GST authorities can't detain goods if proper documents are produced before seizure order.

Case Name:

M/S Galaxy Enterprises v. State Of U.P. And 2 Others (High Court of Allahabad)

Key Takeaways:

- If the taxpayer produces proper tax invoices and e-way bills before the authorities pass a detention or seizure order, the authorities cannot proceed with the action.

- The court relied on previous Division Bench judgments in similar cases.

- The matter was remanded to the appellate authority to pass a fresh order in accordance with the court's ruling.

Issue:

Whether the GST authorities can detain or seize goods if the taxpayer produces proper tax invoices and e-way bills before the detention or seizure order is passed.

Facts:

The petitioner's goods were intercepted during transit from Muzaffarnagar to Rajasthan.

The authorities alleged discrepancies in goods weight between the accompanying documents (tax invoices and e-way bills).

Before the detention or seizure order could be passed, the petitioner produced another tax invoice and e-way bill rectifying the mistake. The petitioner sited it as accountant's clerical mistake and produced accountant's affidavit too.

However, the authorities still issued a show cause notice and imposed a penalty, which was upheld by the appellate authority.

Arguments:

- Petitioner's Argument:

Once the proper documents were produced before the detention or seizure order, the authorities should not have proceeded further. The petitioner had no intention to evade tax and rectified the clerical error.

- Respondents' Argument:

At the time of detention, the goods were different and the quantity was different from the accompanying documents. If not detained, the petitioner would have succeeded in evading legitimate tax.

Key Legal Precedents:

- M/s Axpress Logistics India Pvt. Ltd. vs. Union of India and others (Writ Tax No. 602 of 2018, decided on 9.4.2018)

- M/s Bhumika Enterprises vs. State of UP and others (Writ Tax No. 564 of 2018, decided on 3.4.2018)

The court relied on these Division Bench judgments, which held that if tax invoices and e-way bills are produced before the seizure order, the proceedings are not justified.

Judgment:

The court allowed the writ petition and set aside the impugned orders. The matter was remanded to the first appellate authority to pass a fresh order in accordance with the law, preferably within two months. The court held that once the documents were produced before the detention or seizure order, the authorities should not have proceeded further, as per the Division Bench judgments cited.

FAQs:

Q1: What is the significance of this judgment?

A1: This judgment reinforces the principle that if a taxpayer produces proper tax invoices and e-way bills before the authorities pass a detention or seizure order, the authorities cannot proceed with the action, even if there were initial discrepancies in the accompanying documents.

Q2: What happens if the taxpayer fails to produce proper documents before the seizure order?

A2: In such cases, the authorities can proceed with the detention or seizure of goods and initiate further proceedings as per the law.

Q3: Can the authorities still impose penalties if the taxpayer rectifies the discrepancies after the seizure order?

A3: The judgment does not address this scenario. However, the authorities may still have the discretion to impose penalties or take other actions as per the applicable laws and regulations, depending on the circumstances of the case.

Q4: What is the legal reasoning behind the court's decision?

A4: The court relied on previous Division Bench judgments that established the principle that if proper documents are produced before the seizure order, the proceedings are not justified. The court found the present case to be identical and applied the same legal principle.

1. Heard Mr. Pranjal Shukla for the petitioner and Mr. Rishi Kumar, learned A.C.S.C. for State-respondents.

2. The instant Writ Tax is being entertained by this Court in view of the fact that G.S.T. Tribunal is not functional in the State of Uttar Pradesh pursuant to the Gazette notification of the Central Government bearing number CG-DL-E-14092023-248743 dated 14.09.2023.

3. By means of this writ petition, the petitioner is assailing the order dated 27.1.2022 passed by Assistant Commissioner, Mobile Squad, State Goods and Services Tax, Khataunil Unit Muzaffarnagar, respondent no. 3 and the order dated 2.7.2022 passed by Additional Commissioner, Grade -2 (Appeal), State Goods and Services Tax Muzaffarnagar, respondent no. 2.

