Court Quashes Seizure of Goods in Inter-State Trade, Rules TDF Not Required

Case Name:

M/s. Ramesh Chand Kannu Mal Vs. State of UP And 2 Others

Writ Tax No. 583 of 2018

Key Takeaways:

- TDF is not required for inter-state movement of goods under IGST Act.

- State authorities cannot apply state GST rules to inter-state transactions.

- Only the Central Government has the power to prescribe documents for inter-state trade.

- The court emphasized the importance of following the correct law in GST matters.

Issue:

Was the seizure of goods and vehicle by state tax authorities for non-submission of Transit Declaration Form (TDF) in an inter-state transaction legal under the IGST Act?

Facts:

- The petitioner firm sold M.S. Scrap to a company in Uttarakhand.

- They prepared a tax invoice charging IGST at 18%.

- The goods were intercepted in Ghaziabad, Uttar Pradesh during transportation.

- The authorities seized the goods and vehicle for not carrying a TDF.

- A show cause notice was issued for tax and penalty.

Arguments:

Petitioner's Arguments:

- TDF was not required for inter-state transactions under IGST Act.

- The state notification requiring TDF was not applicable to inter-state trade.

- The circular issued by the State Commissioner was ultra vires.

State's Arguments:

- The circular was a clarification of an existing notification.

- The proceedings were summary in nature and the petitioner should participate in penalty proceedings.

Key Legal Precedents:

- ASCICS Trading Company v. Assistant State Tax Officer & anr., 2017 NTN (Vol.65) 145 - The Kerala High Court held that state authorities cannot detain goods for non-compliance with IGST Act requirements when the Central Government hasn't notified the required documents.

- The court also referred to a judgment dated 29.1.2018 passed in Writ Tax No.95 of 2018, but distinguished it from the current case.

Judgement:

The court ruled in favor of the petitioner:

- It quashed the seizure order and show cause notice.

- It held that TDF was not required for inter-state movement of goods under IGST Act.

- The court ordered the immediate release of goods and vehicle.

- It directed authorities to return any amount paid by the petitioner during seizure proceedings.

The court based its decision on the following:

- Section 20 of IGST Act, 2017

- Section 68 of CGST Act, 2017

- Rule 138 of CGST Rules, 2017

FAQs:

Q1: Why was the seizure of goods considered illegal?

A1: The seizure was illegal because TDF was not required for inter-state trade under the IGST Act, and state authorities applied inapplicable state GST rules.

Q2: Who has the authority to prescribe documents for inter-state trade?

A2: Only the Central Government has the authority to prescribe documents for inter-state trade under the IGST Act.

Q3: What documents were sufficient for transportation in this case?

A3: The invoice and other documents carried were sufficient, as they revealed it was an inter-state supply and IGST had been paid.

Q4: Can state authorities enforce IGST Act provisions?

A4: Yes, state authorities can enforce IGST Act provisions, but they must apply the correct law and cannot use state GST rules for inter-state transactions.

Q5: What's the significance of this judgment for businesses engaged in inter-state trade?

A5: This judgment clarifies that businesses don't need to carry state-specific documents like TDF for inter-state transactions, as long as they comply with IGST Act requirements.

1. Heard Sri Nishant Mishra assisted by Sri Vipin Kushwaha, learned counsel for the petitioner and Sri C.B. Tripathi, learned Standing Counsel for the respondents­State.

2. With the consent of learned counsel for the parties, writ petition is finally disposed of without calling the counter affidavit.

3. The instant writ petition has been filed by the petitioner for the

following relief;

A. Issue a writ, order or direction in the nature of certiorari quashing the

impugned seizure order dated 28.03.2018 and consequential notice dated 28.03.2018. (Annexure­1 & 2) passed by respondent no.3

B. Issue a writ, order or direction in the nature of mandamus commanding Respondent No.3 and his agents, to release the Vehicle No. UP­12AT­1460, without insisting for deposit of any amount of tax/penalty;

C. Issue a writ, order or direction declaring that Notification No.1014

dated 21.07.2017, as amended, is directory and not mandatory, in so far

it requires carrying TDF for inter­State transaction covered by IGST Act,

2017;

D. Issue a writ, order or direction quashing the Circular dated 06.02.2018

issued by Respondent no.2;

4. The petitioner is a firm dealing with all kinds of Iron Scrap etc.

and is registered under the provision of GST Act, 2017.

