GST Goods Detention: Taxpayers Win Right to Appeal After Paying Tax & Penalty

Get the full picture - access the original judgement of the court order here

Case Name

Hindustan Steel and Cement v. Assistant State Tax Officer & Others and BM Steel Agencies v. Assistant State Tax Officer & Others

Court Name: High Court of Kerala at Ernakulam

Case No.: WP(C) No. 17454 of 2022 and WP(C) No. 17463 of 2022 

Judge: The Honourable Mr. Justice Gopinath P.

Date: Monday, 20th July 2022

Key Takeaways

1. Paying tax & penalty under Section 129(1)(a) does NOT kill your right to appeal. Even if you pay up to get your goods released, you can still challenge the detention order before the Appellate Authority.

2. Form DRC-07 is mandatory, always. Whether a taxpayer pays under Section 129(1)(a) or provides security under Section 129(1)©, the GST officer must upload a summary of the order in Form GST DRC-07 on the common portal.

3. "Proceedings deemed concluded" has a limited meaning. Sub-section (5) of Section 129 only means the detention/seizure process is over — it does NOT mean the taxpayer loses the right to challenge the order.

4. Article 265 of the Constitution protects taxpayers. Any interpretation that denies a taxpayer the right to challenge an illegal tax demand would violate Article 265 of the Constitution of India (no tax shall be levied or collected except by authority of law).

5. A system glitch cannot override legal rights. The fact that the GST portal doesn’t generate a DRC-07 in payment cases doesn’t mean the legislature intended to deny appeal rights.

6. The Commissioner was directed to issue a circular to prevent this issue from recurring across the State.

Issue

Can a person who pays tax and penalty under Section 129(1)(a) of the CGST/SGST Acts to get detained goods released still file an appeal against the detention proceedings — or does that payment permanently close all proceedings?

Facts

• Who are the petitioners?
• Hindustan Steel and Cement, a firm based in Malappuram, Kerala (WP© 17454/2022)
• BM Steel Agencies, based in Kallai, Kozhikode, Kerala (WP© 17463/2022)
• Both are steel trading businesses.
• What happened? The GST Mobile Squad (24x7) intercepted their vehicles while goods were being transported. The goods and vehicles were detained/seized under Section 129 of the CGST/SGST Acts for alleged contraventions of GST law.

• What did the businesses do? To get their goods and vehicles released quickly (because holding up goods means business losses!), they chose to pay the applicable tax and penalty as required under Section 129(1)(a). The payments were made through Form GST DRC-03 (voluntary payment form).

• What did the department do?
• They issued Form GST MOV-05 (release order)
• They issued Form GST MOV-09 (order of demand of tax and penalty)
• But they did NOT issue Form GST DRC-07 (summary of order/demand)

• What was the problem? Without Form DRC-07, the GST portal simply doesn’t allow a taxpayer to file an appeal under Section 107. The system requires a DRC-07 to exist before an appeal can be lodged. So the businesses were stuck — they had paid, but couldn’t challenge whether the demand was even legally valid!

• Timeline for BM Steel Agencies:
• Detention orders (Form MOV-06): undated
• Demand orders (Form MOV-09): 9.9.2021
• Payment (Form DRC-03): 9.9.2021
• Release order (Form MOV-05): 9.9.2021
• Timeline for Hindustan Steel and Cement:
• Multiple detention and demand orders: 31.3.2021, 24.8.2021, 30.8.2021
• Payments made on corresponding dates via Form DRC-03

Arguments

Petitioners’ Side (Hindustan Steel and Cement & BM Steel Agencies)

Argued by Sri. R. Jaikrishna, Advocate

• Form DRC-07 is mandatory. A combined reading of Section 129(3) of the CGST/SGST Acts, Rule 142(5) of the CGST/SGST Rules, and Circular No. 41/15/2018-GST dated 13.04.2018 makes it clear that every order under Section 129(3) issued in Form MOV-09 must be accompanied by a summary in Form GST DRC-07.

• Without DRC-07, appeal is impossible. The GST portal’s system only accepts an appeal if there is a corresponding DRC-07. Since the department didn’t issue one, the petitioners are technically disabled from exercising their legal right to appeal.

