High Court's interim orders allowing release of seized goods without cash payment set aside; assessees must follow statutory procedure.

Case Name:

State Of Uttar Pradesh And Ors. Vs. M/s. Kay Pan Fragrance Pvt. Ltd.(GST SC Cases)

Key Takeaways:

- High Courts cannot bypass statutory provisions and allow the release of seized goods without following the prescribed procedure.

- Assessees must comply with Section 67 of the CGST Act and relevant rules for the provisional release of seized goods.

- Payment of applicable taxes, interest, and penalties or furnishing a bank guarantee is mandatory for the release of seized goods.

- The Supreme Court's decision upholds the statutory scheme and ensures uniformity in the application of the law.

Issue:

Whether the High Court can pass interim orders allowing the release of goods seized by tax authorities without requiring the payment of applicable taxes, interest, and penalties or furnishing a bank guarantee, contrary to the provisions of Section 67 of the CGST Act and relevant rules.

Facts:

The State of Uttar Pradesh challenged interim orders passed by the High Court directing the release of seized goods subject to the deposit of security other than cash or a bank guarantee. The High Court had allowed the release of goods on the basis of an indemnity bond equal to the value of tax and penalty. In some cases, the High Court disposed of the main writ petitions as infructuous after the release of goods pursuant to the interim orders.

Arguments:

- State of U.P. argued that the High Court's interim orders were contrary to the provisions of Section 67 of the CGST Act and relevant rules, which mandate the payment of applicable taxes, interest, and penalties or furnishing a bank guarantee for the provisional release of seized goods.

- The assessees contended that the High Court had the power to pass such interim orders and sought the quashing of seizure orders and the release of goods without any security.

Key Legal Precedents:

- Section 67 of the Central Goods and Services Tax Act, 2017

- Rule 140 and Rule 141 of the Central Goods and Services Tax Rules, 2017

Judgment:

The Supreme Court set aside the interim orders passed by the High Court, which were contrary to the provisions of Section 67 of the CGST Act and relevant rules. The court held that the High Court had erroneously extricated the assessees from paying the applicable tax amount in cash, which was contrary to Section 67(6) of the Act.

The Supreme Court directed the tax authorities to process the claims of the assessees afresh, strictly following the requirements of Section 67 and relevant rules. The assessees were required to either pay the applicable taxes, interest, and penalties or furnish a bank guarantee equivalent to the amount payable for the provisional release of seized goods.

The court reiterated that any order passed by the High Court contrary to the stated provisions need not be given effect to by the authorities in respect of all cases referred in the affidavit filed by the State Government before the Supreme Court and fresh cases related to the subject matter of these appeals.

FAQs:

Q1: What is the significance of the Supreme Court's decision?

A1: The decision upholds the statutory scheme under the CGST Act and ensures uniformity in the application of the law. It prevents High Courts from bypassing statutory provisions and establishes that assessees must follow the prescribed procedure for the release of seized goods.

Q2: Can the High Court still entertain writ petitions challenging the seizure of goods?

A2: While the High Court can entertain writ petitions challenging the seizure of goods, it cannot issue directions for the release of goods contrary to the provisions of Section 67 of the CGST Act and relevant rules.

Q3: What options do assessees have for the release of seized goods?

A3: Assessees must either pay the applicable taxes, interest, and penalties or furnish a bank guarantee equivalent to the amount payable for the provisional release of seized goods, as prescribed under Section 67(6) of the CGST Act and Rule 140 of the CGST Rules.

Q4: Can the High Court dispose of writ petitions as infructuous after the release of goods pursuant to interim orders?

A4: No, the Supreme Court has directed that the High Court should not dispose of writ petitions as infructuous after the release of goods pursuant to interim orders that are contrary to the provisions of Section 67 of the CGST Act and relevant rules.

Q5: What is the impact of the Supreme Court's decision on pending and future cases?

A5: The Supreme Court's decision applies to all pending and future cases related to the subject matter of these appeals. Authorities are directed not to give effect to any High Court orders contrary to the provisions of Section 67 of the CGST Act and relevant rules.

Leave granted.

Heard the learned counsels appearing for the parties.

