Paid GST penalty to get goods released? You still have the right to appeal

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Case Name

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

Court Name: High Court of Kerala at Ernakulam

Case No.: WP(C) Nos. 17454/2022 & 17463/2022

Decided on: 20th July 2022

Before: The Honourable Mr. Justice Gopinath P.

Key Takeaways

1. Paying penalty ≠ Losing your right to appeal. Just because you paid tax and penalty under Section 129(1)(a) of the CGST/SGST Acts to get your goods released does NOT mean you give up your right to challenge the proceedings.

2. Form DRC-07 is mandatory, regardless of payment. The tax officer is always required to upload a summary of the order in Form GST DRC-07, whether the person pays under Section 129(1)(a) or provides security under Section 129(1)©. This obligation doesn’t disappear just because payment was made.

3. "Deemed concluded" only means the detention/seizure process ends. The phrase “all proceedings shall be deemed to be concluded” in Section 129(5) only means the physical detention/seizure process is over — it does NOT mean the person loses the right to legally challenge the demand.

4. Section 107 gives a broad right of appeal. Section 107 of the CGST Act is widely worded and gives any aggrieved person the right to appeal against any order — it makes no distinction between those who paid under Section 129(1)(a) and those who provided security under Section 129(1)©.

5. Article 265 of the Constitution protects taxpayers. Any interpretation that denies a person the right to challenge an illegal tax demand would violate Article 265 of the Constitution of India, which says no tax shall be levied or collected except by authority of law.

6. A system glitch cannot override legal rights. The fact that the GST portal doesn’t technically allow filing an appeal without a DRC-07 does not mean the legislature intended to deny this right. The system must be fixed to reflect the law.

Issue

The central legal question was:

Does a person who pays tax and penalty under Section 129(1)(a) of the CGST/SGST Acts to get detained goods released lose their right to file an appeal against those proceedings?

The petitioners said NO — they still have the right to appeal.

The State said YES — once payment is made, proceedings are “deemed concluded” and there’s nothing to appeal.

Facts

• Hindustan Steel and Cement (Malappuram) and BM Steel Agencies (Kozhikode) are businesses dealing in steel and related goods.

• Their goods and vehicles were intercepted and detained by the GST Mobile Squad (24x7 Mobile Squads at Vatakara and Koyilandy) under Section 129 of the CGST/SGST Acts.

• To get their goods and vehicles released quickly (rather than waiting for the proceedings to conclude), both businesses chose to pay the applicable tax and penalty as provided under Section 129(1)(a). This payment was made through Form GST DRC-03 (a voluntary payment form).

• After payment, the goods and vehicles were released, and the tax officer issued a release order in Form GST MOV-05.

• The tax officer also issued a demand order in Form GST MOV-09 (under Section 129(3)).

• BUT — here’s the problem — the officer did NOT upload a corresponding summary of the order in Form GST DRC-07 on the GST portal.

• Without Form DRC-07, the GST portal simply does not allow the businesses to file an appeal under Section 107 of the CGST/SGST Acts.

• The businesses were essentially stuck — they had paid money they believed was wrongly demanded, but couldn’t challenge it because of a missing document

• Both businesses filed Writ Petitions before the High Court of Kerala, and the two cases were heard together.

Arguments

Petitioners’ Arguments (Hindustan Steel & BM Steel Agencies)

Argued by Sri. R. Jaikrishna, learned counsel for the petitioners:

1. 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 the officer must upload a summary of the order in Form GST DRC-07 after issuing the order in Form MOV-09.

2. Without DRC-07, appeal is technically impossible. The GST system only accepts an appeal if there is a summary of the order in Form DRC-07. Since this wasn’t issued, the petitioners are practically disabled from filing an appeal.

3. The right to appeal cannot be taken away. Paying under Section 129(1)(a) does not mean you accept the demand as valid or give up your right to challenge it.

Respondents’ Arguments (State/GST Department)

Argued by Dr. Thushara James, learned Senior Government Pleader:

1. Proceedings are “deemed concluded.” Under Section 129(5) of the CGST/SGST Acts, 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.” There’s nothing left to appeal.

2. Payment via DRC-03 is voluntary. The payment made under Section 129(1)(a) is accepted in Form DRC-03, which is a form for voluntary payment. Such payments cannot be the subject of any refund or adjudication later.

3. Payment Acceptance of the demand. By paying, the person implicitly accepts that the discrepancies found by the intercepting officer were valid.

4. DRC-07 is only for unpaid demands. Rule 142(5) and Form DRC-07 are designed for situations where there is still an outstanding demand — i.e., where the person provides security under Section 129(1)© and proceedings continue. Once payment is made, there is no “demand” left to summarise in DRC-07.