• Payment Waiver of rights. Paying tax and penalty to get goods released is a practical necessity, not an admission of guilt or a waiver of the right to challenge the proceedings.

🟥

Respondents’ Side (GST Department)

Argued by Dr. Thushara James, Senior Government Pleader

• Payment closes all proceedings. Under sub-section (5) of Section 129, once payment is made under Section 129(1)(a), “all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded.” So there’s nothing left to appeal!

• DRC-03 is a voluntary payment form. Payments under Section 129(1)(a) are made through Form DRC-03, which is a voluntary payment form. Such payments cannot be subject to refund or adjudication later.

• Rule 142 applies only to security cases. The department argued that Rule 142 of the CGST Rules (which requires DRC-07) only applies when a person provides a bank guarantee under Section 129(1)© — not when they pay under Section 129(1)(a).

• DRC-07 requires an outstanding demand. Form DRC-07 is meant for situations where there is a demand yet to be paid. Once payment is made, there is no outstanding demand, so DRC-07 cannot be generated. Sub-rule (5) of Rule 142 clearly suggests that DRC-07 is only for cases where there is a demand for tax, interest, or penalty.

• However, the Government Pleader fairly conceded that Section 107 is widely worded and provides appeal rights to any person aggrieved by any order — without distinguishing between those who pay under 129(1)(a) and those who provide security under 129(1)©.

Key Legal Provisions Referenced

Note: No prior case law precedents were cited in this judgment. The court relied entirely on statutory provisions and a government circular.

1. Section 129(1)(a) of the CGST/SGST Acts (pre-amendment, before 1.1.2022)

Goods detained/seized shall be released “on payment of the applicable tax and penalty equal to one hundred per cent of the tax payable on such goods… where the owner of the goods comes forward for payment of such tax and penalty.”

2. Section 129(3) of the CGST/SGST Acts

“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 ©.”

3. Section 129(5) of the CGST/SGST Acts

“On payment of amount referred in sub-section (1), all proceedings in respect of the notice specified in sub-section (3) shall be deemed to be concluded.”

4. Rule 142(5) of the CGST/SGST Rules

“A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in Form GST DRC-07, specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax.”

5. Circular No. 41/15/2018-GST dated 13.04.2018 (Clauses h and v)

• Clause (h): After payment of tax and penalty, the officer shall release goods via Form GST MOV-05, upload the order in Form GST MOV-09, and credit the payment to the electronic liability register.
• Clause (v): “A summary of every order in Form GST MOV-09 and Form GST MOV-11 shall be uploaded electronically in Form GST DRC-07 on the common portal.”

6. Section 107 of the CGST/SGST Acts

Provides that any person aggrieved by any decision or order passed under the CGST/SGST Acts by an adjudicating authority may appeal to the prescribed appellate authority within three months. The section does not distinguish between persons who pay under 129(1)(a) and those who provide security under 129(1)©.

7. Article 265 of the Constitution of India

No tax shall be levied or collected except by authority of law. The court held that any interpretation denying appeal rights would violate this constitutional provision.

Judgment

The Petitioners Won

Step 1 — DRC-07 is always mandatory:

The court read Section 129(3), Rule 142(5), and Circular No. 41/15/2018-GST together and concluded that the officer’s obligation to issue a notice, pass an order, and upload a summary in Form DRC-07 exists regardless of whether the taxpayer pays under Section 129(1)(a) or provides security under Section 129(1)©.

Step 2 — “Deemed concluded” has a narrow meaning:

The court interpreted Section 129(5) narrowly. The phrase “all proceedings shall be deemed to be concluded” only means that the detention/seizure process is over — the goods are released and the officer’s detention powers end. It does not mean the taxpayer loses the right to challenge whether the demand was legally valid in the first place.

Step 3 — Constitutional protection:

Any broader interpretation of Section 129(5) that strips a taxpayer of appeal rights would violate Article 265 of the Constitution of India, which prohibits collection of tax except by authority of law. If a demand is illegal, the taxpayer must have a way to challenge it.

Step 4 — Section 107 is wide enough:

Section 107 gives appeal rights to any aggrieved person against any order — it makes no exception for persons who paid under Section 129(1)(a). The court said the petitioners’ counsel was absolutely correct on this point.

