Court quashes orders on vehicle detention, directs tax officer to re-examine assessee’s job work claim.

Case Name:

M/s. Jaitron Communication Pvt. Ltd. Vs. State Of U.P. And 2 Others-(GST HC Cases)

Key Takeaways:

- Courts will scrutinize whether tax authorities have properly examined the assessee’s defense before issuing orders under Section 83 (provisional attachment) of the CGST Act.

- Tax authorities must determine the nature of the transaction and consequent tax liability before imposing penalties.

- Mere non-availability of documents with the transporter may not be sufficient grounds for attachment if the assessee can substantiate their claim.

Issue:

Whether the court should quash the orders issued by tax authorities, provisionally attaching the petitioner’s bank accounts under Section 83 of the CGST Act, 2017, for alleged non-payment of tax during the transportation of a drilling machine.

Facts:

- On 9th January 2020, the tax authorities detained a vehicle transporting a drilling machine from Maharashtra to Ghaziabad. The e-way bill available with the driver showed the value of the machine along with tax as Rs. 41,30,000/-. However, no tax invoice or other documents were found with the vehicle, which was considered a violation of Rule 138 of the CGST Rules.

- The petitioner (registered dealer) stated that the e-way bill was mistakenly generated and that the machine was being transported for a job work awarded by M/s Sharda Equipment, Jharkhand. The petitioner claimed that since the job work was yet to be performed, no tax liability had arisen.

- Despite the petitioner’s reply, the tax officer issued an order under Section 129(3) of the CGST Act, demanding payment of admitted tax of Rs. 6,30,000/- along with a 100% penalty. This order was upheld by the appellate authority.

Arguments:

Petitioner’s Argument:

The machine was being transported for job work purposes, and no tax liability had arisen since the job work was yet to be performed. The authorities failed to examine this claim properly.

Tax Department’s Argument: Based on the available e-way bill and admitted materials, the authorities correctly assessed the tax and penalty liabilities.

Key Legal Precedents:

- The court discussed and distinguished several precedents cited by the petitioner, including judgments from various High Courts.

- The court relied on the provisions of Section 83 of the CGST Act, 2017, which allows provisional attachment of property, including bank accounts, during pending proceedings to protect government revenue.

- The court also referred to Rule 142(1A) and Rule 159(5) of the CGST Rules, which outline the procedure for issuing and objecting to provisional attachment orders.

Judgement:

The court quashed the orders dated 28.01.2020 and 06.02.2020, issued by the tax authorities, provisionally attaching the petitioner’s bank accounts. The court held that the authorities did not properly examine the petitioner’s claim that the machine was being transported for job work purposes, which may not attract tax liability.

The court directed the petitioner to appear before the tax officer on 05.10.2020 and furnish all relevant details to substantiate their claim. The tax officer was instructed to examine the petitioner’s defense and determine the tax liability, if any, in accordance with the law within four weeks.

FAQs:

Q1. What is the significance of the court’s decision?

A1. The decision reinforces the principle that tax authorities must properly examine the assessee’s defense and determine the nature of the transaction before imposing tax liabilities and penalties.

Q2. Can the tax department still proceed with the cancellation of the petitioner’s registration?

A2. The court’s decision does not preclude the tax department from proceeding with the cancellation of the petitioner’s registration, provided they follow the proper procedure.

Q3. What recourse does the petitioner have if the tax officer’s fresh order is unfavorable?

A3. The petitioner can challenge the fresh order passed by the tax officer through appropriate legal channels, such as filing an appeal before the appellate authorities or the court.

Q4. Can the tax department keep the bank accounts attached indefinitely?

A4. No, as per Section 83(2) of the CGST Act, the provisional attachment shall cease to have effect after the expiry of one year from the date of the order.

Q5. What is the legal reasoning behind allowing provisional attachment of bank accounts?

A5. The court upheld the tax authorities’ power to provisionally attach bank accounts and other properties under Section 83 of the CGST Act to protect government revenue during pending proceedings related to tax evasion or non-payment. However, the court emphasized that the authorities must properly examine the assessee’s defense before issuing such orders.