These appeals throw up common issues for consideration. The

first set of appeals is filed by the State of U.P., questioning the

interim order passed by the High Court directing the State to

release the seized goods, subject to deposit of security other than

cash or bank guarantee or in the alternative, indemnity bond equal

to the value of tax and penalty to the satisfaction of the

Assessing Authority. It has come on record that similar orders came

to be passed in several other writ petitions by the High Court,

details whereof have been mentioned in the affidavit filed by the

State in this Court. It was brought to our notice that the High

Court, after passing the said interim order would then dispose of

the main Writ Petition as having become infructuous, consequent to

release of goods by the appropriate authority in terms of the

interim order of the High Court. In the context of that grievance,

this Court had to pass an order on 16.9.2019 which reads thus:­

“Applications for exemption from filing certified

copy of the impugned order and official translation are

allowed.

Issue notice on the special leave petition as also

on the prayer for interim relief.

Dasti allowed.

Tag with Special Leave Petition (C) Diary No.24795

of 2019.

Considering the fact that in the present case goods

have already been released pursuant to the impugned

order, no interim relief can be granted.

However, our attention was invited to an order dated

31.01.2019 passed by the High Court in a similar matter

i.e. Writ Tax No.141 of 2019 and couple of other case(s),

wherein the High Court allowed the writ petitioner(s) to

withdraw writ petition(s) after release of goods pursuant

to the interim order, despite the fact that the interim

order passed by it directing release of goods was subject

matter of challenge pending before this Court. That

cannot be countenanced. For, the claim of the State

cannot be made faitaccompli in this manner.

In future, if such occasion arises including in the

case of writ petitioners in this case, it will be open to

the petitioner(s) (Department) to invite the attention of

High Court regarding the pending special leave petition

before this Court. We are certain that the High Court

will consider the request for withdrawal of writ petition

appropriately.”

(emphasis in italics supplied)

It is now brought to our notice that after the afore­mentioned

order of this Court, the High Court is disposing of Writ Petitions

by referring to Section 67 (8) of the Central Goods and Services

Act, 2017 (for short, ‘the Act’) and Rule 141 of the relevant

Rules. We deem it proper to advert to one such order passed by the

High Court, which is assailed by the assessee in the second set of

appeal filed before this Court. The said order reads thus:­

“Heard learned counsel for the petitioner and

learned Additional Advocate General for the State.

It has been brought to notice of the Court that the

goods are perishable and hazardous in nature.

Sri Manish Goyal, learned Addl. Advocate General has

submitted that the Central Goods and Services Tax Act,

2017 provides a complete procedure for release of such

goods, as contained in Section 67(8) of the Act read

with Rule 141 of the relevant Rules, which are quoted

herein below:­

“Section 67(8). The Government may, having

regard to the perishable or hazardous nature of

any goods, depreciation in the value of the goods

with the passage of time, constraints of storage

space for the goods or any other relevant

considerations, by notification, specify the

goods or class of goods which shall, as soon as

may be, after its seizure under sub­section (2),

be disposed of by the proper officer in such a

manner, as may be prescribed.

Rule 141. Procedure in respect of seized

goods.­(1) Where the goods or things seized are

of perishable or hazardous nature, and if the

taxable person pays an amount equivalent to the

market price of such goods or things or the

amount of tax, interest and penalty that is or

may become payable by the taxable person,

whichever is lower, such goods or, as the case

may be, things shall be released forthwith, by an

order in FORM GST INS­05, on proof of payment.”

Subject to compliance of the above provisions of

law, the goods so seized may be considered for release

within next one week.

The writ petition is, accordingly, disposed of.”

In the first place, we find force in the submission canvassed

by the State that a complete mechanism is predicated in the Act and

the Rules for release and disposal of the seized goods and for

which reason, the High Court ought to have been loathe to

entertain the Writ Petitions questioning the seizure of goods and

to issue directions for its release.

In the second set of appeal filed by the assessee, the relief

claimed by way of Writ Petitions before the High Court is as

under:­

(a) issue a suitable writ, order or direction in the

nature of certiorari quashing the seizure order dated

25.7.2019 passed by the respondent No.2 and 3 under

Section 67(2) of the Act and the panchnamas dated

19.7.2019 (Annexure – 2 & 3) to the writ petition

respectively.

(b) issue a writ, order or direction in the nature of

mandamus/prohibition declaring the search and seizure

proceedings dated 25.7.2019, to be void and restraining

the respondent authorities from taking any coercive

action against the petitioner.

(c) issue a writ, order or direction in the nature of

mandamus commanding and directing the respondents to

release the goods of the petitioner forthwith without

demanding any security.

(d) issue any such order and further orders which this

Court may deem fit and proper in the facts and

circumstances of the case.

(e) Award the cost of the Writ Petition to the

petitioner.