Step 5 — System limitations cannot override legal rights:

The fact that the GST portal doesn’t automatically generate a DRC-07 in payment cases is a technical/system limitation, not a reflection of legislative intent to deny appeal rights.

Orders Made by the Court:

1. Both writ petitions were allowed in terms of prayer (i) in both cases.

2. The concerned respondents were directed to do the needful within one month from receipt of a certified copy of the judgment (i.e., issue the DRC-07 forms).

3. The Commissioner, Office of the State Goods & Services Tax Department, Thiruvananthapuram was directed to issue an appropriate circular incorporating these findings to prevent recurrence of this issue.

FAQs

Q1: What does “detained goods” mean in this context?

When GST officers intercept a vehicle transporting goods and find irregularities (like missing e-way bills or incorrect invoices), they can stop and hold (“detain”) the goods and vehicle until the issue is resolved. This is what happened to both petitioners here.

Q2: Why did the businesses pay instead of fighting the detention immediately?

Practically speaking, holding up goods in transit causes immediate business losses. Paying the tax and penalty (even if you think it’s wrong) gets your goods released quickly. The businesses expected they could challenge the demand later through an appeal — which is exactly what the court confirmed they can do.

Q3: What is Form DRC-07 and why is it so important?

Form DRC-07 is a summary of an order/demand that is uploaded on the GST common portal. It’s essentially the digital record of what you owe. Without it, the GST portal won’t let you file an appeal — it’s a technical gateway to the appeal process.

Q4: Does paying tax and penalty mean you’re admitting you were wrong?

According to this judgment — No! The court clearly held that payment under Section 129(1)(a) is a practical step to get goods released and does not amount to an admission that the demand was legally valid. You retain the right to challenge it.

Q5: What does “proceedings deemed concluded” actually mean then?

It simply means the physical detention process is over — the officer can’t keep holding your goods. It does NOT mean you’ve given up your legal right to appeal the order. Think of it as: the goods are free, but the legal dispute is still alive.

Q6: What happens now for other taxpayers in similar situations across Kerala?

The Commissioner of State GST, Thiruvananthapuram, has been directed to issue a circular based on this judgment. This means the department must now ensure DRC-07 is issued in all Section 129 cases, regardless of whether payment is made or security is provided. This protects all taxpayers going forward.

Q7: Can this judgment be used as a reference in other states?

While this is a Kerala High Court judgment and is directly binding only in Kerala, it interprets central GST law (CGST Act) which applies across India. Taxpayers in other states facing similar issues can cite this judgment as persuasive authority before their respective High Courts or appellate authorities.

Q8: What is Article 265 of the Constitution and why did the court mention it?

Article 265 says that no tax shall be levied or collected except by authority of law. The court used this to say: if a tax demand might be illegal, the taxpayer must have a legal avenue to challenge it. Denying appeal rights would mean collecting tax without proper legal authority — which is unconstitutional.

The only point that arises for consideration in these cases is

whether a person who opts to make payment in terms of Clause (a) of

Sub-Section (1) of Section 129 of the Central Goods & Services Tax

Act / State Goods & Services Tax Act (hereinafter referred to as the

‘CGST/SGST Acts’) to get goods/conveyance/documents detained or

seized in proceedings under Section 129 released is deprived of his

right to file an appeal against the proceedings. While the petitioners

in these cases contend for the position that they are not deprived of

such right, the State contends that on account of the stipulation in

sub-section (5) of Section 129 of the CGST/SGST Acts, on payment of

amounts under sub-section (1), all proceedings which are the subject

matter of a notice under sub-section (3) of Section 129 “shall be

deemed to be concluded”.

2. In order to consider the issue, it is not necessary to refer

to the facts of these cases in any detail. It would be sufficient to notice

that goods/conveyance of the petitioners were the subject matter of

detention/seizure under Section 129 of the CGST/SGST Acts and the

petitioners in these cases opted to pay amounts in terms of the pre-

amended provisions of Section 129(1)(a) of the CGST/SGST Acts, to

get the goods/conveyance released pending finalisation of

proceedings. On payment of the amount, the goods and the

conveyance were released as contemplated by sub-section (1) by

issuing Form MOV-05. While an order was issued in Form MOV-09

(issued under sub-section (3) of Section 129), a corresponding

summary of order/demand in form DRC-07 was not issued. As a

result, the petitioners are not in a position to approach the appellate

authority by filing an appeal under Section 107 of the CGST/SGST

Acts.

