GST Goods Detained: Court Says Pay Bank Guarantee or Face Confiscation

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Case Name

Smeara Enterprises v. State Tax Officer Squad No. 5 & Deputy Commissioner (Appeals), State Goods and Services Tax Department

Case No.: WP(C) No. 28884 of 2019

Court Name: High Court of Kerala at Ernakulam

Key Takeaways

1. Filing an appeal alone is NOT enough to get detained goods released under GST law. The petitioner must still comply with the security/guarantee requirements.

2. Section 129(6) of the CGST Act — if a taxpayer defaults on the conditions set under this section, the department can independently proceed with confiscation under Section 130.

3. Section 129(5) of the CGST Act — a taxpayer can get their goods released even during an appeal, but only if they furnish a Bank Guarantee for the entire tax and penalty amount determined.

4. Two clear options were laid out by the court for the petitioner:

• Furnish a Bank Guarantee → get goods released pending appeal
• Don’t furnish → wait for confiscation proceedings to conclude

5. The 2nd Respondent (Deputy Commissioner - Appeals) was directed to decide the appeal within 3 months from receipt of the judgment.

Issue

The central legal question here is:

Can a taxpayer whose goods have been detained under GST law demand the release of those goods simply because they have filed an appeal against the penalty order — without furnishing any security or Bank Guarantee?

The short answer the court gave: No, they cannot.

Facts

• Smeara Enterprises is a shop located at Bay Pride Mall, Shanmugham Road, Kochi, represented by its Managing Partner, Smt. Mini Ashraff.
• The shop was apparently receiving goods from M/s. Levis Strauss India Pvt. Ltd., Bangalore. A delivery challan (Exhibit P2) dated 18.9.2019 and an e-way bill (Exhibit P2A) dated 19.9.2019 were generated for this consignment.
• The State Tax Officer, Squad No. 5 (1st Respondent) detained the goods and issued a penalty order — specifically Order No. VCR/V/GST64/2019-20 dated 9.10.2019 under Section 129(3) of the GST Act (Exhibit P3).
• The petitioner paid 10% of the disputed tax (Exhibit P4, e-challan dated 24.10.2019) as a pre-condition for filing the appeal.
• On 25.10.2019, the petitioner filed an appeal in Form APL-01 (Exhibit P5) before the Deputy Commissioner (Appeals) (2nd Respondent), along with an application for release of goods (Exhibit P5A).
• The petitioner also filed a request before the 1st Respondent on 25.10.2019 (Exhibit P6).
• Importantly, the goods were still in the custody of the department at the time of the writ petition, and the petitioner had not furnished any security to get them released.
• The petitioner then approached the High Court through this Writ Petition, asking the court to direct the release of the goods while the appeal was pending.

Arguments

Petitioner’s Side (Smeara Enterprises):

• The petitioner argued that they had already filed an appeal (Exhibit P5) against the penalty order and had paid 10% of the disputed tax as required.
• They requested the court to direct the release of the detained goods pending the disposal of the appeal by the 2nd Respondent.
• The underlying argument was that since the matter was sub-judice (under appeal), the goods should be released.

Respondent’s Side (Government Pleader, Smt. Thushara James):

• The Government Pleader pointed out that the appeal was against Exhibit P3 order, which confirmed both tax liability AND penalty.
• She argued that the detention of goods and the possibility of confiscation under Section 130 still subsisted, as envisaged under Section 129(6) of the CGST Act.
• Since the petitioner had defaulted on the conditions under Section 129(6), they would have to await the outcome of confiscation proceedings under Section 130 before seeking release.
• Alternatively, if the petitioner furnishes a Bank Guarantee for the entire tax and penalty, they can seek release under Section 129(5).

Key Legal Precedents

This judgment is relatively brief and does not cite any prior case law or judicial precedents. However, it does rely heavily on specific statutory provisions of the CGST Act (Central Goods and Services Tax Act). Let me explain each one:

Section 129(3) of the CGST Act

• This is the provision under which the penalty order (Exhibit P3) was issued against the petitioner.
• It deals with the detention, seizure, and release of goods and conveyances in transit — specifically the issuance of an order after giving the person an opportunity of being heard.

Section 129(5) of the CGST Act

• This provision allows for the release of detained goods even while proceedings are ongoing, provided the person furnishes a Bank Guarantee for the full amount of tax and penalty determined.
• The court used this provision to give the petitioner a pathway to get their goods back.

Section 129(6) of the CGST Act

• This provision deals with the conditions that must be met after a detention/penalty order.
• If the person defaults on these conditions, the department can proceed with confiscation of goods under Section 130.
• The Government Pleader relied on this to argue that the petitioner’s default meant confiscation proceedings could independently proceed.

Section 130 of the CGST Act

• This is the confiscation provision — it allows the GST department to confiscate goods if the conditions under Section 129(6) are not met.
• The court acknowledged that this was a real and independent risk the petitioner faced.