5. In normal course of business, the petitioner firm sold M.S. Scrap

vide Invoice dated 24.03.2018 for an amount of Rs.4,14,712/­ to M/s

Cosmox Ferrours (P) Ltd., Bhagwanpur, District Hardwar, Uttrakhand.

The petitioner has prepared a tax invoice against the aforesaid sales

being Tax Invoice No.0257 dated 24.03.2018 indicating wherein the

taxable value of the goods to the tune of Rs.3,51,450/­ on which

Integrated Goods and Service Tax (hereinafter referred as 'the IGST')

@ 18% has been charged to the tune of Rs.63,262/­. Since the petitioner's firm is situated in District Faridabad, State of Haryana, it generated e­way bill prescribed under Central Goods and Service Tax, Rules (hereinafter referred as the 'CGST') after uploading of the relevant details of the aforesaid transactions. The said e­way bill has been downloaded from the official portal on 24.03.2018. The said e- way bill indicates the time and the date of generation as 24.03.2018 at 8.38 P.M. giving all requisite details therein. The said goods were booked for transportation from Faridabad to Haridwar through a transporter namely DEV Transporter, Muzaffar Nagar against goods receipt (GR) no. 241 dated 24.03.2018. The aforesaid goods are loaded at Faridabad and transported through truck no. U.P.­12AT-

1460.

6. Learned counsel for the petitioner has submitted that when the

aforesaid vehicle in question was crossing through Ghaziabad, it was

intercepted/detained by the Assistant Commissioner, State/Commercial Tax, Mobile Squad­VIIth Unit, Ghaziabad on 25.03.2018 at about 12.05 P.M. When the petitioner received the information about the detention of his goods and vehicle, the person incharge of the vehicle on instruction immediately downloaded the Transit Declaration Form at 3.13 P.M. and furnished the same before the respondent no.3 on 25.03.2018 itself. The said Transit Declaration Form­I which has been downloaded by the petitioner indicates all the details and it further indicates that the same has been got downloaded

at 3.13 P.M. on 25.03.2018.

7. Learned counsel for the petitioner has submitted that though the

Transit Declaration Form has been presented in pursuance of the

insistence by respondent no.3 but it was not at all required to be

furnished under the law.

8. The respondent no.3, however, has passed a seizure order dated

28.03.2018 by which he has seized the goods as well as vehicle on the

ground that the goods were being transported from outside the state of

U.P. without the Transit Declaration Form, which is in violation of

provision of UPGST Act. The respondent no.3, in pursuance to the

seizure order, has issued a show cause notice dated 28.03.2018 under

Section 129(3) of the UPGST Act directing the petitioner to appear

before him on 04.04.2018 and to explain as to why tax @ 18% amounting to Rs.63,262/­ and equivalent amount of penalty may not be imposed.

9. Learned counsel for the petitioner has submitted that there is no

requirement for generation or downloading of the Transit Declaration

Form­I for the goods crossing/passing through the State of U.P. He has

further submitted that since the TDF­I is not required under the law,

the seizure of goods and the vehicle on the ground of non availability

of TDF­I is wholly illegal and without jurisdiction.

10. It is further submitted that in exercise of power conferred by

Rule 138, as originally enacted, State Government issued Notification

No.1014 dated 21st July, 2017 specifying the following documents in

clause (i) to (iv) to be carried while the goods are in movement or in transit storage- Clause Document Purpose

i. e­way bill­01 In case of transportation of taxable goods valuing Rs.5000/­ or more from a place outside Uttar Pradesh into the State.

ii. e­way bill­02 In case of transportation of taxable goods valuing Rs.1 lakh or more within Uttar Pradesh or from a place within the State to place outside the State.

iii. e­way bill­03 In case of transportation of taxable goods by e­commerce operators or by their authorised transporters, courier agents or agents for delivery to a person within Uttar Pradesh

iv. TDF­01 In case of transportation of taxable goods valuing Rs.5000/­ or more from a place outside Uttar Pradesh to a place outside Uttar Pradesh and on exit of goods from the State, the information in Form TDF­02.