3. Sri.R.Jaikrishna, the learned counsel for the petitioners

submits that on the reading of sub-section (3) of Section 129

CGST/SGST Acts with Rule 142 (5) of the CGST/SGST Rules and the

provisions of Ext.P5 circular No.41/15/2018-GST, dated 13.04.2018,

the order under sub-section (3) of Section 129 issued in Form MOV-

09 should have been accompanied by a summary of the order in

Form DRC-07. It is submitted that without a summary of the order

in Form DRC-07, the petitioners are disabled from filing an appeal as

the system accepts an appeal only if there is a summary of an order

issued in Form DRC-07.

4. Dr. Thushara James, the learned Senior Government

Pleader appearing for the respondents would point out that on an

assessee or a person who is the subject matter of proceedings under

Section 129 CGST/SGST Acts, opting to make payment of tax and

penalty in terms of Section 129(1)(a), the proceedings under Section

129 come to an end. She states that this is the effect of sub-section (5)

of Section 129. She states that payments made under Section 129(1)

(a) are paid and accepted in Form DRC-03, which is a form for

voluntary payment and such payments cannot be the subject matter

of any refund or adjudication at a later point of time. It is submitted

that on payment of the amount under Section 129(1)(a), the entire

proceedings should be treated as having concluded and the payment

represents an acceptance of the fact that the discrepancies noted by

the intercepting officer and leading to the initiation of proceedings

under Section 129 were well founded. It is submitted that the

provisions of Rule 142 of the CGST Rules deal with the situation

where the person concerned seeks to continue with the proceedings

by opting to provide a Bank guarantee under Section 129(1)(c), in

which case the provisions of sub-section (5) of Section 129 do not

apply and the proceedings cannot be treated as concluded. It is

submitted that once payment is made under Section 129(1)(a), there

is no way in which a summary of order/demand can be generated in

Form DRC-07. The learned Senior Government Pleader also points

out that the wordings of sub-rule (5) of Rule 142 clearly suggest that

unless there is a demand for tax or interest or penalty, there cannot

be a proceeding under DRC-07. It is also pointed out that Form

DRC-07 also contemplates the setting out of the amount to be paid

and also indicates that action will be taken if the amount shown

therein is not paid by the person concerned. In other words, it is her

contention that once a payment is made under Section 129 (1) (a)

there cannot be a demand raised under DRC-07. The learned Senior

Government Pleader submits that when a summary of order/demand

is issued under DRC-07, the proper officer can, on being already

satisfied that the demands have been paid, issue proceedings in Form

DRC-08. However, it is fairly pointed out that Section 107 provides

an opportunity to a person aggrieved to challenge any order or any

proceedings issued under any provision of the Act and the wording of

that Section does not really make a distinction between persons who

opt to make a payment under Section 129(1)(a) and persons who opt

to provide security as provided for, in Section 129(1)(c).

5. I have considered the contentions raised. The relevant

statutory provisions may be noticed. Sections 129 (1) (a), (3) and (5)

of the CGST/SGST Acts, (as they stood prior to amendment w.e.f

from 1.1.2022) read as under-

“(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;”

(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)

(5) On payment of amount referred in sub-section (1), all

proceedings in respect of the notice specified in sub-section (3)

shall be deemed to be concluded.”

The provisions of Section 129 of the CGST/SGST Acts provide for the

detention, seizure and release of goods, conveyance and documents.

It provides that when a person transports any goods or stores any

goods while they are in transit in contravention of the provisions of

the Act of the Rules made thereunder, such goods, documents and

conveyance used as a means of transport shall be liable to detention

or seizure and also provides for the procedure to be followed for

release of goods following such detention or seizure. As already

noticed, Section 129(1)(a) provides that where the person who suffers

the order on detention makes payment of tax and penalty, the goods

shall be released. Section 129(1)(c) gives an option to a person

suffering an order of detention to provide security instead of making

payment of tax and penalty as provided for in Section 129(1)(a).