Judgment

This was a partial/procedural outcome — neither side got a complete victory, but the Government’s legal position was largely upheld.

What Did the Court Decide?

The Hon’ble Justice A.K. Jayasankaran Nambiar disposed of the writ petition with the following directions:

1. The 2nd Respondent (Deputy Commissioner - Appeals) is directed to consider and pass orders on Exhibit P5 appeal within 3 months from the date of receipt of a copy of this judgment, after hearing the petitioner.

2. The petitioner has two options regarding the detained goods:

• Option A: Seek release of goods by furnishing a Bank Guarantee for the tax and penalty amounts confirmed, pending disposal of the appeal.
• Option B: Await the outcome of confiscation proceedings under the CGST Act.

Court’s Reasoning:

The court found force in the Government Pleader’s submission that:

• The mere pendency of an appeal cannot be the basis for directing release of goods without any security.
• Non-payment of security can independently lead to confiscation under Section 130 of the CGST Act.
• Therefore, the petitioner must either provide security (Bank Guarantee) or face the consequences of the confiscation proceedings.

FAQs

Q1: Why couldn’t Smeara Enterprises just get their goods back after filing an appeal?

Because under the CGST Act, filing an appeal doesn’t automatically suspend the detention of goods. The law under Section 129(6) allows confiscation proceedings to continue independently if the taxpayer defaults on conditions. The court respected this legal framework.

Q2: What is a Bank Guarantee in this context?

It’s essentially a financial security instrument issued by a bank on behalf of the petitioner, guaranteeing that if the appeal fails, the full tax and penalty amount will be paid. Under Section 129(5), furnishing this Bank Guarantee is the prescribed route to get detained goods released.

Q3: What happens if the petitioner doesn’t furnish the Bank Guarantee?

The petitioner would have to wait for the confiscation proceedings under Section 130 to conclude. If the goods are confiscated, the petitioner could lose them entirely unless they pay the required amounts.

Q4: What were the goods involved in this case?

The goods were from M/s. Levis Strauss India Pvt. Ltd., Bangalore — likely Levi’s branded clothing/merchandise being transported to the petitioner’s shop at Bay Pride Mall, Kochi.

Q5: How long does the 2nd Respondent have to decide the appeal?

The court directed the Deputy Commissioner (Appeals) to decide the appeal within 3 months from the date of receipt of a copy of this judgment.

Q6: What is the significance of the 10% tax payment made by the petitioner?

Paying 10% of the disputed tax is a pre-condition for maintaining an appeal under GST law. The petitioner had complied with this requirement (Exhibit P4), which is why the appeal was admissible. However, this payment alone was not sufficient to secure the release of the detained goods.

Q7: Is this a landmark judgment?

Not exactly — it’s a relatively straightforward application of existing GST provisions. However, it serves as a useful reminder that procedural compliance under Sections 129 and 130 of the CGST Act is strictly enforced, and taxpayers cannot bypass security requirements simply by filing an appeal.

Aggrieved by Ext.P3 order of penalty, the petitioner preferred Ext.P5 appeal before the 2nd respondent. It is stated that 10% of the disputed tax has also been paid as a condition for maintaining the appeal. It is also submitted by the learned counsel for the petitioner that, the goods that were the subject matter of the penalty order, are still in the custody of the department and the petitioner has not cleared the same by furnishing any security. There is a further prayer therefore, for release of the goods pending disposal of the appeal by the 2nd respondent.

2. I have heard the learned counsel appearing for the petitioner and

also the learned Government Pleader appearing for the respondents.

3. Smt. Thushara James, the learned Government Pleader would

point out that the appeal preferred before the 2nd respondent is against

Ext.P3 order which confirms the liability of tax and penalty. The detention of the goods, and the possibility of confiscating the goods pursuant to

proceedings under Section 130, that it is envisaged under Section 129(6) still subsist and, in as much as the petitioner has defaulted on the conditions under Section 129(6), he would have to await the out come of the confiscation proceedings under Section 130 before seeking a release of goods.

Alternatively, it is submitted, that if the petitioner furnishes a Bank guarantee for the entire tax and penalty determined, then he can seek release of the goods as contemplated under Section 129(5).

On a consideration of the rival submissions, I find force in the

submission of the learned Government Pleader that the mere pendency of an

appeal cannot be the basis for a direction to release the goods without any

security, since the non payment of the security in respect of the goods can

independently lead to a confiscation of the goods under Section 130 of the

CGST Act. Accordingly, I dispose the writ petition by directing the 2nd

respondent to consider and pass orders on Ext.P5 appeal within a period of

three months from the date of receipt of a copy of this judgment, after

hearing the petitioner. The petitioner may seek a release of goods by

furnishing the necessary Bank guarantee for the tax and penalty amounts

confirmed against him, pending disposal of the appeal or in the alternative,

await the outcome of the confiscation proceedings under the Act.

SD/-

A.K.JAYASANKARAN NAMBIAR

JUDGE