11. Learned counsel for the petitioner has submitted that a process

for initiation of a new indirect taxation regime was put into motion by

the Constitution (101st Amendment) Act 2016 dated 8.9.2016 by which Articles 246­A, 269­A, 279­A and other provisions of the Constitution were amended. As per the amended Article 269­A, which pertains to levy and collection of Goods and Services Tax in the course of inter­state trade or commerce such tax shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Service Tax council. Import within the territory of India was included within the meaning of the term "Inter­State Trade or Commerce" and in

respect of it tax, as aforesaid, would be levied and collected by the

Government of India.

12. In pursuance to the aforesaid 101st Amendment of the

Constitution three enactments were passed by the Parliament, i.e. the

Integrated Goods and Services Tax Act 2017; the Central Goods and

Services Tax Act 2017; the Union Territory Goods and Services Tax Act

2017 (hereinafter referred as ''UTGST Act'). In addition to the aforesaid

three enactments, the Legislature of the State of Uttar Pradesh passed

an enactment known as the ''UPGST Act, 2017'.

13. In matters of inter­State Trade and Commerce including

import into the territory of India and out of it, the IGST Act, 2017

applies, whereas, in matters of intra­State trade and commerce the

''CGST Act 2017' and the State Goods and Services Tax Acts, which in

this case is ''UPGST Act, 2017'', apply.

14. Section 3 of the IGST Act, 2017 provides that the Board may

appoint such Central Tax Officers, as it thinks fit, for exercising powers

under this Act. There is no dispute about the fact that by virtue of

section 4 of the IGST Act, 2017 the officers appointed under the State

Goods and Services Tax Act or the Union Territory Goods and Services

Tax Act are authorized to be the proper officers for the purposes of the

said Act, subject to such exceptions and conditions as the Government

shall, on the recommendations of the Council by notification, specify.

Similarly for enforcement of CGST Act 2017 by virtue of section 6

thereof State Authorities under UPGST Act 2017 are also empowered

to enforce CGST Act 2017.

15. It is also not in dispute that by virtue of section 20(xv) of the

''IGST Act, 2017' the provisions of ''CGST Act, 2017' apply in respect of

matters covered by the IGST Act, 2017 on the subject of inspection,

search, seizure and arrest. Chapter XIV of the CGST Act, 2017 deals

with inspection, search, seizure and arrest. While section 67 of CGST

Act, 2017 deals with the power of inspection, search and seizure,

section 68 deals with inspection of goods in movement and it is this

provision with which we are primarily concerned. It reads as under:

"68. Inspection of goods in movement

(1) The Government may require the person in charge of a conveyance

carrying any consignment of goods of value exceeding such amount as may

be specified to carry with him such documents and such devices as

may be prescribed.

(2) The details of documents required to be carried under sub­section (1)

shall be validated in such manner as may be prescribed.

(3) Where any conveyance referred to in sub­section (1) is intercepted by

the proper officer at any place, he may require the person in charge of the

said conveyance to produce the documents prescribed under the said

sub­section and devices for verification, and the said person shall be

liable to produce the documents and devices and also allow the

inspection of goods."

16. As would be evident from its reading, the documents which the

Government may require the person in charge of a conveyance

carrying any consignment of goods of value exceeding such amount as

may be specified, are such, as may be prescribed. Now this prescription

has been made under Rule 138 of the CGST Rules, 2017 which reads

as under:

"138. E­way rule.­Till such time as an E­way bill system is developed and

approved by the Council, the Government may, by notification, specify the

documents that the person in charge of a conveyance carrying any consignment

of goods shall carry while the goods are in movement or in transit storage."

17. As would be evident from a reading of the aforesaid rule, it

refers to an E­way bill System which is to be developed by the GST

Council and it provides for an interim arrangement by the Government

till an E­way Bill System is so developed and approved. The words

"Government" used therein is defined in Section 2(53) of CGST Act,

2017 to mean the "Central Government". It is not in dispute that on the

date of interception of the vehicle in question E­way Bill System had

not been developed, therefore, the documents which were required to

be carried during movement of any consignment of goods were those

which may have been notified by the Central Government under Rule

138 of the CGST Rules, 2017, as, by virtue of Section 20(xv) thereof, it

is this rule which is applicable to matters pertaining to IGST Act, 2017.