However, the provisions of sub-section (3) of Section 129

contemplate the issuance of a notice and the passing of an order. A

reading of sub-section (3) suggests to me that whether the person

suffering the detention chooses to make payment under Section

129(1)(a) or chooses to provide security in terms of Section 129(1)(c),

the officer detailing or seizing the goods or conveyance has to issue a

notice specifying the tax and penalty payable. Rule 142(5) of the

CGST/SGST Rules provides as follows: -

“A summary of the order issued under section 52 or section

62 or section 63 or section 64 or section 73 or section 74 or

section 75 or section 76 or section 122 or section 123 or section

124 or section 125 or section 127 or section 129 or section 130

shall be uploaded electronically in Form GST DRC-07,

specifying therein the amount of tax, interest and penalty

payable by the person chargeable with tax.”

Clause (h) and (v) of the circular No.41/15/2018-GST dated

13.04.2018 read as follows: -

“(h) Where the owner of the goods or any person authorized

by him comes forward to make the payment of tax and

penalty as applicable under clause (a) of sub-section(1) of

Section 129 of the CGST Act, or where the owner of the goods

does not come forward to make the payment of tax and

penalty as applicable under clause (b) of sub-section(1) of the

said Section, the proper officer shall, after the amount of tax

and penalty has been paid in accordance with the provisions

of the CGST Act and the CGST Rules, release the goods and

conveyance by an order in FORM GST MOV-05. Further,

the order in FORM GST MOV-09 shall be uploaded on the

common portal and the demand accruing from the

proceedings shall be added in the electronic liability register

and the payment made shall be credited to such electronic

liability register by debiting the electronic cash ledger or the

electronic credit ledger or the concerned person in accordance

with the provisions of Section 49 of the CGST Act.

(v) A summary of every order in FORM GST MOV-09 and

FORM GST MOV-11 shall be uploaded electronically in

FORM GST-DRC-07 on the common portal.”

A reading of sub-section (3) of Section 129 of the CGST/SGST Acts,

the provisions of Rule 142 referred to above and the provisions of the

circular, cumulatively, compel me to hold that whether or not a

person opts to make payment under section 129(1)(a) or to provide

security under Section 129(1)(c), the responsibility of the officer to

pass an order under sub-section (3) of Section 129 and to upload a

summary of the order/demand in Form DRC-07 continues. The

provisions of sub-section (5) or Section 129 which were pointed out

by the learned Senior Government Pleader only contemplate that the

procedure for detention on seizure of goods or documents or

conveyances come to an end and it is always open to the person who

suffers proceedings under 129 of the CGST/SGST Acts to challenge

those proceedings if he feels that the demand has been illegally

raised on him. This can be the only reasonable interpretation that

can be placed on the provisions referred to above. Any other

interpretation would clearly violate Article 265 of the Constitution of

India. Further, Section 107 of the CGST Act is widely worded and

provides that any person aggrieved by any decision, or order passed

under the CGST/SGST Acts or Union Territory Goods and Services

Tax Act, by an adjudicating authority, may appeal to such appellate

authority as may be prescribed, within three months from the date

on which such decision or order is communicated to such a person.

It is obvious that the learned counsel for the petitioners in these cases

is correct and contenting that whether or not a payment is made

under Section 129(1)(a) or security is provided under Section 129 (1)

(c), the person who is the subject matter of proceedings under section

129 of the CGST Act has the right to challenge those proceedings,

culminating in an order under sub-section (3) of Section 129, before

the duly constituted Appellate Authority under Section 107 of that

Act. The fact that the culmination of proceedings in respect of a

person who seeks to make payment of Tax and Penalty under Section

129(1)(a) does not result in the generation of a summary of an order

under Form DRC-07 cannot result in the right of the person to file an

appeal under Section 107 being deprived. The fact that the system

does not generate a demand or that the system does not contemplate

the filing of an appeal without a demand does not mean that the

intention of the legislature was different.

In the light of the above finding, these writ petitions will stand

allowed in terms of prayer (i) in both cases. The concerned among

the respondents shall do the needful within one month from the date

of receipt of a certified copy of this judgment. In order to prevent the

recurrence of such issues, the Commissioner, Office of the State

Goods & Services Tax Department, Thiruvananthapuram will issue

an appropriate circular taking note of the aforesaid findings.

sd/-

GOPINATH P.

JUDGE