GST Goods Detention Challenged: Court Orders Release on Bank Guarantee

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Case Name

Subramonian Velayudhan Achary v. The Assistant State Tax Officer & Others

Court Name: High Court of Kerala at Ernakulam

Case No.: WP(C) No. 22656 of 2019(F)

Decision on: 20th August 2019

Key Takeaways

1. Incomplete E-Way Bill = Valid Ground for Detention: The authorities detained the goods because Part B of the E-Way Bill was not produced at the time of inspection. This is a valid ground under GST law.

2. Bank Guarantee as a Practical Solution: The court found a balanced approach — instead of either dismissing the petition or ruling on merits, it directed the petitioner to furnish a bank guarantee for the tax and penalty amount to secure release of goods.

3. Time-Bound Inquiry: The authorities were given a strict four-week deadline to complete the inquiry and pass orders. If they fail to do so, the petitioner is not obligated to keep the bank guarantee alive beyond six weeks.

4. Writ Petition Not the Right Stage: The court made it clear that at this preliminary stage, it was not appropriate to adjudicate on the merits of the case through a writ petition. The proper remedy was to follow the statutory scheme under the Act.

5. Goods Released Quickly: The 2nd respondent was directed to release the detained goods within twelve hours of receiving the bank guarantee.

Issue

The central legal question here is:

Was the detention of goods and the notices issued under Section 129(1) and Section 129(3) of the CGST Act, 2017 (and KSGST Act) legal and valid, given that the transporter failed to produce Part B of the E-Way Bill at the time of inspection?

In simpler terms — Can the GST authorities detain goods just because Part B of the E-Way Bill wasn’t available at the time of inspection, even if the owner claims it was generated?

Facts

• The Petitioner: Mr. Subramonian Velayudhan Achary, the proprietor of Subramania Industries, Thiruvananthapuram.
• The Transaction: The petitioner purchased a 25 KVA Diesel Generator Set (Serial No. DG 1904291022) from M/s. Ojus Power and Technologies Private Limited, Hosur, as per a Tax Invoice (DIN 19201107) dated 06-08-2019 (Exhibit P1). The goods were being delivered to M/s. Bata India Ltd., Karamana, against their purchase order dated 22-05-2019.
• E-Way Bill: An E-Way Bill No. 581125540300 dated 06-08-2019, valid up to 13-08-2019, was generated by the consignor company (Exhibit P2).
• The Petitioner’s Own Invoice: The petitioner also issued his own Tax Invoice No. 168 dated 08-08-2019 to Bata India Ltd. (Exhibit P3).
• Inspection & Detention: On 08-08-2019, the 1st respondent (Assistant State Tax Officer, Squad No. 1) inspected the goods in transit and issued:
• GST MOV-02 order (Exhibit P4) — inspection order
• GST MOV-04 Physical Verification Report (Exhibit P4A)
• GST MOV-06 Detention Order under Section 129(1) of the KSGST Act (Exhibit P4B)
• GST MOV-07 Demand Notice under Section 129(3) of the KSGST Act (Exhibit P4C)
• The Problem: At the time of inspection, the transporter could not produce Part B of the E-Way Bill, which is required to establish that the goods are under valid transit.
• Petitioner’s Response: The petitioner claimed that Part B/E-Way Bill was also generated and that he was in a position to demonstrate compliance. He submitted representations and reply letters (Exhibits P5, P6, P7) and also referred to Circular No. 64/38/2018-GST dated 14-09-2018 issued by the 4th respondent (CBEC) and Notification No. 3/2018 dated 14-05-2018 issued under Rule 138(14)(d) of the KSGST Rules, 2017 (Exhibits P6, P8).
• Writ Petition Filed: Since the goods remained detained, the petitioner approached the High Court of Kerala on 20-08-2019 challenging the detention notices as illegal and without jurisdiction.

Arguments

Petitioner’s Arguments (Business Owner):

1. The goods were fully compliant with all requirements of the GST Act and Rules.

2. Part B of the E-Way Bill was generated and the petitioner was ready to demonstrate this within the time given by authorities.