5. However, the Senior Government Pleader fairly conceded that Section 107 is broadly worded and does not distinguish between persons who pay under Section 129(1)(a) and those who provide security under Section 129(1)(C).

Key Legal Provisions & Precedents

This case didn’t cite prior court judgments but relied heavily on statutory provisions and a government circular. Here are all the key legal references:

1. Section 129(1)(a) of the CGST/SGST Acts (Pre-amendment, prior to 1.1.2022)

Provides that detained goods 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 comes forward for payment.

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

Requires the proper officer to “issue a notice specifying the tax and penalty payable and thereafter, pass an order for payment of tax and penalty” — this applies regardless of whether the person pays or provides security.

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

States: “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 court interpreted this narrowly — it only means the detention/seizure process ends, not the right to appeal.

4. Section 129(1)(C) of the CGST/SGST Acts

Gives the option to provide security (bank guarantee) instead of paying tax and penalty, in which case proceedings continue and DRC-07 is issued.

5. 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.”

This rule explicitly includes Section 129, meaning DRC-07 is mandatory for Section 129 orders too.

6. 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, and the order in Form GST MOV-09 shall be uploaded on the common portal with the demand added 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.”
• This circular makes it crystal clear that DRC-07 must be issued even when payment is made.

7. 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 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.”

The court noted this is widely worded and makes no distinction between payers and security providers.

8. Article 265 of the Constitution of India

States that “no tax shall be levied or collected except by authority of law.”

The court held that any interpretation denying the right to challenge an illegal demand would violate this constitutional provision.

Judgment

The petitioners (businesses) WON

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

Reasoning:

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

2. Section 129(5) only means the detention/seizure proceedings come to an end — it does NOT extinguish the right to appeal. The person who suffers proceedings under Section 129 always retains the right to challenge those proceedings if the demand was illegally raised.

3. Denying the right to appeal would violate Article 265 of the Constitution of India.

4. Section 107 is broadly worded and gives the right to appeal to any aggrieved person — it doesn’t carve out an exception for those who paid under Section 129(1)(a).

5. The fact that the GST portal system doesn’t generate DRC-07 or allow appeals without it is a technical/system issue — it cannot override the legal right granted by the legislature.

Orders made by the Court:

• The concerned respondents (tax officers) shall do the needful (i.e., issue Form DRC-07) within one month from the date of receipt of a certified copy of the judgment.

• The Commissioner, Office of the State Goods & Services Tax Department, Thiruvananthapuram shall issue an appropriate circular taking note of the court’s findings, to prevent recurrence of this issue.

FAQs

Q1: What does “deemed to be concluded” under Section 129(5) actually mean?

It only means the physical process of detention and seizure of goods/vehicles comes to an end once payment is made. It does NOT mean the person gives up their legal right to challenge the demand through an appeal.

Q2: Why was Form DRC-07 so important in this case?

Form DRC-07 is the official summary of the demand order that gets uploaded on the GST portal. Without it, the portal doesn’t allow a taxpayer to file an appeal under Section 107. So, not issuing DRC-07 effectively blocked the businesses from exercising their legal right to appeal.

Q3: Does paying the GST penalty mean you accept the demand as valid?

No! The court clearly rejected this argument. Paying under Section 129(1)(a) is done to get goods released quickly — it does not mean you agree that the demand was correct. You can still challenge it through an appeal.

Q4: What’s the difference between paying under Section 129(1)(a) and providing security under Section 129(1)(C)?

Under Section 129(1)(a), you pay the tax and penalty upfront to get goods released. Under Section 129(1)©, you provide a bank guarantee/security instead of paying, and the proceedings continue. The court held that in both cases, the right to appeal exists and DRC-07 must be issued.

Q5: What happens if the GST system doesn’t technically allow filing an appeal?

The court said that a technical glitch or system limitation cannot override a legal right. The tax department was directed to fix this by issuing Form DRC-07 and the Commissioner was asked to issue a circular to address the issue systemically.

Q6: Does this judgment apply only to Kerala?

This is a judgment of the High Court of Kerala, so it is binding in Kerala. However, since it interprets central GST law (CGST Act), it has persuasive value in other states and could be cited before other High Courts facing similar issues.

Q7: What is Article 265 of the Constitution and why did the court mention it?

Article 265 says no tax can be collected except by authority of law. The court mentioned it to emphasise that if a person is denied the right to challenge an illegal tax demand, it would mean the government could collect taxes without proper legal authority — which is unconstitutional.

Q8: What was the timeline of events for BM Steel Agencies?

Their vehicle (KL 11 AV 3014) was detained, a notice was issued in Form MOV-07, a demand order was passed in Form MOV-09 on 9.9.2021, payment was made via Form DRC-03 on 9.9.2021, and the vehicle was released via Form MOV-05 on 9.9.2021 — but no DRC-07 was ever issued.

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