DETENTION, SEIZURE AND RELEASE OF GOODS AND CONVEYANCE IN TRANSIT (PART 1)

Section 129 of CGST Act, 2017 read with Rules 138 to 138E of CGST Rules, 2017 makes it obligatory on the taxable person the requirements of E-way bills and tax invoice- both generation and preservation of the same.

An E-way Bill is a document required for movement of goods and it includes details such as name of consignor, consignee, transporter, the point of origin of the movement of goods and its destination.

Electronic Way Bill (E-way Bill) is basically a compliance mechanism wherein by way of a digital interface the person causing the movement of goods uploads the relevant information prior to the commencement of movement of goods and generates E-way Bill on the GST portal.

Section 68 of the CGST Act mandates that the Government may require the person in charge of a conveyance carrying any consignment of goods of value exceeding such amount as may be specified to carry with him such documents and such devices as may be prescribed. Rule 138 of the CGST Rules, 2017 provides for the E-way Bill mechanism and in this context it is important to note that 'information is to be furnished prior to the commencement of movement of goods' and 'is to be issued whether the movement is in relation to a supply or for reasons other than supply'.

Scope of Section 129

Section 129 of the CGST Act, 2017 provides for detention, seizure, release of goods and conveyance in transit and levy of penalty.

As the name suggests section 129 deals with:

1. detention
2. seizure
3. release of goods and conveyance in transit
4. levy of penalty

The terms 'detention', 'seizure' and 'release' have not been defined in the GST law. However, their literal meaning is as follows:

'Detention' signifies holding back or keeping any goods or conveyance either by force or by otherwise; Detention - The action of detaining; the keeping in confinement or custody; a keeping from going on or proceeding; Similar to demurrage, an extra charge levied by a transport company for holding goods beyond the time when they should have been delivered. Detention means keeping back. This may take place either by physical force; that is to say, the person detained is kept back by physical force or threat, or it may be due to deception practised on the person concerned, or it may be due to inducement or persuasion, that is to say, a rosy picture may be painted before the person concerned and on account of this rosy picture the person concerned remains in the house, or money may be offered by way of inducement, or it may be even an offer to marry. All this and many others may well be inducement or persuasion which would ultimately keep back the individual concerned and so long as that individual is under the influence of that persuasion or inducement and is thus kept back, he must be deemed to be detained.

'Seizure' means to take possession of any goods or articles or conveyance legally or forcibly; to take possession forcibly or in pursuance of a warrant, order of Court or other legal process. The expression 'seize' in the context of the Customs Act, 1962 has been held to mean 'to take possession of goods contrary to the wishes of the owner of property'. In that context, the seizure must take place from the custody of an unwilling person in possession of goods that are liable to be confiscated. Seizure- In general 'seizure' is a forcible taking possession (per CAVE, J., Johnston v Hogg, 52 LJQB 343: 1914 MWN 309;

The legal definition of the word 'seizure' is the taking possession of property by an official under legal process. The action of seizing.

Seizure, in Art. 29, Sch. II Limitation Act (XV of 1877) involves something in the nature of a transfer of possession, actual or symbolical. 'Seizure' is the act of taking possession of property of a person condemned by the judgment of a competent tribunal to pay a certain sum of money, by a sheriff or other officer lawfully authorized thereto by virtue of an execution, for the purpose of having such property sold according to law and to satisfy the judgment.

'Release' means discharge of a right to action; action of releasing or a state of being released; relinquishment of right; A release is a discharge of an existing obligation or right of action by the person in whom the obligation or right is vested to the person against whom it exists.

A 'release' has been defined to be the act or writing by which some claim or interest is surrendered to another, the giving up or abandoning of a claim or right to the person against whom the claim exists or the right is to be exercised or enforced. No set form of words is necessary to constitute a release, but such words should be used as would express the intention, and such intention would be recognized in law and equity.

A release is the giving up or abandoning of a claim or right to the person against whom the claim exists or the right is to be enforced or exercised.

As per provisions of section 129 of the CGST Act, 2017, where any person-

(a) transports any goods or stores any goods in violation of provisions of the Act, or

(b) stores or keeps in stock goods or supply goods which have not been accounted for in the books of accounts or records maintained by him,

all such goods and the transport used as a means of transport for carrying such goods shall be liable to detention.

The person as above shall be issued a show cause notice and he will be given an opportunity of being heard for levy of tax, interest and penalty.

Goods and conveyances can be detained by the proper officer in the manner prescribed.

It may be noted that section 129 specifically deals with detention, seizure and release of goods and conveyance in transit. 'In transit' is a pre-condition to invoke section 129 of CGST Act, 2017 which is different from following sections of GST law.

Section 129 is widely used by the revenue authorities to check against discrepancies, mistake and defects in the documents accompanying the movement of goods and vehicle. It was also considered to be one of the most used provisions and most litigated. One of the reasons for the same is that the tax authorities involve section 129 even for clerical, technical and minor mistakes or discrepancies. In many of the cases, courts have observed that intention to evade payment of tax ought to be established for levy of tax and penalty in cases of detention. It is also seen that penalty orders, levying penalty equivalent to 200% of the tax amount, are passed in a mechanical manner, in total violation of principles of natural justice, without any discussion on the merits of the case and judgments relied upon by the tax payers. However, intention to evade payment of tax must be established for levy of penalty under section 129(3) of the CGST /SGST Act.

The courts have held that the provisions of Section 129 of the CGST/SGST Acts do not authorise the imposition of tax/penalty as contemplated by the provisions of Section 129(1)(a) or Section 129(1)(b) in cases where only minor discrepancies are noticed and such penalty can be imposed only for violations which may lead to evasion of tax or where the transport was with an intent to evade tax or in cases of repeated violations (even of a minor nature). In other cases, the authorities will impose penalties having due regard to the provisions of Sections 122 and 126 of the CGST /SGST Acts. Further, intention to evade payment of tax is to be established for levy of penalty under section 129 of the CGST /SGST Acts. Levy of penalty equivalent to 100% / 200% of the tax amount, without establishing intention to evade payment of tax is not legal. Court have also held that presence of mens rea is essential for levy to penalty under Section 129 of the CGST /SGST Act. In some cases, court has levied costs on the department/ departmental officers for dragging the tax payers to avoidable litigation, by detaining the vehicles and levying penalty under Section 129 of the CST Act, for minor documentation issues, without proving intention to evade payment of tax.

The ratio decidendi of the judgments of the High Courts is that penalty cannot be levied under Section 129(3) unless and until it is established that the tax payer has evaded or intended to evade payment of tax.

Changes in sub-section (3) of section 129

According to amendments made in sub-section (3) of section 129 by Finance Act, 2021 (w.e.f. 01.01.2022), following important changes have been made:

1. The proper officer shall have to issue notice on detention within seven days of detention /seizure (earlier no time limit).
2. Such notice shall specify the penalty payable (earlier both tax and penalty were to be specified)
3. Proper officer shall pass an order within seven days of service of notice. (Earlier no time limit specified) specifying the penalty payable.

(To be continued......)