It is broadly agreed that similar relief has been claimed in

all the writ petitions filed before the High Court, including the

one disposed of by the High Court as infructuous or by passing

order which is impugned by the assessee in the second set of appeal

referred to above.

For the sake of consistency, we have no hesitation in

observing that the High Court in all such cases ought to have

relegated the assessees before the appropriate Authority for

complying with the procedure prescribed in Section 67 of the Act

read with Rules as applicable for release (including provisional

release) of seized goods.

Section 67 of the Act reads thus:

“Section 67 ­ Power of inspection, search and seizure

67. (1) Where the proper officer, not below the rank of

Joint Commissioner, has reasons to believe that––

(a) a taxable person has suppressed any transaction

relating to supply of goods or services or both or

the stock of goods in hand, or has claimed input

tax credit in excess of his entitlement under this

Act or has indulged in contravention of any of the

provisions of this Act or the rules made thereunder

to evade tax under this Act; or

(b) any person engaged in the business of

transporting goods or an owner or operator of a

warehouse or a godown or any other place is keeping

goods which have escaped payment of tax or has kept

his accounts or goods in such a manner as is likely

to cause evasion of tax payable under this Act, he

may authorize in writing any other officer of

central tax to inspect any places of business of

the taxable person or the persons engaged in the

business of transporting goods or the owner or the

operator of warehouse or godown or any other place.

(2) Where the proper officer, not below the rank of Joint

Commissioner, either pursuant to an inspection carried

out under sub­section (1) or otherwise, has reasons to

believe that any goods liable to confiscation or any

documents or books or things, which in his opinion shall

be useful for or relevant to any proceedings under this

Act, are secreted in any place, he may authorize in

writing any other officer of central tax to search and

seize or may himself search and seize such goods,

documents or books or things:

Provided that where it is not practicable to seize any

such goods, the proper officer, or any officer authorized

by him, may serve on the owner or the custodian of the

goods an order that he shall not remove, part with, or

otherwise deal with the goods except with the previous

permission of such officer:

Provided further that the documents or books or things so

seized shall be retained by such officer only for so long

as may be necessary for their examination and for any

inquiry or proceedings under this Act.

(3) The documents, books or things referred to in sub-

section (2) or any other documents, books or things

produced by a taxable person or any other person, which

have not been relied upon for the issue of notice under

this Act or the rules made thereunder, shall be returned

to such person within a period not exceeding thirty days

of the issue of the said notice.

(4) The officer authorized under sub­-section (2) shall

have the power to seal or break open the door of any

premises or to break open any almirah, electronic

devices, box, receptacle in which any goods, accounts,

registers or documents of the person are suspected to be

concealed, where access to such premises, almirah,

electronic devices, box or receptacle is denied.

(5) The person from whose custody any documents are

seized under sub­section (2) shall be entitled to make

copies thereof or take extracts therefrom in the presence

of an authorized officer at such place and time as such

officer may indicate in this behalf except where making

such copies or taking such extracts may, in the opinion

of the proper officer, prejudicially affect the

investigation.

(6) The goods so seized under sub­section (2) shall be

released, on a provisional basis, upon execution of a

bond and furnishing of a security, in such manner and of

such quantum, respectively, as may be prescribed or on

payment of applicable tax, interest and penalty payable,

as the case may be.

(7) Where any goods are seized under sub­section (2) and

no notice in respect thereof is given within six months

of the seizure of the goods, the goods shall be returned

to the person from whose possession they were seized:

Provided that the period of six months may, on sufficient

cause being shown, be extended by the proper officer for

a further period not exceeding six months.

(8) The Government may, having regard to the perishable

or hazardous nature of any goods, depreciation in the

value of the goods with the passage of time, constraints

of storage space for the goods or any other relevant

considerations, by notification, specify the goods or

class of goods which shall, as soon as may be after its

seizure under subsection (2), be disposed of by the

proper officer in such manner as may be prescribed.

(9) Where any goods, being goods specified under sub-

section (8), have been seized by a proper officer, or any

officer authorized by him under sub­section (2), he shall

prepare an inventory of such goods in such manner as may

be prescribed.

(10) The provisions of the Code of Criminal Procedure,

1973, relating to search and seizure, shall, so far as

may be, apply to search and seizure under this section

subject to the modification that sub­section (5) of

section 165 of the said Code shall have effect as if for

the word “Magistrate”, wherever it occurs, the word

“Commissioner” were substituted.