4. Brief facts of the case as stated, are that the petitioner is a proprietorship concerned having GSTIN No. 09AAPFG6376E1ZY and engaged in the business of manufacturing and sale of laminated papers. In the normal course of business, the goods were loaded on Truck no. RJ 01 GC 4269 for dispatch from Muzaffarnagar to Rajasthan along with tax invoices, E-way Bills and GR. During transit, the goods were intercepted on 25.1.2022 and Form GST MOV-2 was issued by respondent no. 3 after recording the statement of the truck driver and after physical verification Form GST MOV-04 was issued on the ground that the goods were found to be different than mentioned in accompanying documents. Thereafter a show cause notice was issued in Form GST MOV-07 on 27.1.2022. The petitioner submitted reply and being not satisfied with the same, penalty was imposed by order dated 27.1.2022. Thereafter the petitioner filed an appeal against the said order, which was also dismissed by impugned order dated 2.7.2022. Hence the present writ petition.

5. Learned counsel for the petitioner has submitted that it is admitted that the goods were moving along with tax invoice no. 139 dated 25.1.2022 along with eway bill but before physical verification or issuance of show cause notice or passing the detention as well as seizure order, another tax invoice no. 140 dated 25.1.2022 along with e-way bill was produced rectifying the mistake but still notice was issued and penalty order was passed, which has been affirmed by the appellate authority without proper consideration of claim made by the petitioner.

He further submitted that once before issuance of show cause notice or passing of detention as well as seizure order, the genuine tax invoice along with e-way bill was produced and the mistake was rectified, the authorities ought not to have initiated the proceeding. He submitted that the petitioner has duly explained the discrepancy, which has been occurred due to clerical error of his accountant and in support thereof, also filed an affidavit of the accountant but none of the authorities have considered the same. The petitioner has no intention to evade the payment of tax as such the impugned order is not justified in the eyes of law and same is liable to the quashed.

6. In support of his contention, learned counsel for the petitioner has relied upon the Division Bench judgement of this Court in M/s Axpress Logistics India Pvt. Ltd. Vs. Union of India and others, (Writ Tax No. 602 of 2018, decided on 9.4.2018) and M/s Bhumika Enterprises Vs. State of UP and others (Writ Tax No. 564 of 2018, decided on 3.4.2018). He submitted that in the aforesaid case, Division Bench of this Court has held that if the tax invoice along with E-way bill are produced before passing the seizure as well as detention order, the proceedings is not justified. He submitted that the present case is identical and is squarely covered with the aforesaid Division Bench judgement of this Court. He prays for allowing the writ petition .

7. Per contra, Mr. Rishi Kumar, learned A.C.S.C. has supported the impugned orders and submitted that at the time of detention of goods in question, the goods were found different and quantity was also different as mentioned in the accompanying documents such as e-way bill and tax invoices; if the goods were not detained, the petitioner would have succeeded in evading the payment of legitimate tax to be paid to the State. He further submitted that subsequent tax invoice no. 140 dated 25.1.2022 is clear cut breach of the provisions specifically mentioned under Rule 31 (1) of UP GST Rules. He prays for dismissing the writ petition.

8. After hearing learned counsel for the petitioner, the Court has perused the records.

9. On perusal of the records, it transpires that the goods in question were in transit during its onward journey from Muzaffarnagar, U.P. to Bhilwada, Rajasthan and the same were intercepted on the ground that the goods found different as mentioned in the accompanying document but before detention and seizure order could be passed, the petitioner produced another bill i.e. tax invoice no. 140 of 25.1.2022 along with e-way bill. The said fact is not disputed by any of the authorities below. While issuing show cause notice in GST MOV 09 the authorities below has recorded a finding which is quoted hereunder:-



10. The authorities below has not accepted the documents on the ground that same were produced after the movement of goods. But lost the site of the fact that the discrepancies were cured before the detention or seizure order could be passed.

11. Once the documents were produced before passing of the detention / seizure order, the authorities ought not to have proceeded further as held by the the Division Bench judgement of this Court in the case of M/S Axpress Logistics India Pvt. Ltd (supra) and M/s Bhumika Enterprises (supra). Since the Division Bench has specifically decided the said issue in an identical matter way-back in the year 2018, the impugned order is not justified as the documents have already been produced before passing of the detention as well as seizure order.

12. In view of the facts as stated above, the writ petition succeeds and is allowed. The impugned orders are set aside. The matter is remanded to the first appellate authority, who shall pass a fresh order in accordance with law, expeditiously, preferably within a period of two months from the date of producing a certified copy of this order.

Order Date :- 6.11.2023

Rahul Dwivedi