This petition has been filed under Article 226 of the Constitution of India directly against the order passed by the Proper Authority and first appellate authority, while exercising jurisdiction under Section 129 of the Central Goods and Services Tax Act, 2017, since the G.S.T. Tribunal has not been constituted so far by the Central Government for the State of Uttar Pradesh. It is urged that statutory right of the petitioner to approach the Tribunal cannot be taken away once the Act itself has been enforced. Attention of the Court has been invited to Section 112(3) and 113(1) of the Act which defines the jurisdiction of the C.G.S.T. Tribunal. Section 112(3) and Section 113(1) of the Act is reproduced hereinafter:-

''112(3) The Commissioner may, on his own motion, or upon request from the Commissioner of State tax or Commissioner of Union territory tax, call for and examine the record of any order passed by the Appellate Authority or the Revisional Authority under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act for the purpose of satisfying himself as to the legality or propriety of the said order and may, by order, direct any officer subordinate to him to apply to the Appellate Tribunal within six months from the date on which the said order has been passed for determination of such points arising out of the said order as may be specified by the Commissioner in his order.

113(1) The Appellate Tribunal may, after giving the parties to the appeal

an opportunity of being heard, pass such orders thereon as it thinks fit,

confirming, modifying or annulling the decision or order appealed against

or may refer the case back to the Appellate Authority, or the Revisional

Authority or to the original adjudicating authority, with such directions as

it may think fit, for a fresh adjudication or decision after taking additional evidence, if necessary."

Learned counsel for the petitioner with reference to the above

provision contends that the appeal before the Tribunal is not

confined to question of law alone, but even factual issues are

also open for examination before the Tribunal. Had such an

opportunity be given, the petitioner could have addressed the

Tribunal on factual issues also. It is, therefore, submitted that

while exercising jurisdiction under Article 226 of the

Constitution of India this Court may keep in view the above

provisions so as to protect the rights of the petitioner with

regard to statutory remedy available before the Tribunal, at the

first instance.

A perusal of record would go to show that transport Vehicle No.

U.P. 70 A.T. 5360 was detained by the C.G.S.T. authorities on

9.1.2020 at 6:20 A.M. on Yamuna Expressway while it was

transporting a drilling machine. The driver of the vehicle

produced an E-way bill electronically as per which the machine

was being transported from SD Technologies Kisan Vihar,

Ghansoli, Maharashtra to Sector 3, Block 10 Rajendra Nagar,

Ghaziabad. The value of the machine along with tax was shown

as Rs.41,30,000/-. No tax invoice, chalan, hard copy etc. was

found with the vehicle. Finding it to be a violation of Rule 138

of the G.S.T. Rules the vehicle was detained and a notice was

issued to the petitioner under Section 129(3) of the Act.

In reply to the notice issued under Section 129(3) of the Act, the

petitioner stated that the E-way bill available with the driver

was mistakenly generated inasmuch as it related to purchase of

drilling machine in 2018 itself, and that the correct E-way bill

No.441103629039 has also been generated as per which the

equipment was being sent to M/s Sharda Equipment, Jharkhand

pursuant to a job work awarded to the petitioner for drilling

bore wells. Along with the supplementary affidavit, filed today,

the petitioner has also send a letter dated 14.1.2020 to the

proper officer as per which the machine was being sent for

performance of job work and that there existed no other motive

for sending driling machine.

The Assessing Authority has considered the reply of the

petitioner and has found that in the e-way bill available with the

driver at the time of detention the machine was shown to be in

transit from Maharashtra to Ghaziabad, with the value of the

commodity with tax disclosed at Rs.41,30,000/-. The authority

has observed that admitted tax of Rs. 6,30,000/- since has not

been paid as such this amount together with 100% penalty is

liable to be paid by the petitioner. This order has then been

affirmed in appeal. Aggrieved by these two orders the petitioner

is before this Court.

Learned counsel for the petitioner with reference to the

pleadings made in the writ petition submits that the machine in

transit is actually a horizontal direction drilling machine which

was to be utilised by the assessee for performance of job

cotranct given by M/s Sharda Equipment, Jharkhand. It is

submitted that this machine was purchased in the year 2018

from Maharashtra and the amount of GST payable for such

purchase has already been paid in the year 2018 itself. It is

submitted that while passing order under Section 129(3) of the

Act the Assessing Authority is expected to determine the

amount of tax and penalty payable and release the seized goods

upon deposit of such amount. Submission is that the Assessing

Authority and the first Appellate Authority have failed to

examine petitioner's claim on merits with regard to execution of

job work and the consequential liability to pay tax and penalty.

It is also urged that job work since is yet to be performed and

no payment is made, therefore, no amount is actually payable

towards tax.

Per contra, learned Standing Counsel submits that the

authorities have correctly assessed the liability of tax and

penalty on the basis of admitted materials and, there is no

illegality in the order itself.

I have heard Sri Nishant Mishra, learned counsel for the

petitioner and Sri B. K. Pandey, learned Standing counsel and

have examined the materials on record.