(11) Where the proper officer has reasons to believe that

any person has evaded or is attempting to evade the

payment of any tax, he may, for reasons to be recorded in

writing, seize the accounts, registers or documents of

such person produced before him and shall grant a receipt

for the same, and shall retain the same for so long as

may be necessary in connection with any proceedings under

this Act or the rules made thereunder for prosecution.

(12) The Commissioner or an officer authorized by him may

cause purchase of any goods or services or both by any

person authorized by him from the business premises of

any taxable person, to check the issue of tax invoices or

bills of supply by such taxable person, and on return of

goods so purchased by such officer, such taxable person

or any person in charge of the business premises shall

refund the amount so paid towards the goods after

cancelling any tax invoice or bill of supply issued

earlier.”

(emphasis in italics supplied)

The relevant rules for release of seized goods are Rules 140

and 141 and the same read thus:­

“Rule 140 – Bond and security for release of seized

goods(1) The seized goods may be released on a provisional

basis upon execution of a bond for the value of the goods

in FORM GST INR­04 and furnishing of a security in the

form of a bank guarantee equivalent to the amount of

applicable tax, interest and penalty payable.

Explanation.­ For the purposes of the rules under

the provisions of this Chapter, the “applicable tax”

shall include Central Tax and State Tax or Central Tax

and the Union Territory Tax, as the case may be and the

cess, if any, payable under the Goods and Services Tax

(Compensation to States) Act, 2017 (15 of 2017)

(2) in case the person to whom the goods were released

provisionally fails to produce the goods at the appointed

date and place indicated by the proper officer, the

security shall be encashed and adjusted against the tax,

interest and penalty and fine, if any, payable in respect

of such goods.

Rule 141 – Procedure in respect of seized goods

(1) Where the goods or things seized are of perishable

or hazardous nature, and if the taxable person pays an

amount equivalent to the market price of such goods or

things or the amount of tax, interest and penalty that is

or may become payable by the taxable person, whichever is

lower, such goods or, as the case may be, things shall be

released forthwith, by an order in FORM GST INS­05, on

proof of payment.

(2) Where the taxable person fails to pay the amount

referred to in sub­rule (1) in respect of the said goods

or things, the Commissioner may dispose of such goods or

things and the amount realized thereby shall be adjusted

against the tax, interest, penalty, or any other amount

payable in respect of such goods or things.”

There is no reason why any other indulgence need be shown to

the assessees, who happen to be the owners of the seized goods.

They must take recourse to the mechanism already provided for in

the Act and the Rules for release, on a provisional basis, upon

execution of a bond and furnishing of a security, in such manner

and of such quantum (even upto the total value of goods involved),

respectively, as may be prescribed or on payment of applicable

taxes, interest and penalty payable, as the case may be, as

predicated in Section 67 (6) of the Act. In the interim orders

passed by the High Court which are subject­matter of assail before

this Court, the High Court has erroneously extricated the assessees

concerned from paying the applicable tax amount in cash, which is

contrary to the said provision.

In our opinion, therefore, the orders passed by the High Court

which are contrary to the stated provisions shall not be given

effect to by the authorities. Instead, the authorities shall

process the claims of the concerned assessee afresh as per the

express stipulations in Section 67 of the Act read with the

relevant rules in that regard. In terms of this order, the

competent authority shall call upon every assessee to complete the

formality strictly as per the requirements of the stated provisions

disregarding the order passed by the High Court in his case, if the

same deviates from the statutory compliances. That be done within

four weeks without any exception.

We reiterate that any order passed by the High Court which is

contrary to the stated provisions need not be given effect to in

respect of all the cases referred in the affidavit by the State

Government before this Court and fresh cases which may have been

filed or likely to be filed before the High Court in connection

with the subject matter of these appeals, by all concerned and are

deemed to have been set aside/modified in terms of this order.

In view of this order, all the Writ Petitions pending before

the High Court, list whereof has been furnished in the affidavit

are deemed to have been disposed of accordingly. We have passed

this common order to cover all cases of seizure during the

relevant period, to obviate inconsistency in application of Law and

also to do away with multiple appeals required to be filed by the

State/ assessee to assail the unstatable orders/directions passed

by the High Court in subject writ petition(s) referred to in the

affidavit filed by the State before this Court.

Accordingly, the appeals are disposed of in the afore­stated

terms. All pending applications are also disposed of.

(A.M. KHANWILKAR)

(DINESH MAHESHWARI)

NEW DELHI;

NOVEMBER 22, 2019.