Neither the State of U.P. nor the Government of India has brought on

record any such notification which may have been issued prescribing

the relevant documents to be carried in the course of such movement

as is referred in section 68 of the CGST Act, 2017 and Rule 138 of the

CGST Rules, 2017. In fact, learned counsel for the Government of

India made a categorical statement on the basis of instructions that

T.D.F. Form was not required to be carried for movement of inter­State

goods to which the IGST Act, 2017 applies. In fact, as per, learned

Advocate appearing for the Government of India, CGST Rules, 2017

were amended on 30th August 2017 and vide another notification

dated 29.12.2017 this amendment containing the E­way Bill system

was to come into force from 1.2.2018, but, the notification dated 29th

December 2017 was rescinded by a subsequent notification dated

2.2.2018. Thereafter the notification dated 7th March 2018 has been

issued regarding E­way Bill System.

18. Thus, E­way bill system has been prescribed only recently by a

notification of the Government of India dated 7th March, 2018

whereby Rule 138 of the CGST Rules, 2017 has been amended and

other Rules have been incorporated in this regard. These amendments

are to come into force from a date to be specified by the Central

Government which is specified w.e.f. 01.04.2018.

19. Be that as it may, the fact of the matter is that on the date of

incident i.e. 24.03.2018 neither there was any E­way Bill System nor

any notification by the Central Government under Rule 138 of the

CGST Rules, 2017 requiring the carrying of a TDF Form or any other

such document in the course of inter­State supply/movement of goods,

as such, the very basis for passing the impugned orders and taking

action against the petitioner as impugned herein is apparently

erroneous and illegal. In view of the above, it cannot be said that there

was any intent to evade tax.

20. As regards the contention of Sri C.B. Tripathi, based on the

notification issued under Rule 138 of the UPGST Act, 2017, no doubt

the said notification also takes into consideration the requirement of

carrying documents i.e. TDF Form­1, in respect of inter­State

movements of goods, but, in our view it is only the Government of

India which is empowered to issue such a notification in respect of

inter­State trade under section 20(xv) of the IGST Act 2017 read with

Section 68 of the CGST Act, 2017 and Rule 138 of the CGST Rules,

2017 made thereunder, as, the term ''Government' used in Rule 138 is

defined in section 2(53) of the CGST Act, 2017 to mean the ''Central

Government', just as, under section 2(9) of the IGST Act, 2017

''Government' means '' the Central Government'. Moreover, with

respect to Goods and Service Tax in relation to inter­State Trade the

Parliament alone has the authority to legislate as would be evident

from the 101st Amendment to the Constitution.

21. In this view of the matter, we are of the considered view that on

the relevant date i.e. 24.03.2018, there was no requirement of carrying

TDF Form­1 in the case of an inter­State supply of goods. In fact on the

relevant date there was no prescription of the documents to be carried

in this regard under Rule 138 of the CGST Act, 2017, accordingly, the

seizure and penalty imposed upon the petitioners based on the

notification dated 21.7.2017 issued under Rule 138 of the UPGST Act

2017, which was not applicable, is clearly illegal.

22. Cross­empowerment under section 4 of IGST Act, 2017 and

section 6 of CGST Act, 2017 merely means that State Authorities

empowered under the UPGST Act, 2017 can also enforce the provisions

of CGST Act, 2017 or IGST Act, 2017, but it does not mean that they

can apply the provisions of UPGST Act, 2017 or Rules made

thereunder to cases of inter­State trade in violation of section 20(xv) of

IGST Act, 2017. It does not mean that the State Government can issue

a notification under Rule 138 of UPGST Rules made under UPGST Act

2017 to prescribe documents to be carried in an inter­state supply of

goods and services regarding which only the Central Government has

the power under section 20(xv) of IGST Act, 2017 read with section 68

of CGST Act 2017 and Rule 138 of CGST Rules 2017.