Section 129 provides for detention, seizure and release of goods

and conveyance in transit. In the event it is found that

transportation of goods is in contravention of the provisions of

the C.G.S.T. Act or Rules made there under then the competent

authority is empowered to detain and thereafter seize goods and

vehicle. It is only upon payment of applicable tax and penalty

specified under Section 129(1) that such goods can be released.

Section 129(1) and sub-Section 3 of Section 129 is reproduced

hereinafter:-

"129 (1) Notwithstanding anything contained in this Act, 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 made thereunder, 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 and after detention or seizure, shall be

released, –

(a) on payment of the applicable tax and penalty equal to one hundred per cent. of the tax payable on such goods and, in case of exempted goods, on payment of an amount equal to two per cent. of the value of goods or twenty-five thousand rupees, whichever is less,where the owner of the goods comes forward for payment of such tax and penalty;

(b) on payment of the applicable tax and penalty equal to the fifty per cent. 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 five per cent. of the value of goods or twenty five thousand rupees, whichever is less, where the owner of the goods does not come forward for payment of such tax and penalty;

(c) upon furnishing a security equivalent to the amount payable under clause (a) or clause (b) in such form and manner as may be prescribed: Provided that no such goods or conveyance shall be detained or seized without serving an order of detention or seizure on the person transporting the goods.

129(3) 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 under clause (a) or clause (b) or

clause (c)."

Release of seized goods and vehicle can only be upon payment

of application tax and penalty as per the rates specified under

Section 129('a', 'b' or 'c'). For the purposes of specifying tax and

penalty payable in terms of above provisions the proper officer

is expected to issue a notice specifying the tax and penalty

payable and thereafter pass an order for payment of tax and

penalty. It is therefore expected that the proper officer will give

an opportunity and thereafter examine the defence set up by the

assessee, in response to the notice issued under sub-Section 3,

and determine the amount payable towards tax and penalty.

In the facts and circumstances of the present case the petitioner

has urged that e-way bill available with the vehicle t the time of

detention did not contain the correct description of the

transaction for which the machine itself was being transported.

As per the assessee the movement of machine was for

performance of contract to supply services and, therefore, by

virtue of Section 7, 9 and 13 read with 31 of the Act the nature

of transaction as also the liability to pay tax has to be

determined. According to petitioner in terms of the above

provisions no liability to pay tax has yet arisen as the contract

of service is yet to be performed and no payment for services

has yet been received. It is submitted that the authorities have

not correctly examined facts in light of the claim set up by it

and, therefore, the orders passed are unstained.

Admittedly, in the facts of the present case the petitioner did

accept that the e-way bill with the vehicle did not contain

correct description with regard to movement of goods. Another

e-way bill (though not available with the vehicle, at the time of

detention) has also been produced along with details of job

work executed in favour of the petitioner. The tax invoice which

has been relied upon for determining the liability of tax

admittedly is of the year 2018 and it is not the case of the

Department that such amount of tax was not paid at the time

when the machine was purchased in the year 2018 itself. It is

also not the case of the Department that this machine has been

sold to anybody. The specific case of the petitioner before the

proper Officer was that this machine was being transported for

performance of job work and not for any other work.

Perusal of the orders passed would clearly go to show that the

claim set up by the assessee with regard to transportation of

machine for performance of job work has not been examined on

merits. There is also no consideration or finding in the orders

passed by the authority which may suggest that this

transportation of machine was for any other purpose. The

proper Officer in terms of the scheme was expected to examine

the specific defence set up by the petitioner and consequently

determine the liability of tax payable by the petitioner. It is only

after determining the liability to pay tax that the liability to pay

penalty could be determined. This exercise does not appear to

have been performed by the proper Officer in the manner

expected by it in accordance with the Act. Petitioner's claim that

no liability to pay tax had arisen till the time when the machine

was being transported is also required to be examined. Such

factual issues require proper determination at the level of the

proper Officer, at the first instance. Since the exercise in that

regard is not found to be in accordance with law the orders

impugned dated 28.1.2020 and 6.2.2020 cannot be sustained

and are accordingly quashed. Petitioner shall appear before the

proper Officer on 5.10.2020 and shall furnish all such details as

are available with it to substantiate its plea already been taken

in its reply on 14.1.2020. The proper Officer is requested to

examine such defence of the petitioner and thereafter determine

the liability, if any, in accordance with law. It is made clear that

this Court has not determined the liability of the petitioner on

merits and all issues of fact are left open to be examined by the

proper Officer, at the first instance. Such exercise be undertaken

expeditiously by the proper Officer, preferably within a period

of four weeks. Depending upon the outcome of such

proceedings, it shall be open for the authorities to proceed

further in accordance with law.

Order Date :- 24.9.2020

Abhishek Singh