contravened the provisions of

the Act and therefore exposed itself to the penalty.

However, in the penalty order, almost in the passing the

respondent no.4 has recorded that the petitioner had

intention to evade tax by unloading the goods inside the

State of U.P. However, as a fact petitioner has not been

found to have unloaded the goods. Also, neither such

allegation was made against the petitioner at any prior

stage nor the petitioner was called upon to furnish any

reply nor there is any evidence in this regard. The

observation made in the penalty order is, therefore, only

an afterthought. The same cannot be relied upon by the

State to justify the imposition of penalty.

In absence of any allegation or evasion of tax being

made against the petitioner at the stage of detention and

seizure and even at the stage of issuance of notice of

penalty, it is difficult to sustain the penalty.

Then, as to absence of TDF, though it amounted to a

breach of the Rules, yet, in the entirety of the facts &

circumstances of this case, as admitted to the revenue, it

does appear that goods were being transported from

Rajasthan to Assam. Also, since the goods had reached

near the exit point in the State of U.P. and there is no

allegation that the goods were being or had been

unloaded inside the State of U.P., we are of the opinion

that the goods were infact being transported from

Rajasthan to Assam as disclosed in the Tax Invoice and

other documents found accompanying the goods. The

breach was purely technical.

Last, as to alleged mis-description of goods, we find,

in view of it being established that the goods (whatsoever

their correct description be) had originated from outside

the State and were being transported outside the State,

using the State of U.P. as a transit State, and the goods

appear to have been seized near the exit point in State of

U.P. the proper officer should have, at most made an

endorsement to that effect and allowed the goods to pass

through the State of U.P. It may however be made clear,

at this stage we have made this observation in the

peculiar facts of this case and it may not be treated as a

procedure to be adopted in all cases of mis-description of

goods. That issue or question is being left open to be

decided in an appropriate case.

The seizure order as also the penalty order are

wholly unsustainable and are hereby quashed. The goods

and vehicle may be released forthwith without furnishing

any security. Writ petition is allowed. No order as to

costs.

Order date: 30.11.2017