23. The fact that the authorities under the State Act were

empowered to exercise the powers under the CGST Act 2017,

assuming it to be so, is in consequential, as, it is not their jurisdiction

to exercise power of seizure which is under question, but, the manner

in which they have exercised it on the basis of an inapplicable

provision of law, as, they have proceeded on the presumption that TDF

Form­1 prescribed under a notification issued by the State Government

under Rule 138 of the Rules made under the UPGST Act 2017, was

required to be carried, which is not the requirement in law. For this

very reason, the judgment dated 29.1.2018 passed by a Coordinate

Bench of this Court in Writ Tax No.95 of 2018 does not apply to the

instant case, as the challenge therein was to the very power of the

State Authorities under UPGST Act, 2017 to seize goods involved in

inter­state supply. Here the question is whether petitioner was required

to carry TDF Form I or not, which we have answered in the negative.

24. As regards the provisions of Section 129 UPGST Act, 2017 under

which the impugned action has been taken, the same is not applicable

to an inter­State trade or commerce. By virtue of Section 20 of the

IGST Act, 2017, it is section 129 of CGST Act, 2017 that would apply,

but this is not the ground on which we are invalidating the impugned

action, as, if it is traceable to the aforesaid provision of CGST Act, 2017

which is pari materia to the State Act, then mere wrong mentioning of

a provision would be too technical a ground for interference. We are

invalidating the action on account of absence of any notification by the

Central Government under Rule 138 of CGST Rules, 2017 and in view

of incorrect application of notification issued by the State Government

under Rule 138 of UPGST Rules.

25. We are supported in our view not only by the statement made by

Central Government Counsel as recorded hereinabove, but also by the

judgment of the Kerala High Court on the subject as reported in

ASCICS Trading Company v. Assistant State Tax Officer & anr.,

2017 NTN (Vol.65) 145, wherein it has been held as under:

"3. To a pointed query as to the power of the State Government to detain goods for alleged non compliance with the requirement of carrying the prescribed documents under the I.G.S.T. Act, which is the basis for the detention in Ext. P5 notice impugned in the writ petition, the learned Government Pleader would take me through the provisions of the IGST Act, CGST Act and SGST Act and in particular, the provisions of Section 4 and Section 20 of the IGST Act and Section 6 of the CGST Act read with Rule 138 of the CGST Rules as amended by notification No.27/2017 ­ Central Tax for the purposes of pointing out that, although the power to prescribe the documents that are to accompany the transportation of goods in the course of interstate trade is conferred on the Central Government, the Central Government has, till date, not notified the documents that have to be carried by a transporter of the goods in the course of interstate movement. Under the said circumstances, and finding that neither the State Legislature nor the State Government would have the power to make laws/rules to govern

interstate movement of goods in the course of trade, and for the purposes

of levy of tax, I am of the view that detention in Ext.P.5, for the sole

reason that the transportation was not accompanied by the prescribed

documents under the IGST Act/CGST Act/CGST Rules, cannot be legally

sustained. I therefore, allow the writ petition by making the interim

order absolute."

26. Furthermore, we find that alongwith the consignment of goods

the driver was carrying an invoice which mentioned that the goods

were being taken from the State of Haryana to the State of

Uttarakhand, therefore, as of now, it was an inter­State trade and there

is nothing on record to show otherwise. The assertion that IGST had

already been paid, has also not been denied by the opposite parties nor

that both the consignor and consignee are registered dealers.

Moreover, the requisite details having been mentioned in the invoice

etc. the same would be verified at the point of destination and

accordingly the matter would be scrutinized as regards the liability of

Tax. The notification dated 21.7.2017 issued by the State Government

under Rule 138 of the UPGST Rules, 2017 made under Section 164 of

the UPGST Act, 2017 was clearly inapplicable for the reasons already

mentioned earlier. There was no intent to evade tax.

27. The contention of Sri Nishant Misra, learned counsel for the

petitioners was that the transaction was one of inter­State supply of

goods, therefore, it was covered by the Integrated Goods and Services

Tax Act, 2017 and as per section 20 (xv) thereof, in matters of

inspection, search, seizure and arrest, provisions of the Central Goods

and Services Tax Act, 2017 were applicable. As per section 68 of the

CGST Act, 2017, inter alia, Government may require, the person in

charge of a conveyance carrying any consignment of goods of value

exceeding such amount as may be specified, to carry with him such

documents and such devices as may be prescribed. This prescription is

contained in Rule 138 of the Central Goods and Services Tax Rules,

2017, but, no notification had been issued by the Central Government

under the said rule specifying the documents that a person in charge of

a conveyance carrying any consignment of goods shall carry while the

goods are in movement or in transit storage, therefore, the rule was

practically inoperative and there was no requirement of carrying any

such document. The invoice and other documents which were being

carried were sufficient for the purpose of transportation, especially as,

they revealed that it was an inter­State supply of goods and the IGST

at the rate of 18% had already been paid.