3. The detention proceedings initiated through Ext.P4 series notices were not warranted and illegal.

4. While the petitioner had no difficulty furnishing a bank guarantee, the concern was that the authorities would not pass final orders, forcing the petitioner to keep the bank guarantee alive indefinitely — at a substantial cost (bank commission).

Respondents’ Arguments (GST Authorities):

1. The writ petition was not maintainable at this stage.

2. By the petitioner’s own admission, there was an omission or illegality in the transportation of goods — the transporter could not produce all required documents at the time of inspection.

3. The detention order is not final — Section 129 provides for both detention AND release of goods, subject to compliance.

4. The petitioner can simply furnish a bank guarantee for the tax and penalty amount, and the authorities would release the goods forthwith.

Key Legal Precedents

This judgment is relatively brief and does not cite any prior case law as precedents. However, it does reference the following statutory provisions and circulars, which are crucial:

Section 129(1) of the CGST Act, 2017 / KSGST Act

Provides for detention of goods and conveyance in transit if found in contravention of the Act/Rules

Section 129(3) of the CGST Act, 2017 / KSGST Act

Provides for issuance of notice demanding tax and penalty after detention

Rule 138(14)(d) of the KSGST Rules, 2017

Deals with exemptions from E-Way Bill requirements for certain goods/movements — referenced in Notification No. 3/2018 dated 14-05-2018

Circular No. 64/38/2018-GST dated 14-09-2018

Issued by the Central Board of Excise and Customs (CBEC) — referenced by the petitioner in support of his position

Notification No. 3/2018 dated 14-05-2018

Issued by the 3rd respondent (Commissioner of State GSTD) under Rule 138(14)(d) of the KSGST Rules, 2017

Judgment

What did the Court decide?

The High Court of Kerala, presided over by Hon’ble Mr. Justice S.V. Bhatti, disposed of the writ petition on the same day it was filed — 20th August 2019 — without going into the merits of the case.

The court found that the issues were at a preliminary stage and it was not convinced to entertain the writ petition and adjudicate on merits at this stage. Instead, it directed the following:

Court’s Orders:

1. The petitioner shall submit a bank guarantee for the tax and penalty amount as shown in Ext.P4© and apply for release of goods by enclosing a copy of this order — within two days from 20-08-2019.

2. The 2nd respondent (State Tax Officer) shall release the detained goods within twelve hours from the date and time of receipt of the bank guarantee.

3. The bank guarantee shall be kept valid for six weeks from 20-08-2019.

4. The 2nd respondent shall complete the inquiry, afford fair and reasonable opportunity to the petitioner as envisaged under the Act, and pass and communicate the order within four weeks from 20-08-2019.

5. If the 2nd respondent fails to pass the order within four weeks, the petitioner is not obligated to keep the bank guarantee alive beyond six weeks.

In essence — who “won”?

This was a balanced outcome. The petitioner got practical relief — the goods would be released quickly. The authorities retained their right to complete the inquiry. Neither side got a full victory, but the petitioner’s immediate concern (release of detained goods) was addressed.

FAQs

Q1: Why were the goods detained in the first place?

The transporter could not produce Part B of the E-Way Bill at the time of inspection. Under GST law, this is treated as an omission/irregularity in the transportation of goods, which gives authorities the power to detain them under Section 129(1) of the CGST/KSGST Act.

Q2: What is Part B of the E-Way Bill, and why is it important?

An E-Way Bill has two parts. Part A contains details of the goods (invoice details, value, HSN code, etc.), while Part B contains the vehicle/transporter details. Both parts are required for the E-Way Bill to be considered complete and valid for transit. Without Part B, the goods are not considered to be under valid transit documentation.

Q3: Did the court rule that the detention was illegal?

No. The court did not rule on the merits of whether the detention was legal or illegal. It simply found that at this preliminary stage, a writ petition was not the right forum to adjudicate this, and directed the matter to be resolved through the statutory scheme under the Act.

Q4: What is a bank guarantee in this context?

A bank guarantee is a commitment by the petitioner’s bank to pay the tax and penalty amount if the petitioner fails to comply. It’s essentially a security deposit in the form of a bank instrument. The petitioner’s concern was that maintaining this guarantee costs money (bank commission) and if authorities don’t pass orders quickly, it becomes an indefinite financial burden.

Q5: What happens if the authorities don’t complete the inquiry within four weeks?

The court was very clear — if the 2nd respondent fails to pass the order within four weeks, the petitioner is not obligated to keep the bank guarantee alive beyond six weeks from the date of the order (i.e., beyond 20-09-2019). This protects the petitioner from indefinite financial burden.

Q6: What is the significance of Circular No. 64/38/2018-GST and Notification No. 3/2018?

The petitioner cited these to argue that the goods/movement may have been exempt from certain E-Way Bill requirements under Rule 138(14)(d) of the KSGST Rules, 2017. However, the court did not rule on this argument at this stage.

Q7: What is the practical lesson for businesses from this case?

Always ensure that both Part A and Part B of the E-Way Bill are complete and available with the transporter before goods are dispatched. Even if you believe you are compliant, the inability to produce documents at the time of inspection can lead to detention of goods, financial costs, and legal proceedings.

The petitioner challenges Ext.P4 series notices issued by the 1st respondent as illegal and without jurisdiction. Ext.P4(b) is an order of detention made

under Section 129 (1) of CGST Act, 2017 and Ext.P4(c) is a notice issued under Section 129 (3) of the Act. The petitioner contends that the subject matter of Ext.P4 series notices is fully compliant with all the requirements of the Act and the petitioner was in a position to demonstrate within the time given by the authorities that Part B/E-Way Bill was also generated and produced for inspection. Therefore, the proceedings now initiated through Ext.P4 series notices are not warranted and illegal.

2. The learned Government Pleader objects to the maintainability of the writ petition. Firstly, she contends that from the very admission made by the petitioner there is an omission or illegality in transportation of goods. The omission is that admittedly at the time of inspection or detention of

goods the transporter could not produce all the documents required for establishing that the goods is under valid transit. The detention order cannot and could not be treated as final, for according to her section 129 deals with and provides for not only detention but also for release of goods, subject to the petitioner complying with the mandate of Section 129

of the Act. According to her, the petitioner if insists for the release of goods, the petitioner can furnish the bank guarantee for the tax and penalty amount demanded through Ext.P4(c) and the authority does not have difficulty in releasing the detained goods forthwith.

3. By way of reply, Sri.V. Devananda Narasimham submits that the petitioner since is confident that the transit of goods was strictly in accordance with the requirements of the law, the detention of goods is not warranted, the petitioner has no difficulty in furnishing the bank guarantee, but he

states that the authority will not pass final orders in this behalf, resulting in the petitioner continuously keeping the bank guarantee alive. He further submits that the bank guarantee is also provided at substantial

commission by the banker and for no reason the petitioner loses in the bargain.

4. I have considered the rival submissions and perused the record. The writ petition is disposed of by this order.

5. The issues raised are at preliminary stage and this Court is not convinced to entertain the writ petition and adjudicate upon merits at this stage. To conform to the scheme under the Act, the writ petition is disposed of by this order.

The petitioner submits bank guarantee for the tax and penalty as shown in Ext.P4(c) and applies for release of goods by enclosing a copy of this order

within two days from today. The 2nd respondent shall release the goods detained under Ext.P4(b) and subjected to enquiry in Ext.P4(c) within twelve hours from the date and time of receipt of bank guarantee.

The bank guarantee shall be kept valid for six weeks from today. The 2nd respondent shall complete the enquiry, afford fair and reasonable opportunity as envisaged under the Act to petitioner and pass and communicate this order within four weeks from today.

The 2nd respondent, if fails to pass the order as directed by this Court the petitioner is not under obligation to keep the bank guarantee alive beyond six weeks.

SD/-

S.V.BHATTI

JUDGE