28. According to learned counsel for the petitioner when Rule 138,

as originally enacted, ceases to exist on 01.02.2018, then any

document of any kind including the Transit Declaration Form­I

specified by the State Government in exercise of power under

originally enacted Rule 138 was not required to be generated by a

dealer after 1st February, 2018, and therefore, the entire proceedings

against the petitioner carried by the respondent no.3 by seizing the

goods and vehicle as well as by issuing show cause notice for

imposition of penalty is wholly without jurisdiction.

29. According to the counsel for the petitioner, the Commissioner of

State Tax has no power to issue the circular in exercise of power under

Section 168 of the Act. The Commissioner, therefore, cannot issue

circular and directions which are not in consonance with the Act and

Rule or the notifications. He has further submitted that the

Commissioner is not expected to perform the legislature function and

issue the instruction or the circular on something contrary to the

provision which are available in the Act or Rule.

30. Learned counsel for the petitioner, therefore, has submitted that

the Commissioner by way of circular dated 06.02.2018 usurped the

rule making power of the legislature. It is further submitted that the

circular issued by the Commissioner cannot revive the notification. In

the present case the Notification no. 1014 dated 21.07.2017 which was

already amended by another notification No. 1359 dated 20.09.2017

has no legal value. The counsel for the petitioner has challenged the

validity of the circular dated 06.02.2018 and has submitted that the

same is ultra vires to UPGST Act and Rules 2017.

31. On the contrary, Sri C.B. Tripathi, learned counsel representing

the State has submitted that the circular is nothing but a clarification

to all subordinate authorities to act by applying the notification

No.1014 dated 21.07.2017 though is amended but still is applicable.

He has further submitted that the present proceedings are summary,

and therefore, the petitioner be relegated to deposit the impugned

demand and to participate in the penalty proceedings and in case, if

the petitioner succeeded before the seizing authority, the amount if so

deposited in compliance of the seizing/penalty order will be refunded.

32. Learned counsel for the State, therefore, submits that in view of

the aforesaid reasons the earlier notification No.1014 dated

21.07.2017 automatically revived and the Commissioner has rightly

issued the circular dated 06.02.2018 requiring of downloading of

TDF­I. He has also submitted that the order of seizure and issuance of

the notice under Sections 129(1) and 129(3) respectively are issued

with full authority of law by the respondent no.3 and are in accordance

with law.

33. We find no substance in the submission of learned counsel for

the State.

34. We noticed that the notification dated 21.07.2017 has already

been amended by the notification No. 1359 dated 20.09.2017 and on

account of aforesaid amendment, the UPGST (4th Amendment) Rules,

2017 was introduced and made effective with effect from 01.02.2018

vide notification No.138 dated 30.01.2018, therefore, in our opinion,

the initial notification no.1014 by which e­way bill­01, e­way bill­02, e-

way bill­03 and TDF (Transit Declaration Form) was introduced

stands rescinded.

35. We are in agreement with the submission of learned counsel for

the petitioner that with effect from 01.02.2018 there was no

requirement to download the Transit Declaration Form­I as the same

was not required under the law after the aforesaid cut of date.

36. There is no doubt with regard to transaction in question as we

find that the Integrated Goods and Service Tax (IGST) has been

charged by the petitioner in its invoice and when the IGST is required

to be paid then there cannot be any intention to evade the payment tax

namely SGST and CGST.

37. In view of the aforesaid, the impugned seizure order dated

28.03.2018 passed by the respondent no.3 and the consequential

notice dated 28.03.2018 issued under Section 129(3) of the Act are

hereby set aside. The goods and the vehicle be released forthwith and

we further direct the respondent authorities to return the amount, if

any, paid by the petitioner or his Agent in pursuance of seizure

proceedings.

38. The writ petition stands allowed.

Order Date :­ 5.4.2018

A.Kr.

[Ashok Kumar, J.] [Krishna Murari, J.]